For many businesses, managing and reducing emissions in the supply chain is a significant challenge. For most businesses the emissions in their supply chain, which are called Scope 3, are the largest percentage of total and are located outside the company’s direct control, which makes them simultaneously challenging and extremely important.
Emissions from upstream and downstream supply chains represent as much as 94% of total in Manufacturing and Consumer Goods businesses, and approximately 70% in the Energy production businesses according to GHG Protocol who provides standards, guidance, tools and training for business and government to measure and manage climate-warming emissions.
As companies increasingly look to address emissions outside of their direct control there are a number of challenges that must be overcome for effective value chain governance.
Businesses face uncertainty trying to address Scope 3 impacts. They have questions ranging from how to engage with value chain partners, what data to collect, how to measure impacts, which reporting frameworks should be used to disclose risks, and should a return on investment be expected?
Some good practice guidance for business organization facing similar questions about managing Scope 3 emissions include:
- Emissions reduction is commonly a collaborative process between your business and its supply chain partners.
- Developing shared goals and methods are an important foundation to overcome challenges, reduce emissions, and measure and communicate impacts.
- There is an opportunity for multiple upstream and downstream stakeholders to benefit from working on Scope 3 measurement and reduction. Participating partners often realize increased efficiency and enhanced reputation.
- Peer pressure in supplier engagement programs can be an effective motivator and modifier of behavior.
- Sharing best practices among participants accelerates adoption and results.
Complexity of supply chains is a major factor. Supply chains are commonly global, diverse, and decentralized with both direct and indirect suppliers in the value chain which creates problems for tracking and managing Scope 3 emissions.
Businesses face a number of common challenges that include:
- Collecting data is often problematic due to the scale of supply chains, language barriers, and lack of data commonality. These issues make data collection highly inefficient.
- Lack of channels or platforms that span the enterprise for supplier engagement to collect and manage data.
- Sharing data between internal teams and with external partners and stakeholders is a major issue for many businesses. Many companies create work-arounds with business analytics to share internally but which don’t work for external collaboration.
- Data availability across different platforms is an issue. Inability to aggregate data often results in suppliers and partners having to repeat the process which is a source of fatigue.
- Adoption of standard-based frameworks for measuring supply chain emissions and measures for risk and opportunity.
- Lacking tools to prioritize and track reduction and mitigation activities.
There is a growing focus and urgency from consumers, investors, and business leaders to address supply chain emissions which is reflected in new regulation, investor requirements for disclosure, and increased transparency sought by buyers.
Meeting the requirements of multiple stakeholders can be challenging for business teams to align around. The objectives and actions for Procurement, Vendor Management, Energy Management, Investor Relations, Operations, and even Key Account Management teams need to be aligned with shared access to information for non-financial reporting, marketing and sales communications, and engaging with investors and external stakeholders.
Good practices for ensuring internal and external alignment include:
- Work cross-functionally with internal teams around all environmental and social stewardship initiatives to generate buy-in and coordinated action.
- Assess and prioritize each business target based on materiality, cost, and needed operational change to avoid overwhelming the organization on large-scale projects such as achieving carbon neutrality, or eliminating use of plastics.
- Actively evaluate trade-offs of achieving targets (which can be tricky). For one business meeting the customer’s request of replacing styrofoam packaging with paper pulp actually increased the total carbon footprint.
- Create a feedback loop for suppliers who provide data, and introduce incentives that reward both the supplier and the procurement team to promote engagement and drive improvement.
- Make information about all stewardship initiatives, objectives and targets, risks and impacts accessible to teams to ensure coordination and alignment.
If you have questions about capturing and managing Scope 3 data or how ICIX solutions can help your business contact us at firstname.lastname@example.org.