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.