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AI’s new Potential for Scope 3 Decarbonization
In order to meet climate targets within their supply chain (Scope 3), companies must gather and interpret extensive data on emissions, climate risks, and other factors from their suppliers. Until now, this widely dispersed data could only be acquired through manual processes and individual supplier consultations, demanding significant time and resource investments. However, a transformation is underway. Advanced AI technology now enables the quick and automatic aggregation of climate-related supplier data from public sources, facilitating its analysis for scope 3 decarbonization.
How exactly can this work? That’s what we shared at CHOICE Event #61 with Yasha Tarani (CEO) and Nikolas Martens (Head of Engineering) from The Climate Choice. Find here their most important insights.
Why is Scope 3 Decarbonization important?
Deloitte conducts an annual study that delves into the priorities of top executives (CxOs) in large companies across the globe, shedding light on why they choose to address specific issues. Their findings reveal a significant shift in the corporate landscape. Notably, climate change has ascended to a position of paramount importance, second only to economic outlook. This signals a pivotal moment where climate concerns have permeated the highest echelons of corporate leadership. However, it’s imperative to recognize that the impetus to act on climate issues doesn’t merely stem from regulatory pressures. It also emanates from a multitude of stakeholders who demand action.
One crucial aspect that emerges prominently is the role of supply chain emissions (Scope 3). These emissions represent the lion’s share, comprising an average of 85% of a company’s total emissions. Yet, addressing supply chain emissions is a formidable challenge due to their indirect nature, which presents multiple complexities and obstacles.
Why is Scope 3 Decarbonization so hard?
Companies striving to meet their Scope 3 decarbonization targets encounter several significant challenges when it comes to effectively utilizing supplier-specific data. These challenges can impede their ability to take meaningful actions. Here’s a breakdown of these challenges and their implications:
- Challenge: Managing annual data collection from a vast network of thousands of suppliers can be a daunting and resource-intensive task.
- Implication: This continuous tracking requirement demands a robust system that can efficiently gather data from a multitude of sources without overwhelming the company’s resources. It also necessitates real-time or near-real-time data updates to stay current.
- Challenge: Supplier data often comes in various formats, documentation styles, and may lack comparability, making it difficult to draw meaningful insights or comparisons.
- Implication: Ensuring data quality is paramount. Implementing standardization protocols, data validation, and normalization processes is crucial to derive accurate and actionable insights from diverse data sources.
- Challenge: Suppliers are frequently inundated with data requests from different customers, each with varying data needs, creating a state of assessment fatigue.
- Implication: Companies must adopt a more strategic approach to supplier engagement. This includes minimizing repetitive requests, streamlining communication, and aligning data requests with suppliers’ capabilities and priorities to maintain productive relationships.
Lack of Incentives:
- Challenge: Encouraging suppliers to actively engage in decarbonization efforts can be challenging, as they may lack motivation or a clear understanding of the benefits.
- Implication: To address this, companies must develop a Theory of Change that outlines the incentives and benefits for suppliers to participate in sustainability initiatives. This may include cost savings, improved market access, or enhanced brand reputation.
The solution: the Climate Intelligence Platform
At The Climate Choice, we focus on solving the key challenges of Scope 3 decarbonization. We have therefore built the first climate-specialized platform that unites supplier data & engagement to rapidly reduce emissions. Our approach is designed to help companies kickstart their supplier climate program in days rather than in months.
So what does the approach look like? Here are the key steps:
- Leveraging AI for Scope 3 Analysis: Begin by harnessing the power of artificial intelligence (AI) to analyze suppliers with publicly available data. This automated analysis provides valuable insights into their environmental performance, emissions, and climate-related practices. This initial assessment sets the foundation for informed decision-making.
- Engaging Suppliers without Public Data: Recognize that not all suppliers may have publicly accessible environmental data. For such suppliers, the approach shifts towards assessing their maturity level in terms of sustainability practices. This assessment serves as a starting point, allowing you to provide constructive feedback and guidance.
