Scope 3 Decarbonization: A Review of 2023 and Outlook for 2024
As we approach the end of 2023, it’s pivotal to reflect on the progress made in supply chain decarbonization and set our sights on the challenges and opportunities awaiting us in 2024. In our final webinar of this year, CHOICE Event #66 “Review 2023 & Outlook for 2024: Decarbonization of Supply Chains,” we explored diverse perspectives together with industry leaders from Exponential Roadmap, TRILUX, Bearingpoint and The Climate Choice. Here’s what you need to know to prepare for 2024.
Decarbonizing Supply Chains: Talking about Scope 3
In the panel with Laura Pérez Casado (Senior Project Manager, Exponential Roadmap Initiative), Katrin Kroese-Discher (Director Sustainability, TRILUX), Laure Hellin (Manager, BearingPoint) and Yasha Tarani (CEO, THE CLIMATE CHOICE) we stated the most pressing fact first: We are not on track!
With the current trajectory risking a failure to meet the Paris Agreement’s target of limiting global warming to 1.5° Celsius, there is a critical need for immediate and substantial emission reductions along the supply chain. Doing so, it is crucial to focus on the next steps. By 2030, we must halve emissions globally compared to 1990, to stay on course. In this context, regulations emerges, powerful digital tools, and shared knowledge to leverage capabilities within companies and across industries. However, understanding the climate impact of supply chains is complex and still remains a huge challenge. Tackling Scope 3, companies faced this year various hurdles.
1. Climate-Relevant Data from Suppliers
Understanding the extent of supply chain emissions and assessing the climate maturity of suppliers is a formidable challenge for many companies. While companies can set climate targets for their own operations with confidence, brining reduction efforts into Scope 3 (reducing indirect emissions from the value chain) is complex. Companies, especially those with vast product portfolios and dynamic supplier bases, struggle to gather supplier data on climate targets, emission data and action taken.
In 2023, comparing and identifying suppliers to drive decarbonization became essential.
2. Ramping up Procurement Processes
Supply chain emissions are dispersed across numerous tier-n suppliers globally, creating a dynamic and challenging landscape. Procuring accurate data and prompting action from suppliers require deeper engagement, education, and long-term partnerships. All elements that are not always within the realm of traditional procurement practices, which focuses historically on quality, time and price.
In 2023, procurement teams became key players in implementing a company’s sustainability strategy.
3. Engagement of Suppliers for Actions
Addressing emissions in the supply chain demands intensive engagement with suppliers, necessitating a profound understanding of the climate maturity of upstream suppliers. Many organizations are not yet equipped to handle this level of engagement, presenting a significant barrier to effective supply chain decarbonization.
In 2023, a massiv shift towards companies actively engaging all of their suppliers happened.
Overcoming Barriers: Solutions for Successful Decarbonization
The following 7 practical approaches and best practices empower sustainability and procurement teams alike to overcome challenges and reduce supply chain emissions effectively:
- Build a Value Chain Emissions Baseline and Exchange Data with Suppliers: Establish a comprehensive emissions baseline starting with tier 1 suppliers. Don’t focus on having everything perfect, but to get started. Therefore, utilize average emissions factor databases first and strive to move towards direct supplier data in the next steps.
- Set Ambitious Reduction Targets on Scopes 1 to 3 and Publicly Report Progress: Once transparency about your emissions is achieved, set ambitious and public targets across all emissions scopes. This rises your company’s responsibility, fulfils market needs and makes budget allocation possible. Next steps: cascade your targets through the supply chain.
- Design the Value Chain and Sourcing Strategy for Impact: Consider the climate maturity of your suppliers when extending contracts, reevaluate make-or-buy decisions with regards to emissions, and introduce climate due diligence into procurement systems.
- Track Climate Performance & Integrate Metrics in Procurement Standards: Set up procurement systems that link the climate maturity of suppliers to procurement decisions, such as setting climate targets, reducing emissions, using renewable energy or specific levels of process efficiency.
- Work with Suppliers to Reduce Emissions: Collecting data is no means to an end. When using technical tools to gather data, make sure to provide education and technical support to suppliers, co-invest in longer-term upgrades, and encourage continuous improvement.
- Engage in Local Initiatives for Best-Practice Sharing: Become part of local initiatives to collaborate with peers and organizations across industries. Sharing best practices allows you to move faster and accelerate your actions. Best: You notice that everyone is in the same situation. No matter the company size or industry, we are all just starting to tackle Scope 3.
- Introduce a Low-Carbon Governance to Align with Internal Targets and Empower your Organization: Change internal processes, align role functions with clear climate targets and dedicated funding. It needs a whole company to make decarbonization happen, across all departments and functions. In the end: Every buying decision is a climate decision.
Talking about Scaling Solutions, what is the Power of AI?
The final question remained in the end of the panel: How can AI accelerate Scope 3 Decarbonization? Diving into it, Yasha state that AI is a technical solution that holds huge potentials, but also needs to be managed within certain frameworks of data security, technical proofs and verification loops.
A recent report released by BCG & Google suggests that AI has the potential to mitigate 5-10% of global greenhouse gas emissions by 2030. 5% is equivalent to a third of the emissions of the whole of the USA.
Unleashing AI’s Potential for Scaling Scope 3 Decarbonization
- Technical AI Applications: AI, through proven applications and technology, can significantly contribute to reducing GHG emissions and enhancing climate-related initiatives.
- Accelerating Kowledge: AI improves climate modeling, education, and breakthroughs in climate science and economics.
- Speeding up: AI’s capabilities in information curation, prediction enhancement, and optimization guidance can accelerate progress in mitigating emissions, supporting adaptation, and advancing climate-related research.
- Early Success Stories: Leading organizations are already achieving real results with AI for climate, and 87% of executives believe in AI’s potential to address climate challenges.
- Data management: Transparency across supply chains plays a crucial role in minimizing risks and reducing emissioms. AI provides the essential component to scale up data management.
Integrating Best Practices into Supply Chain Decarbonization
The main challenges in supply chain decarbonization in 2023 was: reporting on Scope 3, data from suppliers, and engagement of suppliers for decarbonization actions. In 2024 companies need to double down here. AI’s capabilities in gathering information on a massive scale, enhancing smart decision making, and allowing for real time monitoring align with the goals of reducing emissions and enhancing sustainability in supply chains.
Focusing on Scope 3 Decarbonization, companies need to adopt a data-driven strategy in 2024 to streamline data collection processes, understand the climate maturity of their suppliers, and enhance engagement strategies with actionable insights. Navigating complexities of supply chain is not easy, but learning in local initiatives from each other allows us to drive decarbonization successfully.
Embracing Scope 3 Decarbonization can not just be a technological evolution, but a strategic imperative for companies committed to a sustainable future.