2023-03-29
Supply Chain
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 your Data & Engagement Program with the Climate Intelligence Platform
You can now start your own supplier data and engagement process for decarbonization by joining the next Scope 3 Action Group or booking a demo for the Climate Intelligence Platform. The AI-first Climate Intelligence Platform is designed for procurement and climate teams to accelerate Scope 3 decarbonization. Companies use it to automate time-consuming and costly supplier engagement and audit-ready data collection at scale. It´s trusted by leaders like T-Systems, Lenovo, o2 Telefónica, and EnBW.
