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.

Has your company set Scope 3 Targets? Get in touch to learn how the Climate Intelligence Platform accelerates your supplier data tracking and engagement efforts.

What is Scope 3.1?

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:

1. 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.
2. 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.
3. 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.
4. 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.

Join them in making a difference!

Contact us today for your individual platform demo.

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.

Has your company set Scope 3 Targets? Get in touch to learn how the Climate Intelligence Platform accelerates your supplier data and engagement efforts.

Why Supplier Engagement is Paramount for Scope 3

While Scope 1 (own facilities, vehicles, heat, operations, etc.) and 2 emissions (purchased energy) are generated and controlled a company’s own operations, Scope 3 emissions encompass all indirect emissions generated by a company’s activities along the supply chains.

The 15 Categories of Scope 3 Emissions along the Supply Chain

According to the Greenhouse Gas Protocol (GHG Protocol), the indirect Scope 3 emissions include 15 different categories, ranging from the procurement of product and services (Scope 3.1) and transportation (Scope 3.4) upstream, to End-of-Life (Scope 3.12) and investments (scope 3.15) downstream.

Upstream Emissions

3. 1. Purchased Goods and Services – emissions generated by the raw material extraction and processing of goods and services used by a company for its own activities.

3.2. Capital Goods – emissions resulting from the production of plant, equipment, machinery and other long-term capital goods that a company uses in its operations.

3.3. Energy and Fuel-Related Activities – emissions that arise from upstream and network losses of energy and fuel.

3.4. Upstream Transportation and Distribution – emissions generated by the transportation and distribution of raw materials and products delivered to the company by suppliers.

3.5. Waste – emissions from the disposal and treatment of waste.

3.6. Business Travel – emissions that arise from business trips by a company’s employees.

3.7. Employee Commuting – emissions that arise from the daily commute of a company’s employees.

3.8. Upstream Leased Assets – emissions from buildings or vehicles rented from third parties.

Downstream Emissions

3.9. Downstream Transportation and Distribution – emissions that arise from transportation and distribution to customers or end users – or paid for by third parties.

3.10. Processing of Sold Products – emissions from processing products sold.

3.11. Use of Sold Products – emissions generated during the usage of a product by customers or end users.

3.12. End-of-Life Treatment of Sold Products – emissions generated during the disposal and treatment of products after they have reached the end of their life.

3.13. Downstream Leased Assets – emissions resulting from the use of fixed assets rented or leased by a company to other companies.

3.14. Franchises – emissions generated by franchisees’ business activities.

3.15. Investments – emissions that arise from a company’s investments in other companies or projects.

KEY TAKEAWAY

As indirect upstream Scope 3 emissions are typically 11.4x bigger than the direct Scope 1 and 2 emissions of a company, effectively managing and reducing them is paramount to meet corporate climate goals.

Rising Regulatory Landscape requires transparent Scope 3 Data

SCOPE 3 CHALLENGE

As Scope 3 emissions are generated, managed and controlled directly or indirectly by suppliers and business partners, supplier engagement is a crucial part of holistic climate management to address the Scope 3 challenge. The importance of doing so, is driven by rising international regulation.

Rising Regulatory Pressure

• SEC (U.S. Securities and Exchange Commission): SEC is increasingly focuses on climate-related disclosures. In 2022, they proposed new rules to enhance and standardize climate-related disclosures, including Scope 3. Engaging with suppliers to gather accurate emissions data is key in complying with these regulations.
• ISSB (International Sustainability Standards Board): ISSB is working on global sustainability reporting standards. Supplier engagement assists in aligning with these standards by collecting emissions data consistently across the supply chain.
• EU’s CSRD (Corporate Sustainability Reporting Directive): The EU is tightening its reporting requirements. Under the CSRD, companies must report on supply chain emissions. Even small companies with 1 – 750 employees, can waive Scope 3 emissions only in the first reporting year. Supplier engagement is key to meeting this obligation effectively.

Increasing Stakeholder Expectations

• Investors: Investors focus on ESG (Environmental, Social, Governance) criteria, consider supply chain emissions when evaluating investments. Engaging with suppliers to reduce emissions demonstrates commitments towards sustainability, while reducing risks.
• Customers: The new generation of so-called ‘ethical consumers’ demands transparency. Backed by the new EU ban of ‘green product claims’, supplier engagement is essential for companies to provide detailed information about their products’ environmental impact, enhancing brand reputation and prohibit greenwashing.

