Your Quick Guide to Scope 3.1 Emissions – the How, What and Why!
In pursuit of their climate goals, businesses are on a quest to uncover the holy grail of decarbonization – identifying where emissions come from and reducing those. Most understand that the answer often lies within the supply chain – and more precisely in Scope 3.1 emissions (Purchased Goods and Services).
This article gives you an introduction to Scope 3.1, why these emissions play a major role, which methods you need to calculate them, and why supplier engagement helps you reducing them.
Scope 3 emissions encompass in 15 different categories all indirect emissions generated throughout an organization’s value chain, from the extraction of raw materials to the disposal of products. Scope 3.1, one of those 15 categories, specifically refers to the carbon emissions associated with the products or services an organization purchases. These emissions are bought in from suppliers and are often beyond the organization’s immediate control.
Why is Scope 3.1 Important?
Understanding and addressing Scope 3.1 emissions is crucial for several reasons:
Holistic Climate Impact: Scope 3.1 emissions often constitute the largest portion of an organization’s carbon footprint. By ignoring them, companies fail to address a significant part of their climate impact.
Stakeholder Expectations: Stakeholders, including investors, customers, and regulatory bodies, increasingly demand transparency and action on Scope 3.1 emissions. Failure to comply can lead to reputational damage and financial consequences.
Regulatory Compliance: As governments worldwide tighten climate regulations, monitoring and reducing all emissions, but especially the significant portion of Scope 3.1 emissions, help companies avoid legal and financial penalties.
How to Calculate Scope 3.1 Emissions
Calculating Scope 3.1 emissions according to GHG Protocol can be a complex task, but essential for informed decision-making. Companies can chose from four different methods. The more effort these methods require, the better the results they produce:
Spend-Based Method
Calculation Basis: This method relies on the financial expenditures associated with products or services. It calculates emissions based on the amount of money spent on procurement or outsourcing.
Benefits: The spend-based method is relatively simple and cost-effective to implement, making it suitable for organizations with limited resources. It provides a high-level overview of emissions associated with the supply chain.
Average-Data Method
Calculation Basis: The average-data method uses industry or sector-specific emission factors to estimate emissions. These factors are based on aggregated data from similar organizations.
Benefits: It offers a quick and accessible way to estimate emissions, making it a good starting point for companies new to Scope 3.1 calculations. However, it may not be as accurate as other methods because it relies on generalized data.
Hybrid Method
Calculation Basis: The hybrid method combines elements of both the spend-based and average-data methods. It considers financial data along with industry-specific emission factors for a more tailored approach.
Benefits: This approach strikes a balance between simplicity and accuracy. It provides a more customized estimate of Scope 3.1 emissions while still being feasible for organizations without extensive data resources.
Supplier-Specific Method
Calculation Basis: The supplier-specific method involves collecting detailed data directly from suppliers, including emissions from their operations and transportation. It offers the most granular and precise calculation.
Benefits: This method yields the most accurate and specific results, allowing organizations to pinpoint emission hotspots within their supply chain. It also fosters transparency and collaboration with suppliers, encouraging joint efforts to reduce emissions.
Why the Supplier-Specific Method Stands Out
While the supplier-specific method achieves by far the best results compared to the other methods, it is also the most challenging to implement. The supplier-specific method is distinguished by its precision, aiming to provide a granular view of emissions associated with each supplier. However, this precision comes at a cost:
Data Variability: Suppliers’ emission data can be highly variable, making it challenging to standardize and aggregate across a diverse supplier base.
Data Availability: Obtaining supplier-specific data requires active engagement and cooperation from numerous suppliers, which can be time-consuming and complex.
Data Validation: Verifying the accuracy of supplier-reported emissions adds another layer of complexity, as discrepancies can arise.
Kickstart your Supplier-Specific Data Collection
The Climate Intelligence Platform, a specialized Supplier Data Collection and Engagement Solution, offers a streamlined approach to tackle these challenges.
Start tracking progress towards your Scope 3 targets by accessing existing data from over 35.000 companies and proceed by gathering primary 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.
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.
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
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!
3 Key Steps to Use Competitive Climate Intelligence
In today’s rapidly evolving business landscape, staying ahead of the curve requires more than just traditional market insights. The emergence of the future low-carbon economy has ushered in a new era of competitiveness. Companies now need to start navigating the complexities of climate information and strategies to maintain their edge. This is where the concept of competitive climate intelligence comes into play. In this article, we’ll delve into what competitive climate intelligence entails and outline three essential steps to effectively leverage it for your company’s success.
Understanding Competitive Climate Intelligence
“Competitive climate intelligence” is the systematic gathering and analysis of climate-related data and insights to drive informed decision-making. Stemming from the broader concept of “competitive intelligence,” which focuses on understanding market dynamics and competitors, competitive climate intelligence delves into climate-related aspects of business strategy. This intelligence goes beyond understanding the environmental impact of your operations. It encompasses understanding how your competitors are positioning themselves, identifying emerging opportunities, and assessing potential risks.
Benefits of Competitor Climate Insights
Here’s why incorporating information about your competitors’ climate strategies is crucial for positioning your business at the forefront:
Benchmarking: Analyzing your competitors’ climate data allows you to benchmark your performance against industry leaders. This comparison helps identify gaps in your sustainability efforts and set ambitious yet realistic goals to outperform.
Innovation Insights: Monitoring competitors’ climate strategies unveils innovative practices that can inspire your company’s approach. By learning from their successes and failures, you can adopt best practices and refine your own initiatives.
