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 a free basic account for the Climate Intelligence Platform

So it’s a matter of approaching suppliers with simple questions and thus taking the first step. You too can easily implement exactly this simple start today. Register for free on the Climate Intelligence Platform to assess your climate maturity and engage suppliers to do the same. 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.

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.

Schneider Electric’s Path to Scope 3 Decarbonization

To meet their climate targets, global corporations must reduce CO₂ from their supply chain in particular, which can account for up to 90% of their total emissions. The problem: they cannot reduce these Scope 3 emissions themselves, but instead have to enable their suppliers to do so. This collaboration requires, above all, holistic data on the climate performance of suppliers, which does not yet exist.

How does a global enterprise such as Schneider Electric deal with this challenge? This is what we learned at the the CHOICE Event #47 from Kanishk Negi, Sustainable Procurement Director at Schneider Electric. Here you will find the most important insights from his presentation.

Schneider Electric’s corporate sustainability strategy

Schneider Electric SE, the multinational leader in the digital transformation of energy management and automation, is aiming to accelerate sustainable progress for its customers, employees, partners and communities everywhere. For this purpose, the organization has set six long-term commitments:

• Act for a climate positive world
• Be efficient with resources
• Live up to our Principles of trust
• Create equal opportunities
• Harness the power of all generations
• Empower local communities 

To ensure compliance, Schneider Electric has committed to achieving 12 measurable goals by 2025.

The particular importance of procurement is reflected in the fact that one-third of these targets depend mainly on Schneider Electric’s supply chain (marked with a blue arrow in the graphic). Of these four procurement-dependent commitments, let’s now take a closer look at how Schneider Electric is trying to reduce the CO₂ emissions of its top 1,000 suppliers by 50%.

The challenges of Scope 3 decarbonization

Decarbonizing Scope 3, or supply chain emissions, is a complicated and challenging undertaking. This is especially true for a large and diversified company like Schneider Electric. The multinational organization employs more than 128,000 people in 115 different countries. Its procurement spend last year was over 14 billion euros. Because of its well-balanced global presence, Schneider Electric’s suppliers come from all parts of the world. Managing this global supply chain effectively is therefore a particularly complex task.

In addition, when Schneider Electric began looking at the climate maturity of its top 1,000 suppliers, further challenges came to light. As it turned out, 70% of these companies were actually new to the idea of decarbonization. This means that they had never calculated or quantified their carbon footprint and were not aware of the difference between Scope 1, 2 and 3 emissions. Furthermore, two-thirds of the suppliers requested were found to be small and medium-sized enterprises. This added another nuance to the challenge, as smaller companies have only limited capacities and competencies when it comes to topics like sustainability and decarbonization. Accordingly, many suppliers initially took particular notice of the high cost factor involved in implementing climate protection measures.

Solving the problem: The Zero Carbon Project

After gathering all these insights and gaining a holistic understanding of the challenges, Schneider Electric launched a comprehensive support program in April 2021 and named it “The Zero Carbon Project”. Under the program, Schneider provides tools and resources in order to help suppliers set and achieve their climate targets. The suppliers participating in the program were first encouraged to quantify their CO₂ emissions using the company’s digital tools. This data was then used to set goals and strategies for emissions reduction. 

In order to provide suppliers with comprehensive support for climate actions, Schneider Electric has established a wide range of offerings. So far, more than 130 live training sessions on CO₂ calculation and decarbonization measures took place. In addition, Schneider Electric has provided its suppliers with various digital tools on its web portal. Among other things, they can use these for a digital emissions calculation as well as for best practice exchange with peers and partners to access other innovative solutions for decarbonization. The consultation is supported by specialized experts and is also adapted to the different geographical characteristics.

The results of all these intensive engagements have already been promising. 1,016 active suppliers are currently participating in the program and are being engaged in decarbonization measures. 90% of those suppliers have now calculated their CO₂e footprint. In addition, the participating suppliers have already reported around 8% reduction in their CO₂e emissions.

Streamlining Scope 3 decarbonization with digital tools

Schneider Electric’s pioneering efforts show that, despite today’s challenges, it is actually possible to successfully engage suppliers in decarbonizing the supply chain. Nevertheless, as it stands today, companies can only accomplish this extremely complex task with a great deal of effort, which is why digital tools are now more crucial than ever in order to streamline the process of collaborating with suppliers. 

One such tool is our Climate Intelligence Platform. The end-to-end Software as a Service platform helps enterprises to capture and manage comparable climate-related performance data and information from their suppliers. Via the secure IT platform, suppliers can easily report their climate data and obtain benchmarks, year-to-year comparisons as well as action-oriented potential and concrete decarbonization measures. Thereby, suppliers and customers can work together in a transparent manner to actively pursue climate goals.

For more information on the benefits of the Climate Intelligence Platform for Scope 3 decarbonization:

Get basic access for free within 5 minutes by completing our form and climate check.

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 Climate Intelligence Platform 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 Climate Intelligence Platform can help you with getting your suppliers on board. You can invite your suppliers to be part of the solution, capture their holistic climate management profile via Climate Performance Assessments, which can be shared securely and comparably on the Climate Intelligence Platform.

Learn more about how our Platform can give your company’s climate transformation a boost.