2023-09-22
Supply Chain
The Crucial Role of Supplier Engagement to Reach Scope 3 Targets
Supplier engagement plays an essential role in addressing Scope 3 emissions and achieving corporate climate targets. With the urgent need to mitigate climate change rising, businesses are under increasing pressure to reduce their carbon footprint across the entire value chain (Scope 3).
In the following, we explore the reasons why supplier engagement is vital for addressing Scope 3 emissions and showcase best practice that help you implement a successful supplier engagement program for achieving your company's Scope 3 targets.
Why Supplier Engagement is Paramount for Scope 3
While Scope 1 (own facilities, vehicles, heat, operations, etc.) and 2 emissions (purchased energy) are generated and controlled a company's own operations, Scope 3 emissions encompass all indirect emissions generated by a company's activities along the supply chains.
The 15 Categories of Scope 3 Emissions along the Supply Chain
According to the Greenhouse Gas Protocol (GHG Protocol), the indirect Scope 3 emissions include 15 different categories, ranging from the procurement of product and services (Scope 3.1) and transportation (Scope 3.4) upstream, to End-of-Life (Scope 3.12) and investments (scope 3.15) downstream.
Upstream Emissions
3. 1. Purchased Goods and Services - emissions generated by the raw material extraction and processing of goods and services used by a company for its own activities.
3.2. Capital Goods - emissions resulting from the production of plant, equipment, machinery and other long-term capital goods that a company uses in its operations.
3.3. Energy and Fuel-Related Activities - emissions that arise from upstream and network losses of energy and fuel.
3.4. Upstream Transportation and Distribution - emissions generated by the transportation and distribution of raw materials and products delivered to the company by suppliers.
3.5. Waste - emissions from the disposal and treatment of waste.
3.6. Business Travel - emissions that arise from business trips by a company's employees.
3.7. Employee Commuting - emissions that arise from the daily commute of a company's employees.
3.8. Upstream Leased Assets - emissions from buildings or vehicles rented from third parties.
Downstream Emissions
3.9. Downstream Transportation and Distribution - emissions that arise from transportation and distribution to customers or end users - or paid for by third parties.
3.10. Processing of Sold Products - emissions from processing products sold.
3.11. Use of Sold Products - emissions generated during the usage of a product by customers or end users.
3.12. End-of-Life Treatment of Sold Products - emissions generated during the disposal and treatment of products after they have reached the end of their life.
3.13. Downstream Leased Assets - emissions resulting from the use of fixed assets rented or leased by a company to other companies.
3.14. Franchises - emissions generated by franchisees' business activities.
3.15. Investments - emissions that arise from a company's investments in other companies or projects.
KEY TAKEAWAY
As indirect upstream Scope 3 emissions are typically 11.4x bigger than the direct Scope 1 and 2 emissions of a company, effectively managing and reducing them is paramount to meet corporate climate goals.
Rising Regulatory Landscape requires transparent Scope 3 Data
SCOPE 3 CHALLENGE
As Scope 3 emissions are generated, managed and controlled directly or indirectly by suppliers and business partners, supplier engagement is a crucial part of holistic climate management to address the Scope 3 challenge. The importance of doing so, is driven by rising international regulation.
Rising Regulatory Pressure
SEC (U.S. Securities and Exchange Commission): SEC is increasingly focuses on climate-related disclosures. In 2022, they proposed new rules to enhance and standardize climate-related disclosures, including Scope 3. Engaging with suppliers to gather accurate emissions data is key in complying with these regulations.
ISSB (International Sustainability Standards Board): ISSB is working on global sustainability reporting standards. Supplier engagement assists in aligning with these standards by collecting emissions data consistently across the supply chain.
EU's CSRD (Corporate Sustainability Reporting Directive): The EU is tightening its reporting requirements. Under the CSRD, companies must report on supply chain emissions. Even small companies with 1 - 750 employees, can waive Scope 3 emissions only in the first reporting year. Supplier engagement is key to meeting this obligation effectively.