Market Positioning: Understanding how competitors position themselves in the low-carbon landscape helps you differentiate your brand. Identifying gaps in the market and addressing unmet sustainability needs can accordingly enhance your company’s appeal to conscious consumers.
Risk Management: By assessing competitors’ responses to climate risks and regulatory changes, you gain insights into potential challenges and opportunities. This proactive approach ensures your business is prepared for shifts in the regulatory and consumer landscape.
Collaboration Opportunities: Collaborative efforts within your industry can amplify impact. Analyzing competitor data highlights potential partners for joint sustainability initiatives, fostering a collective drive towards a greener future.
Investor Confidence: As environmental concerns grow, investors increasingly value companies with robust climate strategies. Demonstrating a comprehensive understanding of competitors’ approaches bolsters your credibility and attractiveness to investors.
Adaptive Strategies: The low-carbon economy is evolving swiftly. Analyzing competitor climate data aids in fine-tuning your strategies based on real-time insights. This adaptability allows your company to seize emerging opportunities and stay resilient in the face of change.
The key steps for Competitive Climate Intelligence
So how can your company take advantage of this and successfully implement climate competitive intelligence? Here are the three most important steps.
Step 1: Data Gathering and Analysis
The foundation of competitive climate intelligence lies in robust data collection and analysis. The first step is to identify and gather relevant data from both internal and external sources. While internal data might include your company’s carbon footprint and sustainability initiatives, external data encompasses market trends, competitor activities, regulatory changes, and public sentiment around climate issues. This is where AI tools shine, as they can efficiently sift through vast amounts of public data to provide actionable insights. By utilizing these tools, you can uncover hidden patterns, emerging trends, and valuable competitor strategies that inform your decision-making.
Step 2: Integration with Business Strategy
Climate intelligence should not exist in isolation; it must be seamlessly integrated into your company’s overarching business strategy. This involves aligning climate-related goals with core business objectives and identifying synergies that drive value. For example, using climate intelligence to optimize supply chain efficiency not only reduces emissions but also enhances cost savings. By weaving climate considerations into product development, marketing, and operations, you not only contribute to sustainability but also bolster your competitive position in the market.
Step 3: Continuous Monitoring and Adaptation
The future low-carbon economy is dynamic, with changes in regulations, technologies, and consumer preferences shaping its trajectory. As such, competitive climate intelligence is not a one-time effort but an ongoing practice. Establish a framework for continuous monitoring and adaptation. Regularly update your data sources, track competitor moves, and stay informed about industry shifts. This adaptive approach enables you to seize emerging opportunities swiftly and mitigate risks effectively.
Conclusion
As the business landscape transforms to embrace the challenges and opportunities of a future low-carbon economy, competitive climate intelligence emerges as a critical tool for success. By systematically gathering, analyzing, and integrating climate-related data, businesses can not only contribute to a sustainable future but also enhance their competitive advantage. With the aid of AI tools, the data collection process becomes more efficient, empowering companies to make informed decisions. Embrace these three key steps and start now to position your company at the forefront of the evolving business paradigm.
Your Cheat Sheet: Climate Regulations to be aware of in 2023
Your Quick Guide through recent Climate Regulation Updates
We all experience it this summer: Climate change poses significant threats to the global economy, to humans and the planet. Time to act, especially also in the financial world. As a consequence, regulators worldwide are addressing climate-related risks. In the last weeks and months, several crucial developments in that area took place across the globe! Let’s delve into what happened in terms of climate regulations in America, Europe, International – and what’s coming up soon.
Quick insight summary: As climate management and disclosure becomes more standardized and mandatory, companies must ensure high-quality data by implementing strong data governance, strategies and control mechanism to maintain audit-ready information throughout the value creation process.
United States of America
The upcoming Securities and Exchange Commission (SEC) climate disclosure rule in the US requires large companies to disclose their carbon footprints alongside financial statements. The SEC’s proposal is aligned with existing recommendations from the Task Force on Climate-related Financial Disclosures (TCFD)and will require organizations to disclose certain climate-related information including greenhouse gas (GHG) emissions, Scopes 1, 2 and 3 and disclosure of climate-related risk, impacts, targets and goals.
The US Commodity Futures Trading Commissionannounced its second voluntary carbon markets meeting. It aims to discuss private sector efforts in high-quality carbon credits, current market trends, public sector initiatives, and how CFTC can facilitate markets for high-quality carbon credit derivatives.
TheInternational Sustainability Standards Board (ISSB) will assume the role of monitoring companies’ climate-related disclosures. This task was previously handled by the FSB Task Force on Climate-related Financial Disclosures (TCFD). This development comes after the ISSB published global standards for sustainability and climate reporting, which incorporated the TCFD’s recommendations. The move is seen as an attempt to unify sustainability reporting standards, but some may question whether it could pose a threat to independence given the ISSB’s expanded responsibilities. Nonetheless, the decision recognizes the ISSB’s commitment to building upon the TCFD’s legacy and providing more clarity in the realm of climate-related initiatives.
Europe
The European Commissionsuggests to ease raising Climate and ESG disclosure rules for companies to reduce regulatory burdens. It published the final version of the European Sustainability Reporting Standards (ESRS) on July 31. The climate regulation shifts initially mandatory indicators, including greenhouse gas emissions disclosures, into the scope of materiality assessments, making them reportable if relevant to a company.
But: “If an undertaking concludes that climate change is not a material topic and that therefore it does not report in accordance with that standard, it shall disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change. This provision is included in recognition of the widespread and systemic effects of climate change on the economy as a whole.”
