Mar 13 2024

The Business Case for Supply Chain Decarbonisation: Benefits and ROI



The Business Case for Supply Chain Decarbonisation: Benefits and ROI

For years, the conversation around corporate sustainability has been dominated by a narrow focus on risk mitigation and compliance. Companies have viewed environmental and social issues as a cost of doing business, a box to be checked to avoid negative publicity or regulatory penalties. But as the scale and urgency of the climate crisis becomes impossible to ignore, a new paradigm is emerging - one that recognizes sustainability not as a burden, but as a source of competitive advantage and long-term value creation.

Nowhere is this shift more evident than in the realm of supply chain sustainability. As companies come under increasing pressure from investors, customers, and regulators to reduce their carbon footprint and align with the goals of the Paris Agreement, they are discovering that the biggest opportunities for impact and innovation often lie outside their own four walls - in the vast network of suppliers, logistics providers, and other partners that make up their value chain.

Consider this: for most companies, anywhere from 80-90% of their total greenhouse gas emissions come from Scope 3 sources - that is, the indirect emissions associated with the goods and services they buy, 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 embedded in its supply chain.

This presents a daunting challenge for sustainability leaders looking to drive meaningful emissions reductions and meet the increasingly ambitious targets being set by initiatives like the Science Based Targets initiative (SBTi) and the UN's Race to Zero campaign. After all, how can you influence the carbon performance of suppliers that you don't own or control? How can you drive change across a complex, global network of actors with varying levels of awareness, capability, and motivation?

The answer, it turns out, is by building a compelling business case for supply chain decarbonisation - one that goes beyond compliance and risk management to deliver tangible benefits and measurable ROI for all stakeholders involved. And the good news is that such a business case is not only possible, but increasingly achievable thanks to a range of technological, financial, and collaborative innovations.

Here are just a few of the key benefits and sources of ROI that companies can unlock by decarbonizing their supply chains:

Cost savings and efficiency gains
One of the most immediate and tangible benefits of supply chain decarbonisation is the potential for cost savings and efficiency gains. By working with suppliers to reduce energy and resource consumption, optimize logistics and transportation, and eliminate waste and inefficiency, companies can drive down costs and improve their bottom line.
For example, a recent study by the Carbon Trust found that for every $1 invested in supply chain efficiency measures, companies can realize up to $2.7 in cost savings. These savings can come from a range of sources, such as reduced energy and fuel costs, lower raw material and packaging expenses, and improved inventory management and reduced obsolescence.

In addition, by leveraging new technologies and business models like the Internet of Things (IoT), artificial intelligence (AI), and circular economy platforms, companies can unlock even greater efficiency gains and cost savings across the value chain. For example, by using IoT sensors to monitor and optimize energy use in factories and warehouses, or by using AI to predict and prevent supply chain disruptions, companies can reduce waste, improve productivity, and drive down costs.

Increased resilience and risk management
Another key benefit of supply chain decarbonisation is increased resilience and risk management. As the impacts of climate change become more severe and frequent, companies are facing growing risks to their operations, their reputations, and their bottom lines. From extreme weather events that disrupt supply chains and damage infrastructure, to shifting consumer preferences and regulatory pressures, the business landscape is becoming more complex and unpredictable.
By investing in supply chain decarbonisation, companies can mitigate these risks and build greater resilience into their operations. For example, by sourcing from suppliers that use renewable energy and low-carbon production methods, companies can reduce their exposure to energy price volatility and supply disruptions. By designing products and packaging for circularity and reuse, they can reduce their dependence on scarce raw materials and mitigate the risk of resource depletion.

In addition, by engaging suppliers in climate risk assessments and scenario planning, companies can better understand and prepare for the potential impacts of climate change on their supply chains. This can help them to identify vulnerabilities, develop contingency plans, and build greater flexibility and adaptability into their operations.