Importance of Supplier Engagement to meet Scope 3 Targets

The new market requirements of regulatory authorities and stakeholders result in numerous consequences for the future-oriented business strategy of companies.

The strategic importance of supplier engagement is growing rapidly, driven by:

• Risk Mitigation – Supplier engagement helps decision makers identify high-emission suppliers, allowing companies to assess climate-related risks and diversify their supplier base to reduce exposure to carbon-intensive sources.
• Cost Reduction – Collaborating with suppliers on emission reduction strategies leads to cost savings through improved efficiency and resource use.
• Innovation: Partnering with suppliers to reduce emissions fosters innovation. Suppliers may develop low-emission products and processes, giving the company a competitive edge.
• Market Access – Some markets, like the EU, already restrict imports from companies with high carbon footprints. Supplier engagement aids in meeting these market access requirements.

Best Practices for successful Supplier Engagement Program

GETTING STARTED

The critical role of supplier engagement in managing Scope 3 emissions and meeting Scope 3 Targets is becoming evident. Explore best practices from practice to build up your successful supplier data tracking and engagement program.

8 Best Practices that support you in overcoming the Scope 3 Challenge

1. Assessment and Prioritization – Start by assessing the individual climate maturity of your suppliers. Identify high-impact suppliers to prioritize engagement efforts.

2. Set Clear Expectations – Define Scope 3 climate targets and set expectations for your suppliers. Use contracts, agreements, and codes of conduct to communicate those and get commitment. Clearly communicate the importance of focusing on measures to truly reduce emissions.

3. Collaboration, Capacity Building & Education – Collaborate with your suppliers to develop shared decarbonization goals. Offer trainings and resources to help them understand their own climate performance and implement best practices to reduce emissions.

4. Data Collection & Monitoring – Implement digital systems for tracking and reporting supplier climate targets, risks, emissions and actions. Regularly review progress towards Scope 3 targets, address issues promptly and promote top achievers.

5. Incentives & Recognition – Offer incentives for your suppliers that meet or exceed your expectations. Recognize and celebrate their achievements, fostering motivation for continuous improvement.

6. Transparency – Be transparent about your own climate journey and progress. This encourages your suppliers to follow suit and promotes a culture of shared responsibility.

7. Technology Integration – the Climate Intelligence Platform supports you in streamlining data collection and engaging your suppliers across the supply chain.

8. Continuous Improvement – Encourage continuous innovation and improvements. Regularly reassess your goals and adapt to changing circumstances.

Supplier Engagement indispensable to overcome the Scope 3 Challenge

Supplier engagement is indispensable to gather accurate Scope 3 emissions, align with international regulatory requirements and meet your own Scope 3 targets. Implementing successful best practices in your supplier engagement program allows you to prioritize decarbonization, collaboration, and transparency. As the global focus on Scope 3 intensifies, supplier engagement is not only a compliance necessity but a strategic advantage for future-driven organizations.

Has your company set Scope 3 Targets? Get in touch to learn how the Climate Intelligence Platform accelerates your supplier data and engagement efforts.

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!

Contact us today for your individual platform demo.

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.

Unlock the Potentials of AI for your Supply Chain Decarbonization! Get Exclusive Access to our AI Supplier Screening Programm, to manage Scope 3 Data and implement Actions.

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:

Continuous Tracking:

• 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.

Data Quality:

• 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.

Assessment Fatigue:

• 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:

1. 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.

2. 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.

3. 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.

Request to join the Early Access Program today, it’s limited!

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.

You are curious how you can benefit from CLIMATE AI? Learn more about our new AI Supplier Screening program!

The Climate Power of Supply Chains – 10 Steps towards Decarbonization in Scope 3.

The pressing issue of climate disclosure are making it clear. CO₂ numbers are not enough to understand the climate performance of a company – as we all know. Instead, companies are establishing holistic climate management approaches in order to drive real change. A market transition that is very much highlighted by rising regulations such as the European Supply Chain Due Diligence Directive (CSDDD), the Corporate Social Responsibility Directive (CSRD) and the de facto standard for climate-relevant information from the Task Force on Climate Related Financial Disclosures (TCFD).