Under the CSRD, a company needs to implement processes to properly assess and collect climate-relevant information, for their own company and their supply chains. Described as such:
This information must be reported in accordance with European Sustainability Reporting Standards (ESRS). This information shall include information related to short-, medium- and long-term time horizons, as applicable, and it shall contain: The principal actual or potential adverse impacts connected with the undertaking’s own operations and with its value chain.
This obligation is closely related to the due diligence duties to identify adverse impacts, as introduced by the proposed Directive on Corporate Sustainability Due Diligence Directive (CSDDD). The proposed CSDD Directive will thus lead to more complete and effective reporting across global value chains. Part of this proposal is the introduction of a link between variable remuneration of directors and the sustainability targets of the company. Directors of companies that fall within the scope of the proposed directive also need to take into account the consequences of their decisions with respect to sustainability matters, climate change and human rights.
European Financial Reporting Advisory Group (EFRAG) introduced sector-specific Sustainability Reporting. EFRAG announced plans to create three advisory panels for sector-specific sustainability reporting rules for the capital markets, and insurance sectors. These panels will provide tailored reporting guidance for financial institutions starting in September, with applications open until July 31.
International
The Australian Government introduced mandatory Climate-Related Financial Disclosure Requirements for businesses and financial institutions. The climate regulations closely align with the ISSB’s climate standards, focusing on governance, strategy, risk management, and metrics and targets. Regulations have been proposed by the nation to start at the beginning of the 2024/2025 financial year.
Monetary Authority of Singapore (MAS) drives the early phase-out of coal-fired power plants. MAS launched a public consultation on incorporating financing for the early phase-out of coal-fired power plants into the Singapore-Asia Taxonomy, which classifies investments supporting a 1.5°C transition pathway.
The International Sustainability Standards Board (ISSB) has released its first set of sustainability and climate-related disclosure rules, IFRS S1 and IFRS S2, based on voluntary reporting frameworks. These standards aim to present sustainability efforts in a robust and comparable manner, facilitating informed capital allocation decisions by investors. It gets international adoption in countries like Canada, the UK, Japan, Singapore, and Nigeria are considering implementing ISSB standards. The International Organization of Securities Commissions (IOSCO) is now also endorsing them, accelerating their global adoption.
These developments show a growing commitment among regulators worldwide to tackle climate-related risks and enhance reporting. Companies should closely follow the rising need for climate management processes and contribute to a more sustainable and resilient future. Stay tuned for further updates on the global climate transformation.
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.
Conclusion
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.
Interview with Huawei Technologies on Climate Transformation
Interview partner: Xiang Ao is the Sustainable Development Officer at Huawei Technologies Deutschland GmbH. The multinational technology corporation has set climate targets within its own organization and along the supply chain to address the global threat of climate change.
Source: Lancaster University (2020); EDGAR, FAO, UNFCC, BCG analysis
Climate Significance of the Telco Industry
Today, the telco industry accounts for about 3% of global CO2 emissions, which is about twice that of civil aviation.
With global data traffic expected to increase around 60% each year, the ICT industry could be responsible for up to 14% of global carbon emissions by 2040.
This means that the telco industry is a huge lever for decarbonization and an opportunity for real change within the economy.
So how does a major global telco company still on the path of climate transformation, like Huawei, go about reaching its climate goals? This is what we will find out in this interview:
We are pleased to have partnered with Huawei Technologies Deutschland on the Climate Performance Assessment. Can you briefly introduce yourself?
Huawei Technologies is one of the world’s leading providers of information technology and telecommunications solutions. More than a third of the world’s population and more than half of the German population use Huawei technology directly or indirectly. With the headquarter in Shenzhen, the company has 207,000 employees worldwide and operates in 170 countries through its three business units Carrier Network, Enterprise Business and Consumer Business.
Huawei has been operating in Germany since 2001 and employs more than 1,700 people in 17 locations. Huawei’s largest European research center is located in Munich. As one of the world’s leading providers of digital information and communication technologies, we are a long-standing and reliable partner of German mobile operators and many fixed network providers. In its role as an infrastructure provider, Huawei has played an important role in the digitalization of Germany for many years. We are a service provider for our customers, and thus not only the starting point for every form of digitization, but also the catalyst for social developments.
Sustainable development is an important part of Huawei’s overall strategy. To address the global challenge of climate change, we believe that technology is a key enabler of sustainable development, to create a more inclusive and environmentally friendly world. Huawei hopes to work with global customers, suppliers, and partners to promote green and sustainable development in various industries and build a low-carbon society.
How are you positioning yourself in terms of climate transformation? What climate targets have you defined for yourselves?
Green and low-carbon development is rapidly becoming a global priority. Huawei believes that digital technology will be a key enabler of nature conservation, green development, and response to environmental challenges like climate change. Digitalization and decarbonization build upon each other and can together promote green development. For years, we have followed our pledge of “Tech for a Better Planet” to proactively address climate and environmental challenges. We use innovative ICT solutions to protect our shared home by focusing on three areas: advancing energy conservation and emissions reduction, promoting renewable energy, and contributing to a circular economy.
More specifically, we are striving to achieve the following goals by 2025:
Reduce the carbon emissions (Scope 1 and Scope 2 GHG emissions) per unit of sales revenue by 16% by 2025 compared with 2019
Increase the average energy efficiency of our main products by 2.7 times by 2025 compared with 2019
Ensure all of Huawei’s top 100 suppliers (by procurement spending) will have set carbon emissions reduction targets by 2025
How did the Climate Performance Assessment help you? What are the most important lessons you have learned?
We are very impressed with the well-organized structure and detailed questions of the Climate Performance Assessment, which will help us not only to internally assess our maturity in climate performance management, but also to benchmark where we stand in the industry. From this perspective, our current status is quite positive. To have such professional and easy-to-use scoring system is a big Win for the companies who wants to recognize its management status.
