How to Address Scope 3 Complexity in the FMCG Industry
Supply chain emissions, known as Scope 3, have a particularly large impact on companies’ carbon footprints in the Fast Moving Consumer Goods (FMCG) sector, where they account for 90% of total emissions. The problem: companies cannot reduce these Scope 3 emissions themselves, but instead have to enable a complex and global network of suppliers to do so. How does a major enterprise still on the path of climate transformation, like Unilever, deal with this challenge?
That’s what we learned at the CHOICE Event #60 from Francois Tasmowski, Global Business Operations Climate Director at Unilever. Here you will find the most important insights from his presentation.
Unilever: A Global Powerhouse in Consumer Goods
Unilever, a multinational consumer packaged goods company with a global presence, produces a diverse range of products including baby food, beauty products, cleaning agents, and more. With a reach spanning over 190 countries, Unilever plays a significant role in the consumer goods industry.
Guiding Targets for Emissions Reduction
Unilever’s commitment to sustainability is evident through its three principal emissions reduction targets:
- Short-term Emissions Reduction Target: Achieving a 70% reduction in operational (Scope 1 & 2) emissions by 2025 from a 2015 baseline.
- Medium-term Emissions Reduction Target: Attaining a 100% reduction in operational emissions (Scope 1 & 2) by 2030 from a 2015 baseline.
- Long-term Net Zero Value Chain Target: Aiming for net zero emissions, encompassing Scope 1, 2, and 3 emissions, by 2039.
The Challenge of Scope 3 Emissions
Unilever faces a critical challenge in addressing Scope 3 emissions, particularly those originating from ingredient and packaging suppliers, which contribute over 70% of the company’s GHG footprint. This places the spotlight on the imperative for leadership in climate action. While Scope 1 and 2 emissions are important, Unilever increasingly regards them as foundational, with the real strategic focus on reducing the more impactful Scope 3 emissions. However, the complexity of these emissions lies beyond operational boundaries, necessitating a collaborative approach.
Navigating the Complexity: 3 Key Challenges
Unilever grapples with three key challenges in managing Scope 3 emissions:
- Shifting Baselines and Reporting Complexity
- Data Collection from Diverse Suppliers
- Multi-Tier Value Chains and Tier-N Suppliers
Start with a view on materiality
A crucial initial step is to consider what really matters in this situation. Unilever works with around 56,000 suppliers worldwide. To start, they examined the top 300 suppliers that have the most impact within this extensive network. These top 300 suppliers contribute to 60% of Unilever’s environmental impact. By concentrating on these specific suppliers, Unilever can narrow its focus and make the conversation more manageable. This approach becomes more feasible and organized when you take into account what truly holds importance.
Transitioning Towards a New Operating System
To further address the challenges of Scope 3 decarbonization, Unilever advocates for a segmented approach to supplier engagement based on their climate maturity:
- Category 1 Suppliers: Early in their climate journey. -> Offer access to educational resources and interactive learning seminars.
- Category 2 Suppliers: Proficient in operational emissions (Scope 1 & 2). Expertise required for product carbon footprint measurement. -> Explore platform solutions for product carbon footprint data generation.
- Category 3 Suppliers: Equipped with product-level footprint capabilities. -> Pilot a footprint data exchange mechanism to foster mutual trust and confidence.
The Complexities of Multi-Tier Supply Chains
Unilever’s endeavor to reduce its product carbon footprint is illustrated through the complexity of the palm oil supply chain. From the palm fruit’s growth to its journey through refineries and processing plants, Unilever strives for traceability and partnership-building. By leveraging geospatial data and satellite imagery, Unilever gains accurate insights into the palm oil fields, initiating broader industry conversations about standardization. The challenge, however, lies in fostering a collective commitment to data standardization across the industry.
Navigating Potential Pitfalls
Unilever’s journey towards emissions reduction is not without challenges:
- Accuracy Expectation: Non-financial information may not always attain the same level of data accuracy as financial data.
- Forecasting Capacity: Corporate costs should not extend beyond forecasting capabilities.
Unilever’s commitment to addressing Scope 3 emissions is a testament to its dedication to sustainability. By strategically engaging suppliers based on their climate maturity and embracing innovative solutions, Unilever is paving the way for a more sustainable future in the consumer goods industry. As the company navigates complexities and pitfalls, its efforts underscore the importance of collaboration, standardization, and risk mitigation in achieving impactful emissions reduction.
START WITH THE AI SUPPLIER SCREENING
Through the use of AI, you can now quickly access data from public sources about your suppliers on a large scale, allowing you to better collaborate on decarbonization efforts. On top of that, you gain essential strategic insights about the climate maturity of your business partners and competitors.
Embark on your Scope 3 climate journey today! Together, we’ll pave the way for informed climate choices and a sustainable transformation that makes a real difference.