What is holistic climate management in supply chains all about?

However, there is even one step further to take. Sustainability leaders know that climate impacts, risks and necessary decarbonization actions don’t end at the office door. Instead, investors, customers and policymakers urge companies to take responsibility for their entire value chain and purchasing decisions. The growing climate crisis shows that supply chain resilience and the transformation of entire business models are more important than ever.

Challenge of going beyond the basic CO₂ Footprint in Scope 1 & 2

When addressing climate responsibility within and beyond the own company, it becomes tricky. As climate-relevant information in Scope 3 are connected to hundreds and sometimes thousands of suppliers. Meanwhile, your climate data needs to be accurate, granular, and auditable.

Achieving net-zero for Scope 1 and Scope 2 emissions presents a substantial technical and economic challenge for many companies. Addressing Scope 3 emissions adds an additional layer of complexity. Such as, but not limited to:

• Consistent carbon accounting and climate performance tracking practices
• The need to work collaboratively with suppliers and business partners
• Handling multi-tiered supply networks and difficulties of engaging them in the improvement process

So how do sustainability and procurement leaders alike overcome this challenge?

Manage your Decarbonization Journey in Scope 3

Overarching climate goals in the supply chain can only be achieved by treating and involving the supply chain as a crucial aspect of any firm’s holistic climate performance. Therefore, businesses must collaborate with their suppliers to enable them to play a vital role in their climate transformation.

By publicly disclosing climate targets for Scope 3, emissions and decarbonization measures along the supply chain, an organization demonstrates accountability and provides stakeholders with vital information for understanding its climate performance. Beside regulatory pressure, new market mechanisms already show that those companies gain competitive advantages and are ahead of their peers. Undergoing a significant shift, business partners, customers and stakeholders alike increasingly consider climate impact in their decision-making. This presents the opportunity to align business strategies with market expectations and respond to the growing decarbonization demands proactively.

10 Steps towards climate-relevant data in Scope 3 – powered by Supplier Engagement

STEP1 – SET YOUR FOUNDATION

To embark on the path of supply chain decarbonization, you must begin by establishing a solid foundation. Start by making your climate commitment public, setting ambitious targets that include your supply chain. Assess your emissions and clearly define your priorities for implementing actions and solutions in your own transition. Aim high and align your goals with the Paris Agreement’s 1.5°C target.

STEP 2 – ACCEPT THE AMBIGUOUS STATUS QUO

Acknowledging the diversity of targets, strategies, incentives, and requirements within your own company is crucial. Align your sustainability and procurement offices to ensure a successful program outcome. Assemble a dedicated #TeamClimate and ask yourselves the important questions: Why do we need this program? What outcomes do we anticipate? Who needs to be involved? With these answers, you can set the stage for success.

STEP 3 – BE SIMPLE!

Simplicity is key when starting your supply chain decarbonization journey. Avoid overwhelming complexity right from the beginning. Instead, focus on asking your suppliers simple yet essential questions: Have you set climate targets? Have you calculated your emissions? What climate actions are you planning to implement? By keeping it simple, you can prevent frustration and maintain momentum.

STEP 4 -START WITH YOUR HOTSPOTS IN THE SUPPLY CHAIN

Having set your climate targets and aligned your internal team, it’s time to identify the hotspots in your supply chain. Utilize third-party data, databases, screening or a spend-based approach to gain an initial understanding of your value chain’s status quo. Cluster suppliers based on their climate maturity and strategic importance to pinpoint the hotspots that require your attention. The Climate Intelligence Platform offers a swift and straightforward way to screen your supplier base and kick-start your supplier climate engagement program.

STEP 5 – CLARIFY DATA NEEDS FOR TEAM SUSTAINABILITY AND PROCUREMENT

Before engaging with your supply chain, ensure that your internal stakeholders are on the same page. Align your sustainability and procurement teams regarding data, processes, and next steps.
This collaborative effort ensures that everyone is working towards the same goals and expectations. Clear communication is essential.

STEP 6 – SET UP THE PROCESS IN PROCUREMENT AND SUSTAINABILITY TEAM

Establishing the supplier engagement program is often organized by the procurement team. However, the sustainability team’s involvement is crucial in providing insights and publishing a clear message regarding your supply chain climate targets. This collaboration strengthens the credibility of your program and enables effective engagement with suppliers.

