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How to Qualify, Assess and Develop Suppliers for Scope 3 Decarbonization
To truly achieve corporate climate targets, companies must activate and engage their suppliers, who can account for up to 90% of emissions (Scope 3). The first step is to clearly define the supplier structure and to pre-qualify suppliers for decarbonization on the basis of climate-relevant data. Suppliers must then be assessed and their climate strategy developed and supported accordingly. What is the best way to make this happen?
That’s what we learned at the CHOICE Event #54 from Maximilian Droste from amc Group and Yasha Tarani from The Climate Choice. Here you will find the most important insights from their joint presentation.
Why focus on Scope 3 Decarbonization?
More and more global enterprises are facing various risks and pressure from stakeholders to meet their climate targets today. The de facto standard, the Science Based Targets initiative, requires companies for which emissions from their supply chain (Scope 3) account for more than 40% of their total climate impact to set specific Scope 3 targets. Since Scope 3 emissions are on average 11.4 times higher than direct emissions, this applies to almost every company.
To start measuring and reducing these Scope 3 emissions, companies need to receive product related information from their suppliers. These include product carbon footprint information or lifecycle assessment data in order to compare products and services with each other. The big issue is that most of the suppliers are not ready yet to provide this information.
Without climate relevant data from their suppliers, companies cannot fully understand their climate risks and what measures they need to implement in order to achieve their climate targets. This is where the big challenge for decarbonizing the supply chain lies.
Calculating Emissions from Purchased Goods & Services
So how does calculating emissions from your suppliers actually work? An overview from the Technical Guidance for Calculating Scope 3 Emissions by the Greenhouse Gas Protocol shows that there are different data types used for different calculation methods. Most companies find themselves today still at the bottom with the main use of average data. However, the goal is to arrive at the supplier-specific method and collect as much supplier-specific data as possible. Only then can companies make truly informed buying decisions for decarbonization.
A new study by the Science Based Targets initiative shows that only 6% of companies with science-based climate targets are currently working with specific data from suppliers. This is due to various challenges when approaching their supplier base for climate data. In summary, these are:
- Various levels of understanding
- Lack of access to accurate CO2 data
- Lack of climate management knowledge & capacity
- Lack of collaborative tools & best practices
- Lack of comparables & benchmarks
- Different business sizes & a wide geographic distribution
Process is key for supply chain decarbonization
In order to overcome all of these challenges, companies must first and foremost ensure that sustainability and compliance are not only written down in declarations and codes of conduct, but that they are anchored in procurement and supply chain processes. Let’s have a look at how such a process can be structured. The process map shown as an example below has three different levels. At the top are strategic processes such as category management and long-term strategic development. They build the guardrails of action for an organization. Once the standards for strategic processes are set, it becomes easier at the tactical and the operational level to actually deploy them.
The most crucial process for decarbonization within the strategic level is the supplier relationship management. This is what we will now take a closer look at.
Supplier Management practices guide the process
The supplier management process has the intent of building long-term relationships and ensuring supplier quality based on objective assessments. Companies achieve this by first analyzing their supplier pool and defining relevant suppliers for further supplier management steps. They then evaluate the relevant suppliers by their performance in the past as well as their future potential. Lastly, a strategy of developing the suppliers based on their assessment results has to be defined and implemented.
Let’s go into more detail and look at the exact steps for the specific purpose of working with suppliers on climate targets.
1. Gain understanding of supplier structure.
Supply chains are complex structures that can often consist of multiple thousands of vendors. That’s why the first step is to create transparency and understand who is part of the supply chain. This requires accurate supplier screening in, as exemplified by the Climate Intelligence Platform. Different levels are needed in order to clearly define what the results of the screening mean.
2. (Pre-) Qualify suppliers for decarbonization based on climate maturity.
Once companies have established this visibility, they must define criteria to be part of the supplier structure. For example, this could mean that suppliers should be able to provide corporate as well as product carbon footprint information and have already set their own climate targets. The standardized qualification is the basis for increasing the quality of the supplier pool incl. approval process (barrier to entry).
3. Evaluate suppliers with performance scoring.
When evaluating the suppliers, it is important to gain insight into their holistic climate transformation. After all, individual findings such as CO2 data or top-down analyses of financial flows are far from sufficient here. The Climate Intelligence Platform therefore conducts an assessment in five dimensions: Governance, Strategy, Transparency, Metrics & Targets, and Decarbonization Measures.
