Feb 22 2024

Collaborating with Suppliers for Effective Supply Chain Decarbonisation



Collaborating with Suppliers for Effective Supply Chain Decarbonisation

In the race to a net-zero future, businesses are leaving no stone unturned in the quest to reduce their environmental impact and build more sustainable, resilient operations. But as many companies are discovering, the biggest opportunities for carbon reduction often lie not within their own four walls, but in the complex web of suppliers and partners that make up their global supply chains.

Consider this: for most organizations, anywhere from 70-90% of their total greenhouse gas emissions come from Scope 3 sources - that is, the indirect emissions associated with the goods and services they purchase, the transportation and distribution of their products, and the use and disposal of those products by customers. In other words, the vast majority of a company's carbon footprint is outside of its direct control.

This presents a daunting challenge for sustainability leaders looking to drive meaningful, science-aligned emissions reductions across the value chain. After all, how can you influence the carbon performance of suppliers that you don't own or operate? How can you incentivize them to invest in cleaner technologies and processes, when the costs and benefits may not be evenly distributed? And how can you ensure that your supply chain sustainability efforts are more than just a checkbox exercise, but a true catalyst for systemic change?

The answer, in short, is collaboration. To effectively decarbonize the supply chain, companies need to move beyond a transactional, compliance-based approach to supplier engagement, and towards a more strategic, partnership-based model that aligns incentives, shares risks and rewards, and fosters continuous improvement and innovation.

Here are some key strategies and best practices for collaborating with suppliers to drive supply chain decarbonisation:

Set clear, shared goals and metrics
The first step in any supplier collaboration effort is to establish a clear, shared understanding of what you're trying to achieve - and how you'll measure success. This means setting specific, measurable, and time-bound carbon reduction targets that are aligned with the latest climate science and the goals of the Paris Agreement. It also means defining a consistent set of metrics and methodologies for tracking progress, such as the Greenhouse Gas Protocol's Scope 3 Standard.
But setting goals and metrics is not a one-way street - it requires active engagement and buy-in from suppliers themselves. After all, they are the ones who will ultimately be responsible for implementing the changes and investments needed to meet those targets. That's why it's critical to involve suppliers early and often in the target-setting process, soliciting their input and feedback on what's feasible, desirable, and impactful from their perspective.

One effective approach is to use a "co-creation" model, where companies and suppliers work together to define shared sustainability goals and roadmaps, taking into account their respective capabilities, constraints, and priorities. By aligning around a common vision and language, companies and suppliers can build trust, accountability, and a sense of shared ownership for the decarbonization journey.

Foster transparency and data sharing
Another critical enabler of supplier collaboration is transparency - both in terms of the carbon footprint of products and processes, and in terms of the actions and investments being made to reduce that footprint over time. After all, you can't manage what you can't measure.
But for many companies, getting a clear and comprehensive picture of their Scope 3 emissions is easier said than done. Supply chain data is often fragmented, inconsistent, and difficult to access, requiring complex calculations and estimates based on industry averages and assumptions.

That's why a growing number of companies are investing in digital tools and platforms to facilitate data sharing and transparency across the supply chain. From carbon accounting and product lifecycle assessment software to blockchain-enabled traceability solutions, these technologies can help companies and suppliers gain a more granular, real-time view of their environmental impacts and opportunities.

But technology alone is not enough - it also requires a cultural shift towards greater openness, trust, and reciprocity in supplier relationships. Companies need to be willing to share their own data and insights with suppliers, not just demand it from them. They need to create safe spaces for dialogue and learning, where suppliers can raise concerns, share best practices, and explore new ideas without fear of retribution or competitive disadvantage.

Provide training and capacity building
Of course, measuring and reporting on carbon emissions is just the first step - the real challenge is figuring out how to reduce them over time. And for many suppliers, especially small and medium-sized enterprises in emerging markets, this can be a daunting prospect.
After all, decarbonization often requires significant investments in new technologies, processes, and skills - from energy efficiency retrofits and renewable power generation to circular design and sustainable materials sourcing. It also requires navigating a complex landscape of standards, regulations, and stakeholder expectations, which can vary widely across geographies and industries.