STEP 7 – START ENGAGING SUPPLIERS BY STRESSING THE “WHY”

Now it’s time to reach out and communicate with your suppliers. Make it a two-way conversation by inviting collaboration, sharing knowledge and resources, and guiding them through the journey. Highlight the benefits for suppliers supporting your climate initiative and provide incentives to get them on board. Build relationships and emphasize the collective effort needed to make a difference.

STEP 8 – DON’T OVERWHELM, STAY SIMPLE!

Understand that managing climate issues can be overwhelming for both you and your suppliers. Be open to feedback and improvement. Remember that we are all on this climate journey together, transitioning toward a low-carbon economy will take time. Motivate and engage your business partners, support them along the way.

STEP 9 – DARE TO TAKE DECISIONS

With information, feedback, and data in hand, it’s time to make decisions. Data should be utilized to gain insights and inform decision-making processes. Define a baseline from which you started and plan the next steps that bring you and your suppliers closer to achieving Net Zero. Address crucial questions such as how to provide climate knowledge to suppliers, share best practices, define quirements, and collaborate on taking action.

STEP 10-REPORT AND REPEAT

You took the first 9 steps, talk about it and share your learnings. This leads to your final step: report and repeat. You will repeat the process next year, so it’s the best time to get into the improvements and actions – together with your suppliers.

Let’s take action together!

This is why at THE CLIMATE CHOICE we empower every single company to become a climate champion in order to implement its climate targets and reduce emissions.

How? We start with the most impactful part: the supply chain. Which typically consists of hundreds and thousands of small and medium sized suppliers. They have the power to drive climate actions at scale. To do so, they need to understand where they stand in terms of climate transformation and work transparently together with their business partners to implement meaningful measures.

Our software-based Climate Intelligence Platform collects climate-focused data from companies, represents them in CLIMATE Scorecards and provides business insides into risks, potentials and best practices to reduce emissions.

Get more information in the Climate Playbook 2023, which provides a comprehensive overview of key insights from the CLIMATE TRANSFORMATION Summit 2023 (#CTS2023) and serves as a guide for companies to transition from incremental internal to exponential climate action across the supply chain.

The Domino Effect of Scope 3 Emissions

Today, many companies are already regularly calculating their direct corporate CO₂ emissions. But it is not yet known that there is a big potential behind these emissions. Emissions from the value chain in Scope 3 can have a big leverage effect on a company’s reduction potential. However, according to recent insights about the carbon maturity of companies only 10% of large companies have reduction targets for their Scope 3 emissions and only 2% of medium-sized companies. Let’s have a look at this hidden leverage effect! 

Find out here how our AI Supplier Screening supports companies to set up Supplier Engagement Programs for Decarbonization!

WHAT ARE SCOPE 3 EMISSIONS?

The Greenhouse Gas (GHG) Protocol divides GHG emissions into Scope 1, 2 and 3. Scope 1 emissions come from sources that are owned or controlled by a company and include direct emissions generated e.g. by buildings and its own mobility. Emissions from Scope 2 are indirect and include purchased energy, steam, and heating/cooling. Scope 3 includes only indirect emissions that are generated in 15 distinct reporting categories along the supply chain. The 15 categories provide companies with a systematic framework to measure, manage, and reduce emissions across the entire corporate value chain. 

This is why the consideration of Scope 3 emissions proves to be particularly important, as they typically account for up to 90% or more of a company’s total emissions. 

WHERE DO SCOPE 3 EMISSIONS OCCUR

The GHG Protocol identified 15 categories of Scope 3 emissions, from upstream to downstream activities:

3.1 Purchased goods and services

3.2 Capital goods

3.3 Fuel- and energy related activities (not included in scope 1 or scope 2)

3.4 Upstream transportation and distribution

3.5 Waste generated in operations

3.6 Business travel

3.7 Employee commuting

3.8 Upstream leased assets

3.9 Downstream transportation and distribution

3.10 Processing of sold products

3.11 Use of sold products

3.12 End-of-life treatment of sold products

3.13 Downstream leased assets

3.14 Franchises

3.15 Investments

For many companies, the first category (Scope 3.1) contributes a major part to their GHG inventory. It covers upstream emissions from the production of purchased goods and services, which includes emissions generated from processing and transporting them along the supply chain – up to tier 1 (direct) suppliers. 