4. Classification of suppliers to derive decarbonization strategy.
As a result of the evaluation, companies can now classify their suppliers into high performers and low performers. An overview of supplier ratings and score distribution, as shown in the Climate Intelligence Platform, helps to develop a strategy on how to increase their performance over time. Through the classification, every supplier receives the individual support that they actually need.
5. Derive strategy & development plan for supplier base.
Following the previous steps, the ultimate goal is to translate the established criteria and strategy into a concrete implementation plan. An example from the Scandinavian telecommunications group Telia shows what this can look like.
Automated data collection & collaboration with suppliers
As already shown in the examples, the Climate Intelligence Platform provides a way to efficiently automate the various steps of the supplier relationship management process for Scope 3 decarbonization. Companies receive everything they need to set up, test, manage and achieve your supplier climate engagement targets – from data acquisition to tracking and engagement. Via the platform they can access and acquire a wide range of audit-ready company risk as well as emission data and support their suppliers in their decarbonization journey.
Start with a free basic account for the Climate Intelligence Platform
You can now start your own supplier management process by registering for free on the Climate Intelligence Platform. Within the free basic account you can invite an unlimited number of your suppliers in a quick and automated way to become part of your transformation journey and work together with you on climate actions.
How to generate Value from Supplier Climate Data
New reporting requirements and stakeholder expectations are driving large companies to collect climate-related information from their suppliers. Once they have overcome the first hurdle of collecting data along complex supply chains, they immediately face the next challenge. What do I do with all this supplier climate data now? How can I generate value for my company from it? How can it help me to achieve my sustainability targets?
This is what we learned at the CHOICE Event #52 from Neele Franke and Hugo Ernest-Jones from IBM Consulting. Here you will find the most important insights from their presentation.
Companies struggle with operationalizing climate strategies
When it comes to sustainability and climate efforts by large companies, it is striking that today many of them are already publicly committing to climate targets and developing strategies for their implementation. While most have ambitious plans, however, many are still struggling to operationalize them. A recent survey among over 2,000 CEOs worldwide revealed that 86% of companies have a sustainability strategy, but only 35% have acted on that strategy (Source: IBM Institute for Business Value (2022): Sustainability as a transformation catalyst).
So while the “What” seems to be rather clear, the “How” of getting it actually done remains a big challenge. Added to this is the increasing pressure and complexity of regulations and frameworks for corporate sustainability and climate disclosure. Regulators are mandating minimum levels of reporting – putting the responsibility onto corporations. They, in turn, have to find their way through the jungle of new standards and initiatives defining the most important climate data in companies. Since up to 90% of a company’s emissions originates from the supply chain, they must also manage to collect this data from their suppliers.
The evolution of a sustainable enterprise
For companies that start collecting supplier climate data, it is important to understand that next to compliance and reporting purposes, they can also generate huge amounts of value from their data collection. If done right, it can help the company to operate more effectively, more profitably, with reduced costs and in a more innovative way to develop new products and services.
Based on this insight, companies can be classified in a maturity curve for their sustainable evolution in three stages.
Stage 1 – Sustainability Compliance
Focus mainly on license to operate and meeting regulatory or compliance requirements. Digital maturity is low, processes and systems are siloed, and data collection and aggregation is a manual process.
Stage 2 – Sustainability Optimization
Sustainability initiatives exist for Social, Environmental & Governance, across operations and support functions. Acceleration of digitization and automation of sustainability data collection and reporting.
Stage 3 – Sustainability Transformation
Sustainability is embedded as a core value and mission statement across all company departments and functions. Technology is focused on differentiation, advanced analytics and futuristic, with the objective of leveraging sustainability as a competitive advantage.
Key steps in operationalizing supplier climate data
How can companies leverage their supplier climate data to move from mere sustainability compliance to real sustainable transformation? The following key steps can serve as a guide to successfully operationalize the data collected in order to drive action.
1. Data Collection
There are two different options when collecting climate data from suppliers. Real supplier “primary” product level data is the preferred where available, though availability is limited. “Secondary” averages data on the other hand are readily available, but of limited quality. Clients should therefore collect and integrate primary data for selected high impact/strategic suppliers (at least scopes 1 and 2) where possible and use secondary data sources to model remaining emissions.
