Mar 04 2024

Integrating Supply Chain Decarbonisation into Your Corporate Sustainability Strategy



Integrating Supply Chain Decarbonisation into Your Corporate Sustainability Strategy

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 resilient, sustainable operations. From renewable energy and energy efficiency to circular economy and sustainable materials, companies are exploring a wide range of strategies to green their own facilities and processes.

But as more and more businesses conduct greenhouse gas inventories and set science-based targets for emissions reduction, a startling realization is emerging: for most companies, the vast majority of their carbon footprint lies not within their own four walls, but in the complex web of suppliers, logistics providers, and other partners that make up their value chain.

In fact, according to CDP, supply chain emissions are on average 11.4 times higher than a company's direct operational emissions. This means that any serious effort to align with the Paris Agreement and limit global warming to 1.5°C must address the sprawling scope 3 emissions that are embedded in the goods and services a company buys, sells, and transports.

But integrating supply chain decarbonisation into a corporate sustainability strategy is easier said than done. It requires a fundamental shift in mindset and approach, from seeing suppliers as mere cost centers to be squeezed, to viewing them as strategic partners in the transition to a low-carbon economy. It means moving beyond a narrow focus on a company's own operations and products, to considering the entire lifecycle impacts of the value chain, from raw materials to end-of-life.

So how can companies effectively integrate supply chain decarbonisation into their sustainability strategies? Here are a few key steps and considerations:

Conduct a comprehensive GHG inventory and materiality assessment
The first step in any supply chain decarbonisation effort is to understand your company's full carbon footprint, including scope 1, 2, and 3 emissions. This means conducting a comprehensive greenhouse gas inventory that follows the Greenhouse Gas Protocol Corporate Standard and Scope 3 Standard, and covers all relevant emissions categories and sources across the value chain.
But a GHG inventory is just the starting point. To prioritize your supply chain decarbonisation efforts and align them with your overall sustainability strategy, you also need to conduct a materiality assessment that identifies the most significant environmental, social, and governance (ESG) issues for your business and stakeholders. This assessment should consider factors such as the magnitude and likelihood of potential impacts, the level of stakeholder concern and influence, and the relevance to your company's purpose, values, and goals.

By mapping your supply chain emissions hotspots against your materiality matrix, you can identify the areas where you have the greatest opportunity and imperative to drive change, and focus your resources and efforts accordingly.

Set ambitious, science-based targets for supply chain emissions reduction
Once you have a clear picture of your supply chain emissions and priorities, the next step is to set ambitious, science-based targets for reduction that are aligned with the goals of the Paris Agreement. The Science Based Targets initiative (SBTi) provides a robust framework and validation process for setting corporate emissions reduction targets that are consistent with the level of decarbonisation required to keep global warming well below 2°C.
To meet the SBTi criteria, companies must set scope 1 and 2 targets that are in line with the Paris Agreement goals, as well as scope 3 targets if their scope 3 emissions are significant (40% or more of total emissions). Importantly, the SBTi requires that companies' scope 3 targets cover at least two-thirds of their total scope 3 emissions, to ensure that they are addressing the most material sources of supply chain emissions.

By setting SBTi-validated targets for supply chain emissions reduction, companies can ensure that their efforts are aligned with the latest climate science and are contributing meaningfully to the global effort to limit warming to 1.5°C. They can also communicate their targets and progress to stakeholders in a credible and transparent way, and benchmark their performance against industry peers and best practices.

Engage suppliers in the decarbonisation journey

Of course, setting targets is one thing; actually achieving them is another. To drive real reductions in supply chain emissions, companies need to engage their suppliers in the decarbonisation journey and work collaboratively to identify and implement solutions.
This engagement can take many forms, from sharing data and best practices, to co-investing in low-carbon technologies and infrastructure, to incentivizing and rewarding suppliers for their sustainability performance. Some key strategies and tools for supplier engagement include:

Supplier codes of conduct and sustainability scorecards that set clear expectations and track progress on emissions reduction and other ESG criteria
Supplier training and capacity building programs that help suppliers measure and manage their own emissions, and identify opportunities for improvement
Collaborative innovation and R&D initiatives that bring together suppliers, customers, and other partners to develop new low-carbon products, services, and business models
Sustainable procurement policies and practices that integrate ESG criteria into purchasing decisions, and create market demand for low-carbon solutions
Partnerships with industry associations, NGOs, and other stakeholders to drive systemic change and create a level playing field for sustainable supply chains
By engaging suppliers as partners in the decarbonisation journey, companies can tap into a wealth of expertise, innovation, and scale that can accelerate progress and create shared value for all.