BUILDING SCOPE 3 INVENTORY FOR THE ENTIRE SUPPLY CHAIN

Scope 3 data is often missing as suppliers are often not yet climate ready and cannot provide the necessary data. Primary data from the supply chain is therefore missing and companies work with average data. This data does not help to identify issues in the supply chain or to improve the efforts of existing suppliers. Moreover, the sole focus on CO₂ as leading KPI is misleading, as it is a so-called lagging KPI, which is backwards oriented.

In order to make assumptions about future risks and opportunities, it is necessary to use leading KPIs that allow to manage upcoming challenges. Therefore a holistic climate management is needed in the supply chain. This includes using a set of indicators in the areas: climate governance, strategy, risks, metrics and decarbonization actions.

GETTING SUPPLIERS ON BOARD

Collecting this climate-relevant data from suppliers can be a major undertaking, and often presents the biggest challenges to conducting a Scope 3 Decarbonization Strategy.

Especially small and medium sized enterprises are not  “climate ready” yet, i.e. they cannot provide the needed climate-relevant data to business partners and third parties. Software solutions such as our Climate Intelligence Platform help companies to get their suppliers on board, align around their climate strategy and gain the necessary primary data in a structured and comparable way. 

Discover how our customers work towards Supply Chain Deacrbonization!

5 STEPS FOR SUCCESSFUL SUPPLIER ENGAGEMENT

There are five key steps that support companies in working with suppliers along the supply chain on a joined decarbonization strategy. Those are:

1. Announce the program to the supply chain before sending any survey forms
2. Provide a training or information session on the data collection methodology
3. Check-in periodically with suppliers regarding their progress on completing the survey
4. Provide benefits such as shared data, benchmarks and incentives for all participating suppliers
5. Assess data quality and share the results, best practices and next steps with all participating parties to allows for a joint decarbonisation strategy and improvements

DRIVING DECARBONIZATION

90% of a company’s emissions originate in the supply chain. Getting your suppliers on board of your climate transformation therefore has a major leverage effect of your decarbonization measures. To access climate relevant data from your suppliers, frequent and clear communication with suppliers, reciprocal feedback on the process and structured, comparable data management is key. 

Our AI Supplier Screening can help you with getting your suppliers on board. 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.

Get more information about our AI Supplier Screening.

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.

Get more information about our AI Supplier Screening.

IT Sustainability is a fundamental part of the Allianz business model

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.

What message would you like to share with the participants of the upcoming CLIMATE TRANSFORMATION Summit 2023?

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.

Thank you Rainer for the inspiring interview!

Don’t miss out on his fireside chat at #CTS2023, and secure your ticket here!

Let’s Make Transformation Happen!

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.

Here you can register within 5 minutes and try out the platform without obligation.

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:  

1. Can you set your own SBTi-validated GHG emissions reduction targets by 2023?
2. Can you commit to using 100% renewable electricity across your operations by 2023?
3. 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.

Get more information about our AI Supplier Screening.

Why Supplier Engagement is crucial for achieving Science Based Targets

2023 has just begun, and already it’s clear that despite all the recent crises, both policymakers and leading companies are finally putting climate transformation front and center this year. How do we see this? The EU has just taken a decisive step towards the fundamental climate transformation of the European economy with its Green Deal Industrial Plan. At the same time, more and more companies are working to realign their own business model in a sustainable and future-oriented way. Already more than 4000 companies have set themselves Science Based Climate Targets for this purpose – a rapid increase of over 100% in only two years.

Supplier engagement is key for Science Based Targets

The Science Based Targets initiative (SBTi) supports companies in setting climate goals aligned with the latest science. In the work of SBTi, the importance of Scope 3 (emissions from the supply chain) has become increasingly evident in recent years. It is now clear that 90% or more of a company’s emissions typically come from the supply chain. Scope 3 decarbonization and supplier engagement are therefore absolutely essential if a company wants to achieve its climate targets. The SBTi therefore requires companies to pay particular attention to targets and measures for their supply chain. Thus, supplier engagement comes to the center of attention. 