2. + 3. Data Integration and Engine
While many companies still collect and integrate their data manually in Excel spreadsheets, the goal should be to automate this process as much as possible. Specialized software solutions are already available for this purpose, such as the Climate Intelligence Platform. This has the advantage that time-consuming processes can be carried out efficiently and cost-effectively, and the data is also auditable.
4. Visualization and reporting
Once companies have collected and integrated the supplier climate data, they should visualize the results next in order to draw out insights to inform reporting and strategy. Smart visualization with specialized tools also supports the management of data availability and quality.
5. Simulation and strategy
In order to use the data not only for insight into the past, but also for future planning, the next step is strategy work. Companies can now leverage the supplier climate data to help guide decision making around reducing emissions along the supply chain. This is where modeling and simulation comes in and links with the next and last step: supplier engagement.
6. Supplier Engagement
Collaborating with and engaging suppliers is the core and end goal of every effort to decarbonize the supply chain. It is important to note that successful supplier engagement must occur at three levels.
Process & Governance – Companies should design a strategy and operational model aligned to supplier benefits and user outcomes that are fair, democratic, transparent and evolving.
Business Value – In order to secure participation, companies must design a business model that includes appropriate incentives to stimulate collaboration and network effects.
Technology – Technical solutions with winning human experiences help to drive mass adoption of new digital products and services with privacy, trust and security.
Start with a free basic account for the Climate Intelligence Platform
The best approach to finding the entry point to collecting and leveraging supplier climate data is to “start small and think big”. The Climate Intelligence Platform offers a perfect small start for companies looking to engage their suppliers for climate action. The free basic account offers access to over 10,000 climate supplier profiles and the possibility to analyze the basic climate maturity of an unlimited number of suppliers in an automated way.
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.
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:
- Identify suppliers to engage
First, companies should target those suppliers that have the highest contribution to the upstream scope 3 emissions.
- Determine the approach
From providing support and guidance to promoting competition among suppliers, there are various approaches whose suitability needs to be assessed.
Communication of expectations as well as the process and implications of data collection is crucial and should always be interactive.
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.
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.
By continuously monitoring ongoing progress, companies can track positive developments and also adjust processes and further develop measures as needed.
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.
CLIMATE TRANSFORMATION Community – International decision makers join #CTS2022 to share Best-Practices for Decarbonisation
We could not be more excited! The CLIMATE TRANSFORMATION Summit 2022 is less than two months away and we’re super happy to share with you who is going to join #CTS2022 and will be sharing insights, challenges and Best-Practices with you. Please meet our #CTS2022 Ecosystem!
Let’s get started: Your personal Program, 100% online & 100% interactive
The agenda of the Summit is already ready and so are we! As the latest update of the sixth IPCC Assessment Report highlights once again, the time to act is NOW. The good news are: Technically, we have all the solutions right there and at our fingertips to make a successful Climate Transformation possible. But, it needs us to get them implemented. Everyone of us, as employee, employer or decision maker, as climate officer, procurement leader or budget owner. We need to take climate relevant decisions to get active and decrease emissions drastically. Within the next 8 years around 50%. The challenge is on and accepted!
That’s why we’ve gathered over 50 Climate Pioneers, Experts, Practitioners and Decision-Makers to share their current challenges as well as Best-Practices at CLIMATE TRANSFORMATION Summit 2022. We welcome you to a two-days interactive program, full of insights, time for learnings and networking. 100% online and live.
At this year’s third edition of ClimateSummit.de, on the 2nd and 3rd of June, a wide range of speakers come together to share with you their individual steps towards a comprehensive, climate compatible transformation and provide their insights on Supply Chain Transformation, Decarbonisation Data & IT, Infrastructure for Transformation, Emission Management and the International Climate Community.
Join and become part of the CLIMATE Community!
Supply Chain Decarbonisation: A Game-Changer
We all know: Reducing emissions is hard enough. But it gets even harder if you want to get to the root of it: The value chain, where up to 90% of the total corporate emissions typically are generated. Hence, the biggest lever of a successful Climate Transformation is the supply chain. This brings a huge shift in climate management as the highest potential for companies to reduce CO2 emissions lies in supplier management as well as in climate relevant procurement decisions! So how can climate and procurement leaders work together to make this change happen? This is what we explore together at #CTS2022. Because we are all just getting started and it needs all of us to get it right.