The structure of the assessment plays a very important role: the current 5 dimensions methodology, which ranges from climate strategy, governance & leadership, stakeholder management, carbon footprint to decarbonization measures, is quite efficient during this program.
What are the next steps you want to address as part of your climate transformation?
Huawei will continue to contribute to climate protection by integrating more emission reduction technologies and measures, and cooperating with other stakeholders to build supply chain responsibility. Huawei is currently in the process of managing its sustainability development together with climate protection to reach a higher level.
How do you deal with your supply chain and the emissions generated here?
Huawei manages sustainability in line with industry best practices and globally recognized standards. Sustainability plays a vital role in our procurement strategy and is a key part of our supplier management process, from supplier qualification and selection to performance appraisals and portfolio management. We regularly appraise suppliers’ sustainability performance and facilitate their continuous improvement by working closely with customers, suppliers, industry organizations, and other stakeholders.
Huawei has established its procurement CSR management system based on the OECD’s Due Diligence Guidance for Responsible Business Conduct and the IPC-1401 Corporate Social Responsibility Management System Standard, and incorporated CSR requirements into our procurement strategy and business processes. Our Supplier CSR Agreement is prepared according to the Responsible Business Alliance (RBA) Code of Conduct and the Joint Audit Cooperation (JAC) Supply Chain Sustainability Guidelines.
What tips and best practices would you like to share with other companies?
Environmental protection and decarbonization require the participation and contribution of all of us. Huawei has already made efforts in various fields and areas by promoting product improvement and technologies development, such as the industry’s first MetaAAU to support 384 antenna elements to reduce energy use by 30%, and industry’s first smart optical modem to reduce power consumption by 30% etc.. It would be great to see our suppliers, customers and business partners move forward, and we are happy to share more details and experiences with all interested parties.
Thank you for the honest and insightful interview, Xiang Ao. We are very pleased about the cooperation with Huawei Technologies Deutschland GmbH and look forward to driving forward the climate transformation of the economy together.
Interview with CTDI on their Climate Transformation
We are excited to work together with CTDI to advance climate transformation. Can you please introduce yourselves?
Interview Partner Jochen Bolzhauser, Quality & OpEx Manager at CTDI: CTDI is a global full-service company in the communication industry with over 20,000 employees across 100 locations. Test, repair, and integrated logistics services as well as spare part management of electronic systems are our core business. Our customers include major network operators, service providers, and many global manufacturers. CTDI is a family-owned business based in West Chester, USA. In Europe, we have over 4,400 employees across 12 countries, with our European headquarters located in Malsch near Karlsruhe.
The technologies we handle include access and transmission network equipment, all mobile technologies, set-top boxes, gateways, mobile devices, entertainment electronics, money and payment systems, industrial scanners, and printers.
How do you address climate in your business model?
Repair instead of throwing away – through our sustainable services, we help our customers reduce their own and global CO2e footprint. With “CTDI Planet Protect,” we aim to take this to the next level. We optimize our business processes to better support the circular economy. We also ensure that everyone takes responsibility for environmental protection within their daily work processes.
What are your climate goals?
We want to contribute to reducing CO2e emissions and conserving natural resources both as a company and through our services and technical developments. Therefore, we have aligned our climate goals with the Science Based Targets and aim to achieve a 100% reduction of Scope 1+2 emissions at all of our European locations by 2028. By 2030, we aim to reduce our Scope 3 CO2e emissions by 50%.
We conducted the Climate Performance Assessment together. What was your motivation for this?
Continuous improvement is one of our most important processes. Therefore, we regularly undergo ISO 9001 and 14001 audits, as well as customer audits, to continually develop and uncover untapped potential as a company. Another motivation is that CTDI always strives to obtain independent opinions on our environmental strategy. Only in this way can we achieve our ambitious climate goals. The Climate Performance Assessment helped with that.
What are the most important learnings you have gained? What are the next steps?
An important learning is that our “Planet Protect” strategy still has potential for improvement. One of the most important findings is the need for third-party auditing. We want to focus on this aspect in the coming years and possibly acquire a certified CO2e accounting software.
How do you deal with your supply chain and the resulting emissions?
We are in the process of demanding emissions from all of our logistics service providers. New contract partners will only be accepted if they support our “CTDI Planet Protect” goals. In the area of shipping, we already use CO2e-neutral logistics service providers in almost all areas.
What are best practices you want to share with other organizations?
Communication with all employees is the key to success for a successful implementation of environmental goals.
Thanks for the interview Jochen Bolzhauser, we are happy to drive climate transformation together!
10 Steps to put Supplier Engagement into Climate Action for 1.5°C target
To achieve the 1.5°C ambition of the Paris Climate Agreement, business action across the full value chain is crucial. More and more leading brands are joining forces in action groups to tackle this challenge, such as the “1.5 Supply Chain Leaders” founded by the Exponential Roadmap Initiative.
The NGO brings together innovators, transformers and disruptors taking action in line with the 1.5°C ambition. Their common mission is to halve global greenhouse gas emissions before 2030 through exponential climate action and solutions.
In CHOICE Event #56 we learned from Laure Pérez Casado, Project Lead at Exponential Roadmap Initiative, how to engage suppliers for climate actions. Find here the most important 10 steps.
1. Set your foundation
It all starts with a strong foundation. Starting a supplier engagement program for decarbonization, needs to have a clear set up first. Therefore, companies need to start with their own journey before they can reach out to their business partners. As first step: Make your climate commitment public, set a target and include your supply chain, assess your emissions and be clear about your priorities about actions and solutions you want to implement in your own transition. Aim high: Cutting emissions halve until 2023 is inline with the Paris-1,5°-target.