That's why one of the most impactful ways that companies can support their suppliers in the decarbonization journey is through training and capacity building. This can take many forms, from one-on-one coaching and mentoring to group workshops and e-learning modules, covering topics like carbon accounting, energy management, sustainable procurement, and more.

The key is to tailor the training to the specific needs and capabilities of each supplier, taking into account their size, sector, and maturity level. It's also important to provide ongoing support and follow-up, to help suppliers translate the lessons learned into concrete actions and results.

Some companies are even going a step further, by creating dedicated supplier sustainability funds or financing mechanisms to help cover the upfront costs of decarbonization investments. For example, Walmart has created a Gigaton PPA program to help its suppliers access renewable energy at competitive prices, while IKEA has launched a €100 million Supplier Climate Fund to co-invest in supplier emissions reduction projects.

Collaborate on innovation and co-investment
Perhaps the most powerful way that companies can collaborate with suppliers on decarbonization is by working together to innovate new products, processes, and business models that are inherently more sustainable and low-carbon.
After all, many of the most promising opportunities for emissions reduction lie not in incremental efficiency gains, but in fundamental shifts in how we design, produce, and consume goods and services. From circular economy models that eliminate waste and keep materials in use, to servitization models that prioritize access over ownership, to regenerative agriculture practices that sequester carbon in the soil - the possibilities for transformative innovation are vast and exciting.

But unlocking these opportunities often requires a level of collaboration and co-investment that goes beyond traditional buyer-supplier relationships. It requires a willingness to share risks and rewards, to pool resources and expertise, and to think beyond short-term transactional gains to long-term value creation for all stakeholders.

One example of this kind of deep collaboration is the partnership between Mars, Inc. and its cocoa suppliers in West Africa to promote sustainable agriculture practices and improve farmer livelihoods. Through its Cocoa for Generations program, Mars is working with suppliers, NGOs, and governments to provide training, financing, and market access for smallholder farmers, while also investing in agroforestry and other climate-smart practices that can increase productivity and resilience while reducing emissions.

Another example is the Fashion Industry Charter for Climate Action, a multi-stakeholder initiative that brings together brands, suppliers, and other partners to collaborate on decarbonizing the fashion supply chain. Through working groups and pilot projects focused on areas like low-carbon materials, circular business models, and renewable energy, the Charter is driving collective action and innovation towards a net-zero future for fashion.

The road ahead
Of course, collaborating with suppliers on decarbonization is not a quick fix or a one-time exercise - it's an ongoing journey that requires patience, perseverance, and a willingness to learn and adapt along the way.

There will be challenges and setbacks, from data gaps and misaligned incentives to competing priorities and external disruptions. There will be times when progress feels slow or incremental, and when the scale of the challenge seems overwhelming.

But the rewards of this journey are immense - not just for the planet, but for the resilience, innovation, and long-term value creation potential of the companies and suppliers that embark on it.

By working together to decarbonize the supply chain, companies and suppliers can not only reduce their environmental footprint and mitigate climate risks, but also unlock new sources of competitive advantage and stakeholder trust. They can build more agile, adaptive, and future-proof business models that are better positioned to thrive in a low-carbon economy. And they can create positive social and economic impact for workers, communities, and consumers around the world.

As a sustainability and supply chain professional, I have seen firsthand the power of collaboration to drive transformative change - and the costs of going it alone. No company, no matter how large or influential, can decarbonize its supply chain in a vacuum. It takes a village - a ecosystem of partners, allies, and co-creators working together towards a shared vision of a better future.

So if you're a business leader looking to accelerate your supply chain decarbonization efforts, my advice is simple: start with your suppliers. Engage them early and often, listen to their needs and ideas, and find ways to create shared value and accountability. Be transparent about your own challenges and limitations, and be willing to roll up your sleeves and get creative in finding solutions.

The road ahead may be long and winding, but the destination is clear - a thriving, resilient, and sustainable supply chain that delivers for people, planet, and profit. By collaborating with suppliers, you can help lead the way.

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