Enhanced brand reputation and customer loyalty
Perhaps one of the most compelling reasons to invest in supply chain decarbonisation is the potential for enhanced brand reputation and customer loyalty. As consumers become more aware of the environmental and social impacts of their purchasing decisions, they are increasingly seeking out brands that align with their values and demonstrate a commitment to sustainability.
In fact, according to a recent survey by Nielsen, 73% of global consumers say they would definitely or probably change their consumption habits to reduce their environmental impact. And a study by Unilever found that its brands with a strong sustainability purpose are growing 69% faster than the rest of its portfolio and delivering 75% of the company's growth.

By investing in supply chain decarbonisation and communicating their efforts to consumers, companies can tap into this growing demand for sustainable products and build deeper, more loyal relationships with their customers. They can differentiate themselves from competitors, create a stronger emotional connection with their brand, and command a premium price for their products.

Moreover, by engaging customers in their sustainability journey and inviting them to be part of the solution, companies can create a sense of shared purpose and co-ownership that can lead to even greater brand advocacy and loyalty over time.

Access to sustainable finance and ESG investment
Another important benefit of supply chain decarbonisation is the potential for access to sustainable finance and ESG (environmental, social, and governance) investment. As investors become more attuned to the risks and opportunities associated with climate change and sustainability, they are increasingly seeking out companies that demonstrate strong ESG performance and align with their values.
In fact, according to a recent report by Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the projected total assets under management. This represents a massive opportunity for companies that can demonstrate leadership in supply chain sustainability and tap into this growing pool of capital.

By setting ambitious targets for supply chain decarbonisation, reporting transparently on their progress, and engaging with investors on their sustainability strategy, companies can attract ESG-focused investors and access new sources of capital to fund their sustainability initiatives. They can also benefit from lower borrowing costs and improved credit ratings, as lenders and rating agencies increasingly factor ESG performance into their assessments.

Innovation and growth opportunities
Finally, perhaps the most exciting benefit of supply chain decarbonisation is the potential for innovation and growth. By working with suppliers to develop new low-carbon products, services, and business models, companies can tap into new markets and revenue streams, while also driving positive environmental and social impact.
For example, by investing in circular economy solutions that keep products and materials in use for longer, companies can reduce waste and resource consumption while also creating new opportunities for product-as-a-service models and aftermarket sales. By developing low-carbon logistics solutions like electric vehicles and renewable energy-powered warehouses, they can reduce emissions while also improving efficiency and customer service.

Moreover, by collaborating with suppliers and other partners to develop new technologies and solutions for decarbonisation, companies can position themselves as leaders in the low-carbon economy and gain a competitive edge in the marketplace. They can also attract top talent and build a culture of innovation and sustainability that can drive long-term value creation.

The road ahead
Of course, realizing these benefits and ROI from supply chain decarbonisation is not a simple or easy task. It requires significant investment, collaboration, and leadership to drive change across complex global value chains. It also requires a willingness to challenge traditional business models and ways of thinking, and to embrace new forms of partnerships and value creation.

But the rewards of this journey are immense - not just for the planet and society, but for the long-term resilience, competitiveness, and growth potential of the companies that embark on it.

By building a strong business case for supply chain decarbonisation, and by engaging suppliers, customers, investors, and other stakeholders in the process, companies can unlock new sources of value and impact that go far beyond mere compliance or risk mitigation. They can build more agile, innovative, and future-proof supply chains that are better positioned to thrive in a low-carbon economy. And they can create positive feedback loops that drive even greater momentum and scale for the sustainability transformation.

As a sustainability and business professional, I have seen firsthand the power of this approach to drive meaningful 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 barriers that companies face in this journey - from lack of data and transparency to misaligned incentives and short-term thinking. Overcoming these barriers will require leadership, collaboration, and a willingness to invest in the long-term health and resilience of our supply chains and our planet.

The road ahead may be long and uncertain, but the destination is clear - a thriving, inclusive, and sustainable global economy that works for people and planet alike. And by building the business case for supply chain decarbonisation, we can help accelerate the journey and unlock the full potential of this transformative opportunity.

The time for incremental change is over. The time for bold, ambitious, and collaborative action is now. Let's seize this moment and build the supply chains of the future, together.

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We help organizations automate their ESG metric measurements, tracking and reporting across company as well as their supply chain. Our platform solves for all corporate sustainability reporting and carbon accounting needs.

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