- Focused Benchmarking and Incentives: Identify your top suppliers and those contributing significantly to emissions within your supply chain. These key players warrant a more detailed and granular benchmarking process. Additionally, consider implementing incentive mechanisms to encourage these suppliers to actively reduce their environmental footprint. Incentives can take various forms, such as financial rewards or preferential treatment within your supply network.
The first step: AI Supplier Screening
To speed up the launch of your supplier engagement program while minimizing resource requirements, we present our new AI supplier screening program. This program leverages cutting-edge technology to streamline the process, ensuring efficiency and effectiveness throughout. Here’s a breakdown of how the AI supplier screening program operates:
1. Comprehensive Data Collection: The program incorporates an AI-driven data pipeline that autonomously gathers detailed Scope 3 information from diverse sources. This data pipeline is designed to collect granular data pertinent to your supplier profiles.
2. Robust Data Analysis: Once the data is collected, our system performs a meticulous analysis. It scrutinizes a range of climate data documents and taps into publicly available data sources to create a comprehensive profile of each supplier. This analysis extends beyond surface-level assessments to provide a deeper understanding of their climate-related practices.
How AI Supplier Screening Works:
- List of Suppliers: The process commences with a list of your suppliers, encompassing the entirety of your supply chain network.
- Identify Company: The AI system employs advanced algorithms to identify each supplier as a distinct entity, ensuring accuracy in the subsequent steps.
- Identify Reporting Entity: It further distinguishes the reporting entity within the supplier organization, recognizing the entity responsible for providing climate-related data.
- Identify Data Sources: The program identifies and categorizes the various data sources associated with each supplier, whether internal or external.
- Extract & Verify Data: Leveraging state-of-the-art data extraction techniques, the AI system extracts and verifies the pertinent climate data from these sources, ensuring data accuracy and reliability.
What are the tangible outcomes of the AI supplier screening?
The AI supplier screening program yields a range of tangible outcomes that can significantly benefit your organization in its pursuit of Scope 3 goals. Here are the notable advantages and insights that emerge from this innovative approach:
Automated Analysis of Thousands of Companies: The program’s capabilities extend to the automated analysis of thousands of companies within your supply chain ecosystem. This extensive coverage ensures that you can comprehensively assess and engage with a wide array of suppliers, maximizing the program’s effectiveness.
Inclusion of Meta Data: In addition to climate-specific data, the analysis encompasses meta data that provides valuable context. This includes details such as revenue figures and sectors in which these companies operate. Such comprehensive insights enable more informed decision-making.
Audit-Ready Data: The data generated through the AI screening program is audit-ready, ensuring that it meets the highest standards of accuracy and reliability. This audit readiness is pivotal, especially when it comes to compliance requirements and reporting.
Accessibility via API: The convenience of accessing the data via an Application Programming Interface (API) streamlines its utilization within your organization’s existing systems and workflows. This seamless integration enhances the efficiency of your sustainability initiatives.
Key Insights Uncovered
The program goes beyond data collection to uncover key insights that can inform your sustainability strategy. These insights encompass:
Supplier Maturity Structure: You gain a clear understanding of the maturity levels of your suppliers concerning sustainability practices. This allows you to tailor engagement strategies accordingly.
Trends in Climate-Related Data: The program identifies and highlights trends in climate-related data, providing valuable intelligence for decision-making and future planning.
Scope 3 Emission Breakdowns: Detailed breakdowns of Scope 3 emissions help you pinpoint areas of focus and prioritize decarbonization efforts.
Decarbonization Actions: The program’s analysis identifies potential decarbonization actions that can be taken. It offers actionable pathways to reduce emissions and improve sustainability performance.
Join the Early Access Program today
You can now seize the opportunity as one of the early adopters, accessing the full array of AI benefits for your Scope 3 targets through our exclusive Early Access program. By joining, you’ll experience firsthand the advantages we offer. We anticipate an average savings of 90% in both time and cost for the collection and analysis of supplier data. Don’t miss out on the chance to be at the forefront of this transformative technology.