What can companies do to meet these requirements and to engage their suppliers in decarbonizing the supply chain? We take a deep dive into this in the following.

You want to discuss the individual challenges of your company? Then book a call to learn more about how our platform supports you in setting up your supplier engagement program.

Why are Science Based Targets so important? 

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 a leading player for both guidance on science-based climate target setting and its validation. Companies can make a high-profile commitment to set Science Based Targets and then have two years to have these targets validated in close consultation with SBTi. 

The SBTi offers companies an important opportunity to ensure the credibility and realism of corporate climate targets. Today, companies are often tempted to tick off the issue of climate protection with quick “solutions” such as mere compensation and then exploit them for marketing purposes. Climate targets plucked out of thin air therefore inevitably lead to justified accusations of greenwashing. Instead, companies need to make the effort and really align their targets with science and the 1.5 degree target.

Why is Scope 3 important for setting Climate Targets?

Companies taking a closer look at their CO2 budget in the course of setting their Science Based Targets, quickly notice that in the majority of industries the bulk of a company’s emissions lie upstream of its core business and are generated through the purchase of goods and services (Scope 3.1). For this reason, the SBTi has stipulated that companies for which Scope 3 emissions account for more than 40% of total emissions must set a specific Scope 3 target for this purpose.

For setting targets for different Scope 3 categories, the SBTi provides guidance and criteria. Based on these criteria, a company should first try to find out where the emissions are coming from in its value chain using a Scope 3 screening. This way, the company knows where to focus its efforts to reduce greenhouse gases.

Using supplier engagement to implement Scope 3 targets

Once companies have identified the hotspots in their supply chain, they can move on to planning the reduction. Strictly speaking, however, companies cannot reduce these Scope 3 emissions themselves. Rather, they must enable their suppliers to take appropriate reduction measures. This is where supplier engagement comes into play and why the Science Based Targets initiative provides the opportunity and guidance for formulating additional supplier engagement targets. 

However, herein things get complicated. After all, engaging suppliers for climate actions continues to pose big challenges for companies. One problem is the complexity of value chains. These usually consist of thousands of small and medium-sized suppliers, who often have only limited resources for structured climate management. Accordingly, most suppliers fail to make their climate maturity and the corresponding climate-relevant data transparent to their business partners. In addition, many suppliers have limited time and resources and can only partially invest in concrete reduction measures.

7 Steps of the supplier engagement framework

To help companies prepare for these challenges, the SBTi has developed a supplier engagement framework. This guidance includes the following steps:

1. Identify suppliers to engage
   First, companies should target those suppliers that have the highest contribution to the upstream scope 3 emissions.
2. Determine the approach
   From providing support and guidance to promoting competition among suppliers, there are various approaches whose suitability needs to be assessed.
3. Communicate
   Communication of expectations as well as the process and implications of data collection is crucial and should always be interactive. 
4. Collaborate
   This is arguably the most important and also the hardest step of the framework. It involves driving tangible improvement with suppliers through co-creation of action plans, capacity building, training programs, incentives, and more.
5. Support
   Because suppliers are often at very different stages of their climate transformation, each should receive exactly the right form of resources, workshops, benchmarks, or best practices it needs to take its next step.
6. Monitor
   By continuously monitoring ongoing progress, companies can track positive developments and also adjust processes and further develop measures as needed.
7. Reinforce
   Finally, companies should not forget to incentivize suppliers to hold up their end of the bargain.

Let’s make it happen!

The SBTi framework provides an initial orientation for the complex field of supplier engagement for climate action. It also shows how highly the topic is rated by the world’s leading driver of climate target setting. Numerous companies that are now setting Science Based Targets see supplier engagement in particular as the biggest challenge ahead of them. That’s why we built the Climate Intelligence Platform to help them and all other companies looking to reduce their Scope 3 emissions.

The Climate Intelligence Platform provides you with everything you need to set up, test, manage and achieve your supplier climate engagement targets – from data acquisition to tracking and engagement. With our corporate and enterprise plan you will be able to

• … obtain complementary data to ratings like CDP, scalable to thousands of suppliers.
• … gain transparency and track your suppliers’ climate management efforts, to achieve engagement targets and reduce emissions in Scope 3.
• … receive comparable and audit-ready emissions data for improved emissions reporting.

Start your supplier engagement program now and compare our plans.