2. Accept the ambiguous status quo
Even within the own company, targets, strategies, incentives and requirements can differ quite a lot. Typically, sustainability and procurement office need to align first to assure a successful program outcome. Form your #TeamClimate and ask yourself: Why do we need a program – for reporting, buying decisions or actions? What can be done? Which outcome is anticipated? Who needs to be involved? When can we start?
3. Be simple!
Often company leaders want to get everything done in one step. That is us humans, we like simple solutions. But honestly, simplicity needs to stay simple. If you start with a too complex system right from the beginning, frustration levels can be very high – on all sides. Do yourself a favour by asking simple questions first. Such as: Have you set climate targets? Did you calculate your emissions and which kind of climate actions are you planning to implement?
4. Focus on your hotspots in the supply chain
Great! You have set climate targets, aligned with your company internal action team – and know which data points you want to collect and how you want to roll out the program. Now is the time to find a simple way, to pre-screen your supply chain. Many companies work with third party data, databases and / or a spend-based approach to have a first understanding of the status quo of their value chain. This way, you can cluster suppliers into areas of strategic importance and find hotspot, on which you can should focus. The Climate Intelligence Platform offers a fast and simple way to start screening your supplier base and kick-off your Supplier Climate Engagement Program – start today and create a free account.
5. Clarify data needs for sustainability and procurement
Last, but not least, before you reach out to your supply chain: Get on the same page. Make sure (again) that your internal stakeholders are all aligned. Is everyone onboarded in your #TeamClimate? Your sustainability and procurement team will mostly likely work with the collected data and have certain expectations of the results you are aiming for. As you very likely have already iterated the process, align on the data, processes and next steps. Just to be sure.
6. Set up the process: procurement or sustainability team?
Now, it is time to get started. Most companies have the supplier engagement program organized by the procurement team, but need the sustainability team to provide insights and a clear message that is published regarding your supply chain climate target. This allows procurement to address suppliers in collaboration with your #TeamClimate and supports the credibility of the program.
7. Start engaging supplier by stressing the “why”!
Your moment to shine! You go out and communicate with your suppliers. This is not a one-way conversation. Invite for collaboration, share knowledge and resources and provide guidance through your anticipated journey. Most important: Provide incentives to get suppliers on board. Take away the fear of being rated top-down and instead share benefits for suppliers that are supporting your climate initiative. Find out more in the CHOICE Event “How to Qualify, Assess and Develop Suppliers for Scope 3 Decarbonization“.
8. Don’t overwhelm, stay simple!
Be aware that climate management can be frustrating. You might have suffered along the way, too. Just because you are now further ahead, does not mean your suppliers are there yet. Get them onboard and be open for feedback, together you can improve. We are all in this journey together and face a transition to a low carbon economy that will take until at least 2050. Many opportunities will come along the way. Get your business partners engaged and motivated.
9. Dare to take decisions
Nevertheless, the goal is clear. Cutting emissions, building up skills for a structured transformation and gaining insights on the climate maturity of your suppliers. This means, the moment you have gathered information, received feedback and have finalised your data integration, you have to take decisions. Data is there to be used! Not to be gathered only. Make sure you gain insights for decision making from it. You need to define a baseline from which you started and plan next steps that bring you and your suppliers closer towards Net Zero. Decisions that need to be taken: How do you provide climate knowledge to suppliers? How do you share best practices and benchmarks? How do you define supplier requirements and collaborate on taking action? Find out “How to generate Value from Supplier Climate Data” in this CHOICE Event.
10. Report and repeat
Finally, you also need to celebrate your success! It is great that you tackle the biggest challenge of the corporate world today: the climate transformation and decrabonization of your supply chain. Acknowledge that this is the only valid way to decrease emissions in a meaningful way – in Scope 3, where up to 90% and more of the total corporate emissions come from. Companies cannot reach Net Zero emissions over night. And focusing only on Scope 1 and 2 emissions, does not at all support the full requirements and climate targets. You and your #TeamClimate started an awesome journey that is highly influencing the financial, social and environmental impact of your company. Now, be transparent about what you achieved (and what not). Share within your company and externally. You took the first step, talk about it and share your learnings. You will repeat the process next year, so it’s the best time to get into the improvements and actions with suppliers.
You want to start you simple and scalable supply chain deacarbonization journey?
You can now start your own supplier screening and evaluation process by creating a free account on the Climate Intelligence Platform, which streamlines and automates the workflows to save your company time and money. Within the free basic account you can invite an unlimited number of your suppliers and start your supply chain transformation journey towards Net Zero. Get started today with a free account!
Measuring and Understanding your Scope 3 Emissions
For most companies, the majority of their greenhouse gas emissions (up to 90 %) lie in their supply chains – so-called Scope 3. Reducing those Scope 3 emissions provides the biggest lever for corporate climate transformation, but it is also by far the most difficult. The first step and basic requirement is to measure and holistically understand the company’s Scope 3 emissions.
That’s what we learned at the CHOICE Event #55 from Richard Scholz from the WifOR Institute and Yasha Tarani from The Climate Choice. Here you will find the most important insights from their joint presentation.
Scope 3 Reporting Becomes Mandatory under CSRD
Companies worldwide are facing increasing pressure from stakeholders and regulations to meet their climate targets. Of particular importance is Scope 3, as defined by the GHG Protocol, which, in contrast to Scopes 1 and 2, includes all upstream and downstream emissions along a company’s supply chain. This new importance of Scope 3 is, among other things, becoming apparent in the fact that Scope 3 reporting becomes mandatory under the upcoming EU wide Corporate Sustainability Reporting Directive (CSRD).