Align supply chain decarbonisation with other sustainability priorities
Another key consideration in integrating supply chain decarbonisation into your sustainability strategy is to ensure that it is aligned with and supportive of your other sustainability priorities and goals. After all, the transition to a low-carbon economy is not just an environmental imperative, but also a social and economic one.
This means looking for opportunities to link supply chain decarbonisation with issues such as human rights, labor standards, diversity and inclusion, and community development. It means considering the potential trade-offs and synergies between different sustainability goals, and seeking to optimize for multiple benefits wherever possible.

For example, a company that is working to reduce emissions from transportation and logistics might also consider how to support the transition to electric vehicles in a way that benefits local communities and workers, such as by partnering with community colleges to provide training and job placement services for electric vehicle mechanics and technicians.

Similarly, a company that is working to reduce emissions from agriculture and land use might also consider how to support sustainable livelihoods and food security for smallholder farmers, such as by providing training and financing for regenerative agriculture practices that sequester carbon in the soil while also improving yields and resilience.

By taking a holistic, systems-level approach to supply chain decarbonisation, and aligning it with other sustainability priorities and goals, companies can create more transformative and lasting impact, and build a more resilient and inclusive low-carbon economy.

Measure, disclose, and iterate for continuous improvement

Finally, to truly integrate supply chain decarbonisation into your sustainability strategy, you need to commit to ongoing measurement, disclosure, and continuous improvement. This means setting up robust systems and processes for tracking progress against your targets, and regularly reporting on your performance to internal and external stakeholders.
It also means being transparent about your challenges and setbacks, and using them as opportunities for learning and improvement. No company gets it right on the first try, and the path to supply chain decarbonisation is often a long and winding one, with many obstacles and detours along the way.

But by committing to a process of ongoing iteration and improvement, and by engaging stakeholders in the journey, companies can build trust, accountability, and momentum for change. They can also tap into new sources of innovation and collaboration, as they share their experiences and learn from others who are working towards the same goals.

Some key tools and frameworks for measuring, disclosing, and iterating on supply chain decarbonisation include:

The CDP Supply Chain program, which provides a standardized platform for companies to request and disclose environmental data from their suppliers, and benchmark their performance against industry peers
The GHG Protocol Scope 3 Evaluator, which provides a simplified tool for estimating and prioritizing a company's scope 3 emissions, and identifying hotspots for reduction
The Sustainable Apparel Coalition's Higg Index, which provides a suite of tools for measuring and improving the environmental and social performance of the apparel and footwear industry, including a Facility Environmental Module for suppliers
The Sustainability Accounting Standards Board (SASB) standards, which provide industry-specific metrics and disclosures for ESG performance, including supply chain metrics for issues such as greenhouse gas emissions, water management, and labor practices
By leveraging these and other tools and frameworks, and by committing to ongoing measurement, disclosure, and iteration, companies can drive real progress on supply chain decarbonisation and create lasting value for all stakeholders.

The road ahead

Integrating supply chain decarbonisation into a corporate sustainability strategy is not a quick fix or a one-time exercise. It requires a fundamental rewiring of how companies think about and engage with their value chains, and a willingness to collaborate and innovate for the long haul.

But the rewards of this journey are immense - not just for the planet and society, but for the resilience, competitiveness, and growth potential of the companies that embrace it. By aligning their supply chain goals with their sustainability priorities, and by working collaboratively with suppliers and other partners to drive change at scale, companies can unlock new sources of value and impact that far exceed the sum of their parts.

As a sustainability professional and business leader, I have seen firsthand the power of this approach to drive transformative change and deliver tangible results. From reducing costs and risks to enhancing brand reputation and driving innovation, the benefits of supply chain decarbonisation are clear and compelling.

But I have also seen the challenges and roadblocks that companies face along the way - from lack of data and resources to misaligned incentives and short-term thinking. Overcoming these barriers will require bold leadership, deep collaboration, and a willingness to challenge the status quo and reimagine what's possible.

The path to a low-carbon economy is not an easy one, but it is a necessary and urgent one. And by integrating supply chain decarbonisation into their sustainability strategies, companies can help lead the way and accelerate the transition to a more just, resilient, and sustainable future for all.

The time for incremental change is over. The time for bold, systemic, and collaborative action is now. Let's rise to the challenge, and build the supply chains and economies of tomorrow, today.


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