Scope 3 Decarbonization: How Haleon Applies Carbon Pricing for Impact

Navigating the journey to Net Zero in Scope 3 is challenging, especially when tried-and-tested strategies are not yet available. We invited Chris Low, Head of Procurement Sustainability and Packaging at Haleon, to our CHOICE Event #74 to discuss how he and his team are driving procurement’s contribution to meet Haleon’s climate ambitions related to Scope 3, with a particular focus on using ‘Carbon Pricing’ as a key tool.

THE IMPORTANCE OF SUPPLY CHAIN DECARBONIZATION

Supply chain decarbonization and Scope 3 emissions are central to current sustainability discussions. In many industries, the majority of corporate greenhouse gas emissions occur along the value chain. This is increasingly reflected in regulatory initiatives such as the European CSRD and international climate disclosure laws. Addressing Scope 3 emissions is not just a regulatory necessity but a strategic opportunity. By understanding their full carbon footprint, companies can identify leading suppliers and enhance their overall climate performance. However, collecting accurate emissions data from suppliers remains a significant challenge, often relying on average emission factors and estimates.

In CHOICE Event #74, Chris Low shared Haleon’s journey to understanding, managing and reducing the impact of its supply chain..

LET’S START: HALEON’S SCOPE 3 COMMITMENT

Haleon, the company behind many familiar brands like Sensodyne and Panadol, is dedicated to delivering better everyday health with humanity. This is underpinned by Haleon’s sustainability goals.  Launched in Summer 2022, the company aims to reduce its source to sale Scope 3 emissions, which are created in the supply chain, by 42% by 2030 compared to a 2022 baseline.

Easier said than done, as always.

As part of its journey, Haleon is focusing on supplier engagement to assist with Scope 3 decarbonization.

58% of Haleon’s emissions come from Scope 3.1 (Purchased Goods & Services). Almost two-thirds of emissions are under the management of procurement. Hence, the procurement team decided to focus on communication, partnership and collaboration with their suppliers.

SUPPLIER ENGAGEMENT : A 5-STEP JOURNEY

1. Focus: Haleon identified a cohort of 400 suppliers from its approximately 16,000 suppliers, starting with top-emitting categories and those with significant spend.

2. Clarity: The company stated clear climate pledges and asked their key partners to move with them.

3. Incentives: Decarbonization actions were incentivized, along with requests for Product Carbon Footprint data. This is being rolled out as part of tenders in the top emitting categories to ensure partnerships start with clear expectations and commitments.

4. Rewarding: Chris uses internal procurement dashboards to track the climate performance of suppliers with individual scorecards. Insights and best practices are shared across the supply chain to foster healthy competition and recognition.

5. Support: The procurement team provides training resources, support with access to renewable energy, and emission calculations to assist suppliers in their transition journey.

Planning is good, implementation is better. Next up, how Chris brought this plan to life with his procurement team and along the supply chain.

IMPLEMENTATION: SUPPLY CHAIN PLEDGE FOR TOP SUPPLIERS

Haleon is also asking suppliers to sign a pledge committing to specific decarbonisation actions. This pledge signifies a shared commitment to reducing environmental impact and driving systemic change within the industry.

This brings us to the challenges and successes of sustainable procurement processes. It’s important that transition costs are well understood and managed, which helps to maximize impact.

USING CARBON PRICING

Haleon currently uses activity-based data with standardised emission factors for Scope 3 categories like purchased goods and capital goods. This method provides a more accurate representation of their carbon footprint compared to a spend based approach, but pushing for suppliers to provide primary emissions data will further refine this.

In addition, Haleon is rolling out carbon pricing in supplier tenders to understand the carbon footprints of purchased products and services. Specifically, this means that in supplier tenders, the total emissions per business scope are submitted by each supplier and multiplied by an carbon price. This offers a more accurate total cost of ownership, as the carbon price of each purchase is added to the buying price. For those unable to provide emission data, Haleon applies an industry average emission factor with a 50% increment. This is designed to encourage suppliers to be more proactive providing accurate emission factors.

In the supplier selection process, Haleon locks in the carbon price with the overall cost. This ensures that carbon considerations are integral to the cost assessment without applying a separate weighting.

This provides the baseline for a practical sustainable procurement system.

KEY TAKE AWAYS: ENSURING A LEVEL PLAYING FIELD

There can be certain risks associated with this approach – for example inaccurate emissions data submissions from suppliers. To prevent this, Haleon makes sure that data points are accurate, providing guidance on:

• Data Structure: Primary data must be used for Scope 1 and 2 emissions, with average assumptions allowed for Scope 3 elements.

• Calculation Methods: No offsetting or insetting is allowed in CO2 balances, moreover alignment with ISO 14000, PACT, TfS and other methods are ensured.

All of this includes: Double-checking data and phoning suppliers. Doing so, Haleon has achieved a 66% response rate from suppliers for carbon data submissions in carbon pricing tenders so far. In the case of fraudulent attempts at gaming the system, suppliers risk getting excluded from tenders, paying for any additional carbon emissions and termination of contracts. In case of missing data, industry average emissions +50% are used.[LH2] [MA3] 

BEST PRACTICES: OTHER IMPORTANT DATA TOOLS

In addition to Carbon Pricing, Haleon uses a number of ways to quantify carbon emissions per supplier, identify emission hot spots and gather best practices.

1. Annual Reports – Software tools (such as provided by The Climate Choice) can scrape supplier data for you, including primary CO2 data, emission factors or climate targets.

2. AI Support – Start simple! E.g. ChatGDP can identify the process steps and heat processes associated with the manufacture of most materials.

3. Communities – There are many working groups and communities supporting you and providing excellent case studies and recommended supplier engagement approaches.

However, all collected data is only valuable if it is used.

LAST BUT NOT LEAST: STARTING ACTIONS

Chris shares the following places to start:

1. Switch Suppliers:  Using gathered emissions data to award business to low carbon suppliers. (in T1, 2, 3.. ).

2. Valuable Engineering: Switch materials and designs to reduce emissions.

3. Renewable Electricity: Consider reputable RECs / EACs or PPA’s for a quick transition.

4. Efficiency: In all processes and scopes. E.g. electric motors, LED lighting or HVAC systems.

5. Conversation: Educate, share and listen to create opportunities for and with your suppliers.

By implementing these supplier engagement strategies, Haleon is working to create a robust approach to managing Scope 3 emissions. This case study is provided by The Climate Choice as part of the regular online CHOICE Events, sharing valuable insights from practitioners to enhance climate best practices.

Let’s make successful progress together on the journey to Net Zero.

Your next opportunities to get started: The 5th Climate Transformation Summit focusing on “Making Scope 3 Action our Business” (12th September, Berlin) and the next Scope 3 Action Group (Start: 17th October, online).