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.