Top 5 Questions AI can answer for Scope 3 Decarbonization
Artificial intelligence (AI) has emerged as a powerful tool in addressing complex challenges. Specifically, its potential for tackling climate change has gained significant attention. Today, effective climate actions require us to collect and interpret vast amounts of data on emissions, climate risks, and more. Not only from one’s own company, but also along whole value chains. This is because most of a company’s emissions – even up to 90% – occur in Scope 3. A transparent data basis is therefore needed on which to effectively collaborate with suppliers on joint decarbonization measures.
This is where AI plays a crucial role. According to a survey by Boston Consulting Group, 87% of 1,000 executives consider AI a helpful catalyst for climate transformation. Through the use of AI, companies can now quickly access data from public sources about their suppliers on a large scale, allowing them to better collaborate with them on decarbonization efforts. On top of that, they can gain essential strategic insights about the climate maturity of their business partners and competitors. In this article, we explore the top five questions that AI can answer for Scope 3 decarbonization, empowering you to make informed and impactful climate decisions.
1. Has the company calculated Scope 1, 2, and 3 emissions?
When assessing the climate maturity of your supply chain, one of the fundamental questions in evaluating a company’s commitment to decarbonization is the extent to which they have calculated and disclosed their greenhouse gas (GHG) emissions. AI can help assess whether a company has comprehensive coverage of Scope 1, 2, and 3 emissions. By analyzing public data, AI algorithms can identify relevant information from your supplier’s sustainability reports, public statements, and other disclosures. This allows you to assess your own emissions in more detail and compare them with industry benchmarks along your supply chain, setting a foundation for meaningful decarbonization strategies.
2. Has the company set climate targets?
Setting ambitious climate targets is crucial to driving action and holding companies accountable for their emission reduction efforts. The next important question is therefore to what extent a supplier has set and communicated climate targets and ambitions. To get answers, AI algorithms can extract and aggregate information from public announcements, reports, and social media activity regarding a company’s specific emissions reduction goals. This knowledge enables you to benchmark your company’s own targets against industry peers and business partners in order to identify areas for improvement.
3. Has the company a climate transition plan in place?
To achieve your own climate targets, you need a transition plan that outlines how your company navigates the complex process of decarbonization. And so do your suppliers need such a roadmap to implement reduction measures. AI can help determine whether a supplier has a transition plan in place by analyzing public disclosures and sustainability reports. This allows you to gaining insights into the decarbonization strategies, initiatives, investments and businesses activities of your business partners as well as competitors. Doing so, you can identify potential synergies or areas for collaboration.
4. Is the company engaging their suppliers for climate action?
As seen above, your suppliers play a pivotal role in your Scope 3 strategy and significantly impact your decarbonization journey. Therefore it is crucial to know if a supplier is actively engaging and monitoring its own supply chain with regards to emission reduction. Public supplier reports, sustainability initiatives, and collaboration programs convey the extent of a company’s engagement with its suppliers. This information allows you to assess the effectiveness of your own existing supplier management and identify opportunities to collaborate on decarbonization measures with peers.
5. Has the company communicated concrete decarbonization measures?
Last but not least, communicating concrete decarbonization measures is essential to demonstrate commitment, become accountable and inspire others to follow suit. Leveraging AI’s capabilities, you can assess whether your own organization as well as suppliers have effectively communicated its decarbonization initiatives – and which one in particular. This analysis allows you to gain insights into industry-wide actions, identify leading best practices and improve your own impact.
AI offers a powerful tool for companies seeking to enhance their decarbonization in Scope 3 by leveraging climate-relevant information on a large scale. Employing AI algorithms empowers decision makers to answer critical questions related to emissions data, climate targets, transition plans, supplier engagement and decarbonization measures. This way, businesses gain valuable insights into their own operations and those of their stakeholders. Equipped with this knowledge, organizations can collaborate more effectively with suppliers, benchmark their progress against industry peers and strategically position themselves to drive meaningful change. Through the power of AI, companies can take significant steps towards Scope 3 decarbonization and contributing to a sustainable future.