Supply chain decarbonisation: an industry’s global challenge

Supply chains are responsible for generating around 60% of all carbon emissions globally, according to a recent study by Accenture. That means addressing supply chains sustainability is an essential step in achieving net zero goals and maintaining global temperature increases to the 1.5 degrees set out in The Paris Agreement.

The topic of supply chain decarbonisation represents a giant, (until now, largely) untapped opportunity to address the climate crisis. However, reducing Scope 1, 2 and 3 emissions is easier said than done.

To meet climate goals, Scope 3 greenhouse gas emissions are particularly important. But, it is clear that decarbonising supply chains is not something that can be achieved overnight, or at the click of a switch, due to the challenges of measurement, reporting and reductions within broader value chains beyond the direct control of any one organisation

Costs

Interestingly, the costs of getting to net zero may not be as expensive as previously thought as only a small proportion of emissions are produced during final manufacturing, with most embedded in thesupply chain; such as in base materials, agriculture, and the freight transport needed to move goods around the world. According to Boston Consulting Group, even full decarbonisation across five key global industries would only increase end consumer prices between 1% to 4% in the medium term. To put that into context, that’s less than €1 on a €40 pair of jeans, €600 on a €35,000 new car.

If not prohibited by price then, what is preventing the decarbonisation of supply chains and the pursuit of net zero goals? In short, it’s much the same as the challenge behind mapping Scope 3 emissions - complexity, lack of a clear path forward and a lack of tangible incentives.

Four steps

Here are four steps worth considering ahead of making any meaningful move towards a more sustainable, decarbonised supply chain:

1. Redesign products for sustainability by making sustainability part of design decisions, increasing recyclability and using more sustainable materials at the outset

2. Design the value chain and sourcing strategy with sustainability front of mind to consider emissions in the value chain design choices: for example, rethinking make-or-buy decisions and limiting the need for long-range logistics. Nearshoring can not only reduce transport emissions, it has the secondary benefit of making supply chains more resilient to shocks too

3. Integrate emissions metrics in procurement standards and tracking. Setting procurement standards for suppliers is one of the most powerful direct ways to address upstream, Scope 3 emissions. Defining and measuring strong standards linked practices for procurement decisions, including the mandate of a specific share and quantity of renewable power, required levels of process efficiency, or a required share of recycled materials is key

4. Build a value chain emissions baseline and share data transparently with suppliers. Establishing a comprehensive, scientifically grounded emissions baseline is a crucial first step. Defining a baseline using emissions factor databases, paired with direct supplier data is key to the transparency and accuracy of measuring continued progress

Supply chains have a vital role to play in the long-term, health of our planet, and visibility and transparency (of goods and data) is the key to actively pursuing net zero, decarbonisation goals. It begins with mapping your organisation’s wider value chain for emissions assessments and benchmarking, and ends with companies collaborating as an ecosystem of partners and suppliers to create long-term, actionable sustainable impact by defining, measuring and reducing Scope 1, 2 and (especially) 3 emissions.

We must do more to actively reduce the carbon footprint of global supply chains, not five years from now, not next year, but right now.”

Digital core

Having a strong digital core founded in innovation and business agility will enable companies to improve visibility across (and optimise) their networks, processes and inventory, not only benefiting overall operating and business performance, but also providing data to drive progress toward greater sustainability goals.

The message is clear. As an industry, we must do more to actively reduce the carbon footprint of global supply chains, not five years from now, not next year, but right now. Thankfully, with the power of digital technology, companies have the tools and data available to reimagine their supply chains for new levels of resilience, agility, growth and sustainability across the entire value-chain.

While the short-term cost of pursuing net zero and decarbonisation strategies is tangible, it is not as prohibitively expensive as you think. The long-term cost of inaction and unilateralism far outweighs any monetary value. We have the technology to solve the climate crisis, we just need the will to accomplish what needs to be done and starting with supply chains is as good a place to begin.

Scope 1, 2 and 3

Chances are you’ll likely have heard of Scope 1, 2 and 3 emissions talked about in the press or within Environmental, Social & Governance (ESG) circles, but you may be less familiar with what they actually mean – here’s a short overview:

Scope 1 emissions are ‘direct’ emissions – those that a company causes by operating the things that it owns or controls. These can be a result of running machinery to make products, driving vehicles, or just heating buildings and powering computers.

Scope 2 emissions are ‘indirect’ emissions created by the production of the energy that an organisation buys. For example, installing solar panels or sourcing renewable energy rather than using electricity generated using fossil fuels can cut a company’s Scope 2 emissions

Scope 3 emissions are also indirect emissions – meaning those not produced by the company itself - but they differ from Scope 2. Scope 3 emissions are the indirect upstream and downstream emissions that result from a company’s operations. These are typically over 11 times larger than Scope 1 and 2 combined, and supply chains are a major source

Pieter Van den Broecke, Managing Director Benelux, Denmark, Germany and Eastern Europe at Manhattan