From 2025 onwards, companies in Europe meeting two of the following three conditions will have to comply with the CSRD and thus report scope 3 emissions:
€40 million in net turnover
€20 million in assets
250 or more employees
In addition, non-EU companies that have a turnover of above €150 million in the EU will also have to comply.
Different methods of measuring Scope 3 emissions
With this in mind, we are going to have a look at how exactly companies can go about to tackle their Scope 3 emissions. The first step is definitely to measure the emissions from their supply chain. For this, the GHG Protocol suggests to use different calculation methods, depending on the availability of data.
As shown in this graphic, you can use either supplier-specific data or secondary data (i.e., industry average data). The different methods are sorted according to their specificity. The best calculation method is by far the supplier specific method on top. However, if you have not done a calculation yet, starting at the bottom of the method sorting is the recommended approach. The so-called spend-based method uses average data points.
The spend-based method of measuring Scope 3 emissions
The starting point of a spend-based method is the purchase list, also referred to as your spend file or order placements. It should include all goods and services purchased by your company. Three information are of particular importance here:
Which kind of products/services are bought?
Where are those products/services produced?
How much of those products is bought?
To understand this better, let’s have a look at a concrete example. We assume that our chemical products purchased from the USA are worth 300,000 €. So we know the type of product, the country of origin and the amount of products purchased. After those basic observations, we now look at model data. In the model data, we find out how much revenue the chemical industry in the USA has and also how much CO2 emissions the chemical industry in the USA is emitting. With this information, we can now attribute a certain certain of CO2 emissions to the revenue of the chemical products that our company bought.
Adding Tier 2 and 3 emissions of suppliers of suppliers
However, with this first step, the process of measuring Scope 3 emissions is not concluded yet, as the results only represent the Scope 1 emissions of the suppliers. In order to also calculate the tier 2 and 3 emissions of suppliers of your suppliers and so on, you will need an additional purchase list from the chemical industry of the US – so-called model data.
Now we look at each and every purchase item that the chemical industrie of the US is buying. And we attribute a certain amount of CO2 emissions from those other industries across the whole world that the US chemical industry is buying from. That for example also includes the Scope 2 emissions of the US chemical industry, because they are buying electricity. You need to repeat this process with a list of the tier 3 suppliers, so the emissions caused by suppliers of tier 2 suppliers.
Moving the ladder all the way up to the supplier-specific method
The spend-based method is a good starting point to get a first impression of the emissions of your supply chain. However, the goal should always be to move up the ladder as quickly as possible from average data to deeper and more specific climate information of your suppliers. This is where specialized software tools like the Climate Intelligence Platform come into play.
The Climate Intelligence Platform provides a way to efficiently automate the various steps of the supplier-specific method for Scope 3 decarbonization. Companies receive everything they need to set up, test, manage and achieve their supplier climate engagement targets – from data acquisition to tracking and engagement. Via the platform they can access and acquire a wide range of audit-ready company risk as well as emission data and support their suppliers in their decarbonization journey.
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.
IT Sustainability is a fundamental part of the Allianz business model
Rainer Karcher, Global Head IT Sustainability at Allianz Technology
As Global Head of IT Sustainability at Allianz Technology, Rainer Karcher’s role is to drive the decarbonization of the IT operations of the Allianz Group, one of the leading integrated financial services providers worldwide. He is further responsible for the integration of Sustainability according to the United Nations Sustainable Development Goals (SDGs) into all parts of Allianz.
Rainer will speak at a fireside chat at the CLIMATE TRANSFORMATION Summit 2023. Today we are happy to meet with him to discuss together the urgency of climate action, and the role of digitalization in the successful implementation of climate targets. Don’t forget to book your Summit ticket to meet Rainer at #CTS2023 in May!
What does IT Sustainability mean for Allianz Technology and for Allianz overall? What role does digitalization play in the successful implementation of climate targets?
IT Sustainability is crucial for the business model of Allianz. We are a digital company – our products and services are mainly digital; we do not have factories or production sites. Therefore, the digital part represents about 30% of Allianz’s greenhouse gas emissions. With the increase of digitalization, this percentage can easily go upwards.
When speaking about the role of digitalization in achieving climate targets, there are two aspects: it can be part of the problem, if we don’t act responsibly, but there is also a huge opportunity that it is part of the solution. The more we get digitalized, the more we can get automated, creating an efficient digital world and reducing energy consumption.
You speak about decreasing the organization’s footprint, while increasing its handprint and ensuring a heartprint. What are the concrete steps taken to support this approach?
Allianz is a large corporation, with operations in more than 70 countries. So, the chances that there are redundant applications, software or services are quite high. All our entities act independently, and this is why our main goal is become more efficient together. Transparency is where we need to start: We must know exactly which energy is being consumed, where and why, and also understand what we can to do to make things better.
We can gain this transparency once we have a fully automated treatment of data, and with the help of AI solutions we will understand how we can create more synergies and become more energy efficient.
Another principle we apply is ‘following the sun’. We are trying to place the IT systems in a way that there is always renewable electricity available. At the moment, a lot of IT processes are handled at night, and the problem with that is that, if there is no wind blowing or sun shining, you don’t have renewable electricity. So, we are reconsidering all this in order to always allow possibility to have climate neutral solutions.
What are your goals with this strategy and when will you call it a success?
We do have two main targets: to achieve net-zero operations by 2030 and to reduce energy consumption from IT and communications by 2025 by 20% compared to the pre-COVID values, in 2019.