Increasing Stakeholder Expectations
Investors: Investors focus on ESG (Environmental, Social, Governance) criteria, consider supply chain emissions when evaluating investments. Engaging with suppliers to reduce emissions demonstrates commitments towards sustainability, while reducing risks.
Customers: The new generation of so-called 'ethical consumers' demands transparency. Backed by the new EU ban of 'green product claims', supplier engagement is essential for companies to provide detailed information about their products' environmental impact, enhancing brand reputation and prohibit greenwashing.
Importance of Supplier Engagement to meet Scope 3 Targets
The new market requirements of regulatory authorities and stakeholders result in numerous consequences for the future-oriented business strategy of companies.
The strategic importance of supplier engagement is growing rapidly, driven by:
Risk Mitigation - Supplier engagement helps decision makers identify high-emission suppliers, allowing companies to assess climate-related risks and diversify their supplier base to reduce exposure to carbon-intensive sources.
Cost Reduction - Collaborating with suppliers on emission reduction strategies leads to cost savings through improved efficiency and resource use.
Innovation: Partnering with suppliers to reduce emissions fosters innovation. Suppliers may develop low-emission products and processes, giving the company a competitive edge.
Market Access - Some markets, like the EU, already restrict imports from companies with high carbon footprints. Supplier engagement aids in meeting these market access requirements.
Best Practices for successful Supplier Engagement Program
GETTING STARTED
The critical role of supplier engagement in managing Scope 3 emissions and meeting Scope 3 Targets is becoming evident. Explore best practices from practice to build up your successful supplier data tracking and engagement program.
8 Best Practices that support you in overcoming the Scope 3 Challenge
1. Assessment and Prioritization - Start by assessing the individual climate maturity of your suppliers. Identify high-impact suppliers to prioritize engagement efforts.
2. Set Clear Expectations - Define Scope 3 climate targets and set expectations for your suppliers. Use contracts, agreements, and codes of conduct to communicate those and get commitment. Clearly communicate the importance of focusing on measures to truly reduce emissions.
3. Collaboration, Capacity Building & Education - Collaborate with your suppliers to develop shared decarbonization goals. Offer trainings and resources to help them understand their own climate performance and implement best practices to reduce emissions.
4. Data Collection & Monitoring - Implement digital systems for tracking and reporting supplier climate targets, risks, emissions and actions. Regularly review progress towards Scope 3 targets, address issues promptly and promote top achievers.
5. Incentives & Recognition - Offer incentives for your suppliers that meet or exceed your expectations. Recognize and celebrate their achievements, fostering motivation for continuous improvement.
6. Transparency - Be transparent about your own climate journey and progress. This encourages your suppliers to follow suit and promotes a culture of shared responsibility.
7. Technology Integration - the Climate Intelligence Platform supports you in streamlining data collection and engaging your suppliers across the supply chain.
8. Continuous Improvement - Encourage continuous innovation and improvements. Regularly reassess your goals and adapt to changing circumstances.
Supplier Engagement indispensable to overcome the Scope 3 Challenge
Supplier engagement is indispensable to gather accurate Scope 3 emissions, align with international regulatory requirements and meet your own Scope 3 targets. Implementing successful best practices in your supplier engagement program allows you to prioritize decarbonization, collaboration, and transparency. As the global focus on Scope 3 intensifies, supplier engagement is not only a compliance necessity but a strategic advantage for future-driven organizations.
Kickstart your supplier climate engagement program
The Climate Intelligence Platform is a climate specialized Supplier Data Collection and Engagement Solution to enable you kickstarting your program in days versus months.
Start tracking progress towards your Scope 3 targets by accessing existing data from over 35.000 companies and proceed by gathering streamlined primary emissions data from your suppliers. Utilize the supplier specific data to refine your company's own greenhouse gas emission calculations and reduction tracking.
The platform is used by leading companies across industries from Telecommunication, to Automotive and Manufacturing, over Food, Energy and FMCG to reach their Scope 3 targets. Join them in making a difference!
