What You Need to Know About Scope 3 Supply Chain Carbon Emissions

Is your company part of a supply chain?

The current focus on supply chain sustainability and emissions reductions is getting a lot of attention because just about every company and organization is included in someone else’s value chain. When you are part of the supply chain of another company your emissions are their (Scope 3) emissions.

Why this has broad impact

When we think of supply chains we might immediately think of third-party manufacturers or transportation companies since these are obviously part of their customers’ operations. But, if you are a service provider such as a law or accounting firm, financial services provider, software company, tech company, construction company, or a consultant, then you too are part of a supply chain.

The new focus on Scope 3 Value Chain emissions was born from the discovery that for many organizations much of their emissions are found beyond their operational control among their vendors.

The three Cs of supply chain accountability

What does an organization do when its activities are causing the creation of greenhouse gas emissions but those activities are not under its operational control? We are seeing three approaches to supplier carbon emissions accountability take hold: The Carrot, The Conversation, and The Club.

We anticipate that companies and organizations will move between or use a combination of these three approaches over time.

#1 The Carrot

This is when incentives are used to encourage suppliers to begin to measure their footprint, set goals and deliver reductions. Walmart is a good example of this approach. Looking back at their history, about a decade ago in 2009 they developed a sustainability index that established baselines and tracked progress against social and environmental goals. In 2012, they layered in a big carrot that gave priority to participating companies.

Walmart committed to buying 70 percent of the goods sold in their U.S. stores and clubs from suppliers who participated in the sustainability index.

If a supplier participates in the index, the supplier has an advantage when it comes to in-store placement of its products.

Then in 2017 Walmart launched Project Gigaton. It’s their initiative to engage suppliers in climate action with a goal to avoid one billion metric tons (a gigaton) of greenhouse gases from the global value chain by 2030. Currently, Walmart publicly recognizes and praises Project Gigaton participants but they have yet to announce any other overt incentives. If the way they handled their sustainability index participants is an indication, we can anticipate more benefits coming to Project Gigaton participating companies in the future.

#2 The Conversation 

Once a company maps and evaluates its operations and has access to actual data to find emissions hot spots, they can then use this data to engage their vendors in conversation. We enable our customers to create these meaningful conversations because having real data informs a real strategy.

We are confident that with an increase in the number of companies engaging their suppliers in this type of conversation we’ll see material carbon mitigating activity and continuation of these negotiations.

Take how Fed Ex fits into the logistics of so many companies. They have announced that they will achieve carbon neutral operations globally by 2040. For companies that use Fed Ex but have themselves committed to carbon neutrality by an earlier date (for example 2030) conversations will take place. The discussion will endeavor to move Fed Ex to zero emissions vehicles and solutions on applicable transportation routes sooner. This is important because what Fed Ex does impacts their customer companies’ commitments.

Similarly, many of our customers lease office and retail space.  As tenants, they are initiating conversations with property owners and managers to communicate the importance of emissions reductions in the built environment. We are seeing success here already with some property owners instituting energy efficiency projects, solar feasibility studies, and/or installing renewables.

#3 The Club

This is when punitive measures are used to get suppliers to act on emissions reduction contributions. This has already started with some contracts including a penalty fee for suppliers who don’t deliver on things such as regularly measuring and reporting their carbon emissions in a protocol-compliant way and/or offering carbon-neutral products and services.  This is an interesting development that we’ll be tracking closely.

What this means for you

This supplier accountability trend is gathering momentum rather quickly. If you haven’t yet, you can expect to start seeing requests from prospective customers during the RFP process as well as requests via supplier surveys from existing customers for your emissions data and/or participation in various reporting frameworks such as CDP, SASB, Ecovadis, etc.

The SustainaBase software platform has everything you need for effortless, dynamic management and reporting of carbon emissions, water, waste, and more. Whatever your role in the supply chain, if you’d like to evaluate and track your operations or just get educated on what it means for your company, reach out today to learn more and schedule a demo.

Learn more by reading Supplier Project Gigaton Case Study here.

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