As long as digitalization increases energy consumption, we can only achieve our targets by a good understanding of how to handle data more efficiently and responsibly.
How do you deal with your supply chain and the emissions generated here?
In procurement, we are facing the challenge of having around 90% of the emissions coming from external third-party partners. This challenge can only be tackled in a close collaboration with our partners. And this is why I think that for Allianz Group the SDG number 17 – Partnership for the goals – is key.
This means we are trying to work together instead of working against each other: there shouldn’t be an approach where we say, “we are the customer, you are the service provider”, but instead we need to find our joint path in a collaborative way. And I have to say, so far this approach works pretty well.
Additionally, we have considered a measurable comparison of the environmental impact for our partners. For example, when it comes to tenders, we now have KPIs in place for measuring the environmental impact of the potential partners by asking them to answer to a certain set of questions, including social and human rights aspects, and evaluating them on a scale from 0 to 10. This indicator is now being considered the same way we used to look at the prices, offering us the chance to choose partners with a similar set of values.
I think the biggest misunderstanding in sustainability is that there is an expert out there that will come and save us all. The truth is what we need is multiple expertise as well as collaboration. So, gathering all existing expertise around one virtual table makes the event so interesting for me. I’m very much looking forward to some new inspiring information and, of course, to also share my own experience and have an open exchange.
How to Qualify, Assess and Develop Suppliers for Scope 3 Decarbonization
To truly achieve corporate climate targets, companies must activate and engage their suppliers, who can account for up to 90% of emissions (Scope 3). The first step is to clearly define the supplier structure and to pre-qualify suppliers for decarbonization on the basis of climate-relevant data. Suppliers must then be assessed and their climate strategy developed and supported accordingly. What is the best way to make this happen?
That’s what we learned at the CHOICE Event #54 from Maximilian Droste from amc Group and Yasha Tarani from The Climate Choice. Here you will find the most important insights from their joint presentation.
Why focus on Scope 3 Decarbonization?
More and more global enterprises are facing various risks and pressure from stakeholders to meet their climate targets today. The de facto standard, the Science Based Targets initiative, requires companies for which emissions from their supply chain (Scope 3) account for more than 40% of their total climate impact to set specific Scope 3 targets. Since Scope 3 emissions are on average 11.4 times higher than direct emissions, this applies to almost every company.
To start measuring and reducing these Scope 3 emissions, companies need to receive product related information from their suppliers. These include product carbon footprint information or lifecycle assessment data in order to compare products and services with each other. The big issue is that most of the suppliers are not ready yet to provide this information.
Without climate relevant data from their suppliers, companies cannot fully understand their climate risks and what measures they need to implement in order to achieve their climate targets. This is where the big challenge for decarbonizing the supply chain lies.
Calculating Emissions from Purchased Goods & Services
So how does calculating emissions from your suppliers actually work? An overview from the Technical Guidance for Calculating Scope 3 Emissions by the Greenhouse Gas Protocol shows that there are different data types used for different calculation methods. Most companies find themselves today still at the bottom with the main use of average data. However, the goal is to arrive at the supplier-specific method and collect as much supplier-specific data as possible. Only then can companies make truly informed buying decisions for decarbonization.
A new study by the Science Based Targets initiative shows that only 6% of companies with science-based climate targets are currently working with specific data from suppliers. This is due to various challenges when approaching their supplier base for climate data. In summary, these are:
Various levels of understanding
Lack of access to accurate CO2 data
Lack of climate management knowledge & capacity
Lack of collaborative tools & best practices
Lack of comparables & benchmarks
Different business sizes & a wide geographic distribution
Process is key for supply chain decarbonization
In order to overcome all of these challenges, companies must first and foremost ensure that sustainability and compliance are not only written down in declarations and codes of conduct, but that they are anchored in procurement and supply chain processes. Let’s have a look at how such a process can be structured. The process map shown as an example below has three different levels. At the top are strategic processes such as category management and long-term strategic development. They build the guardrails of action for an organization. Once the standards for strategic processes are set, it becomes easier at the tactical and the operational level to actually deploy them.
The most crucial process for decarbonization within the strategic level is the supplier relationship management. This is what we will now take a closer look at.
Supplier Management practices guide the process
The supplier management process has the intent of building long-term relationships and ensuring supplier quality based on objective assessments. Companies achieve this by first analyzing their supplier pool and defining relevant suppliers for further supplier management steps. They then evaluate the relevant suppliers by their performance in the past as well as their future potential. Lastly, a strategy of developing the suppliers based on their assessment results has to be defined and implemented.
Let’s go into more detail and look at the exact steps for the specific purpose of working with suppliers on climate targets.
1. Gain understanding of supplier structure.
Supply chains are complex structures that can often consist of multiple thousands of vendors. That’s why the first step is to create transparency and understand who is part of the supply chain. This requires accurate supplier screening in, as exemplified by the Climate Intelligence Platform. Different levels are needed in order to clearly define what the results of the screening mean.
2. (Pre-) Qualify suppliers for decarbonization based on climate maturity.
Once companies have established this visibility, they must define criteria to be part of the supplier structure. For example, this could mean that suppliers should be able to provide corporate as well as product carbon footprint information and have already set their own climate targets. The standardized qualification is the basis for increasing the quality of the supplier pool incl. approval process (barrier to entry).
3. Evaluate suppliers with performance scoring.
When evaluating the suppliers, it is important to gain insight into their holistic climate transformation. After all, individual findings such as CO2 data or top-down analyses of financial flows are far from sufficient here. The Climate Intelligence Platform therefore conducts an assessment in five dimensions: Governance, Strategy, Transparency, Metrics & Targets, and Decarbonization Measures.