This is why, we can’t wait to learn more from our speakers, who come from international corporations such as Microsoft, IBM, Telefónica Germany, SIEMENS and Nestlé as well as from CLIMATE Pioneers such as WWF, Project Drawdown and Potsdam Institute for Climate Impact (PIK)! All of them are ready to share valuable business insights with you into how their organisation is tackling the biggest opportunity of our time: The Climate Transformation!
“Data is the new oil“
In an ever more connected world, having reliable data is needed for any kind of business decision. So what is it about climate relevant data?
The first topic is obvious: Calculating Scope 3 (indirect) emissions of a corporate carbon footprint – the emissions that occur along the entire supply chain – is indispensable. Up until today, those are hard to measure as not all data is available. The second topic around climate relevant data is a little hidden. It is formed around the question: How do you measure and track how well companies are managing their Climate Transformation? How are they setting up climate targets, how are they implementing reduction efforts and how well are they managing internal and external climate risks? All these questions occur today, especially in the financial world. Investors and financial institutions – but also customers and business partners – want to understand if a specific company will be negatively affected by climate change or is turning into a Climate Champion. Therefore, one needs to manage climate related ESG data, which is reflecting the governance, strategy, risks and metrics of companies around climate.
At #CTS2022, we will explore all of these data needs in different panels and fireside chats. Especially Decarbonisation Data & IT Experts will come together and share their experiences on how data can be successfully used for decarbonisation and showcase cutting-edge innovations. We can’t wait to see what practitioners such as Microsoft, IBM, SINE Foundation and many more have in store for the successful Climate Transformation!
Keeping track of the emissions!
So we see already that advanced knowledge and technology can be used for monitoring and reducing greenhouse gas (GHG) emissions from business operations. Therefore, we are happy to present innovative emission management solutions and enabling services as Climate Pioneers at our online fair – such as myclimate, First Climate, BearingPoint, greenmiles and Planted. Get to know them as exhibitors, schedule a call or explore their virtual booth, and learn how you can implement comprehensive CO2 management.
In addition, in the various Panels, interactive Fire-Side-Chats, Deep-Dive Workshops and Speed-Networking sessions, it is all about you! All participants will become part of the vibrant CLIMATE Community and have the opportunity to get involved and active! Present your insights during each session and exchange best-practices with others, work together on decarbonisation and Climate Transformation. This way, the day after the Summit, you can get started in your company, with new business partners, community support or know-how. You don’t want to miss out on that!
Why does it need a Climate Action Community?
As stated by research from the United Nations, the Sustainable Development Goal (SGD) number 17: Partnerships is the single most powerful goal as it affects all other goals such as Safety, Health, Education, Biodiversity, Climate and so on.
In order to make the monumental task of decarbonisation of companies and their supply chains possible, we need a strong and motivated international community that works together on not only setting climate targets but also implementing them in terms of strong actions, along supply chains. This is why we are so glad to build up an open-minded, respectful and supportive CLIMATE Community at the CLIMATE TRANSFORMATION Summit 2022!
Meet the international Community at #CTS2022
We are very honored to have so many amazing international and local players being part of the Community. Climate pioneers such as Project Drawdown, B.A.U.M. e.V., GreenBiz, Futurewoman, WWF Germany and the Potsdam Institute for Climate Impact Research (PIK) will be presenting through their speakers and workshop hosts insights from the international Climate Transformation. Be prepared for the most recent scientific findings and biggest potentials for decarbonisation. Join and contribute, together we make the Climate Transformation happen!
You want to dig deeper? Take a look below at the first overview of the #CTS2022 Ecosystem Line-Up. We’re super thankful to have such diverse and impressive speakers participating in the Summit, coming from different industries and tackling the climate crisis in their own individual ways to make the transformation work! If you want to become part of this ecosystem yourself, you can still apply here.
Always in the making – be a part of #CTS2022!
Just like in nature, the #CTS2022 ecosystem can only function if all participants are on board and pull together in one direction. Therefore, we would like to say THANK YOU for your great support and motivation – you are making it all possible!
To make real change happen we need to go beyond the „Climate Bubble”, raising awareness amongst the wider business community. This is the mission of the Summit: Making Climate Transformation available for companies and their entire supply chains. Therefore, the CLIMATE TRANSFORMATION Summit invites all Decision-Makers, Climate Officers, Green-Tech Entrepreneurs, Freelancers, Researchers and interested parties who now want to implement relevant measures and best practices of the Climate Transformation.
We are happy to have you joining! Get your ticket here and join the CLIMATE Community, be part of #CTS2022 and make decarbonisation happen.