4. Classification of suppliers to derive decarbonization strategy.
As a result of the evaluation, companies can now classify their suppliers into high performers and low performers. An overview of supplier ratings and score distribution, as shown in the Climate Intelligence Platform, helps to develop a strategy on how to increase their performance over time. Through the classification, every supplier receives the individual support that they actually need.
5. Derive strategy & development plan for supplier base.
Following the previous steps, the ultimate goal is to translate the established criteria and strategy into a concrete implementation plan. An example from the Scandinavian telecommunications group Telia shows what this can look like.
Automated data collection & collaboration with suppliers
As already shown in the examples, the Climate Intelligence Platform provides a way to efficiently automate the various steps of the supplier relationship management process for Scope 3 decarbonization. Companies receive everything they need to set up, test, manage and achieve your supplier climate engagement targets – from data acquisition to tracking and engagement. Via the platform they can access and acquire a wide range of audit-ready company risk as well as emission data and support their suppliers in their decarbonization journey.
Start with a free basic account for the Climate Intelligence Platform
You can now start your own supplier management process by registering for free on the Climate Intelligence Platform. Within the free basic account you can invite an unlimited number of your suppliers in a quick and automated way to become part of your transformation journey and work together with you on climate actions.
How Coca Cola Engages Suppliers for Science Based Targets
The Science Based Targets (SBTs) initiative helps companies set climate targets that are consistent with the latest climate science. A particular focus of SBTs is on supplier engagement, as 90% or more of companies’ emissions occur in their supply chains. Corporations have to work closely with their suppliers to set and achieve their SBTs. How does a major global company still on the path of climate transformation, like Coca Cola, deal with this challenge?
That’s what we learned at the CHOICE Event #53 from Cornelia Folz, Vice President Public Affairs, Communications and Sustainability (PACS) at Coca-Cola Europacific Partners Germany. Here you will find the most important insights from her presentation.
What are the Science Based Targets?
The Science Based Targets Initiative (SBTi) was founded in 2015 in the year of the Paris Climate Agreement by four NGOs – CDP, WWF, UN Global Compact and World Resources Institute. The initiative is considered a leader in both guiding science-based climate target setting and validating it. It defines and promotes best practice in emissions reduction and net-zero targets in line with climate science. Teams of experts provide companies with independent assessment and validation of targets.
The change has already begun and action is gaining pace. Over 2,000 organizations worldwide are leading the transition to a net-zero economy by setting reduction targets grounded in climate science.
Coca Cola’s commitment to Science Based Targets
Together with the Science Based Targets initiative, Coca Cola Europacific Partners has set an ambition to reach net zero greenhouse gas (GHG) emissions by 2040. Over the last decade, the company has already reduced GHG emissions across its entire value chain by 30.5%. Coca Cola now concentrates on reducing its value chain emissions even further, with a focus on scope 3 emissions where the biggest impacts occur. In all of this, Coca Cola is committed to an approach that prioritizes reducing greenhouse gas emissions wherever possible.
Key focus: mobilizing suppliers on climate change
In order to reach this target, Coca Cola puts a key focus on mobilizing its suppliers on climate change. Over 90% of the organizations GHG emissions are scope 3 emissions. Those scope 3 emissions include raw ingredients (25%), packaging (43%), operations and commercial sites (7%), transport (9%) as well as cold drinks equipment (16%).
So to really achieve the net zero ambition, Coca Cola has to work closer with its suppliers and support them in their decarbonization journey. To do so, the company has decided to start very easy with three clear and direct questions they are asking their suppliers:
Can you set your own SBTi-validated GHG emissions reduction targets by 2023?
Can you commit to using 100% renewable electricity across your operations by 2023?
Please share your carbon footprint data with us.
Supplier Carbon Reduction Program
These three questions form the basis for activation and close cooperation with suppliers. Once the ambitions, plans as well as the existing know-how regarding the setting of science-based targets, the transition to 100% renewable energy and the sharing of carbon data from suppliers are clear and known, the real work can begin. From this, Coca Cola has launched a program to motivate and support suppliers with knowledge and resources.
Together with the Carbon Disclosure Project (CDP) and the Science Based Targets initiative, Coca Cola has created specific training programs for their suppliers. Suppliers that are just starting their climate transformation can join these programs, receive guidance, and learn how and with what best practices to set science-based targets. They also learn about different emission factors and approaches to identify carbon hotspots, start reduction measures and track real progress.
Practical example: The Transport Tender
So how does this all impact the day to day work? Let’s have a look at the example of the transport tender that Coca Cola is sending to out logistics companies. It includes a clear message to suppliers that sustainability is one of the 3 key objectives of the tender. Via a bidsheet, suppliers can then offer prices for green solutions (rail, waterways, gas, biofuels, electric). This allows Coca Cola to transparently learn about and compare the extra costs of decarbonization measures with actual GHG savings.
On this basis, Coca Cola can discuss together with the suppliers on possible short and mid-term solutions. The decision making process is supported by formal calculations to weight tCO2e reduction vs oncost. Here, different alternative scenarios are created, which include the highest tCO2e reduction scenario, the cheapest scenario, and so on.
Conclusion: From easy to complex
The Transport Tender example shows how a simple question at the beginning evolves into more specific details and an ever finer process of collaboration and shared decision making as it progresses. This is exactly how every company should approach the process of decarbonizing its own supply chain. Because one thing is clear: the task is big and complex and can seem overwhelming at first. However, we are all still at the beginning of climate transformation and need to learn together step by step.
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.
