Key steps for understanding, reporting, and ultimately reducing your supply chain emissions

Introduction 

Research shows that supply chain emissions, part of an organisation’s scope 3 footprint, are, on average, 5.5 times higher than direct operational carbon emissions. Any organisation that’s committed to climate action must act swiftly to report and reduce its supply chain emissions. 

‍What are supply chain emissions?

According to the Greenhouse Gas (GHG) Protocol, supply chain emissions are part of a company’s upstream emissions. Upstream emissions include purchased goods and services, operational waste, business travel, employee commuting, energy and fuel-related activities (not included in scope 2), upstream and downstream transportation and distribution; as well as capital goods referring to fixed assets used in the production of goods, but not sold to consumers, e.g. machinery, equipment and tools.

Whilst downstream emissions are distinct and separate from upstream emissions, they are still considered part of an organisation’s value chain emissions. They involve the processing of sold products, use of sold products, end-of-life treatment of sold products, downstream transportation & distribution, as well as downstream leased assets, franchises, and investments. 

‍Why supply chain emissions are so important

Understanding supply chain emissions is a vital step to becoming a Net Zero organisation and ultimately becoming a leader in sustainability. 

Often, supply chain emissions are where organisations will find the vast majority of their carbon footprint and, until they are properly incorporated into climate action strategies, businesses are missing out on significant opportunities for improvement. Neglecting to engage with supply chain emissions has a detrimental impact on the environment, as businesses are responsible for over two-thirds of global GHG emissions, with more than 90% produced in the supply chain. 

Not only is engaging fully with supply chain emissions crucial for effective carbon reduction, but it has also been found by the GHG Protocol that developing a full supply chain GHG inventory delivers a positive return on investment. According to the Carbon Disclosure Project’s ‘Global Supply Chain Report 2020’ around $1.26trn of revenue is at risk over the next five years due to impacts from climate change. An organisation that is able to identify risks and carbon reduction opportunities connected with its supply chain emissions, as well as set science-based targets and enhance business reputation through public reporting, can reduce both emissions and costs to meet strategic corporate objectives.  

Organisations have a powerful ability to influence and control their supply chain emissions, through either direct engagement with suppliers to encourage carbon reduction activities or switching to more sustainable suppliers.

It’s also worth noting that there are many secondary benefits to sustainable business strategies. Understanding supply chain emissions provides new insights into any vulnerabilities within a company’s value chain, identifies potential operational efficiencies and incentivises innovation. Plus, enhanced tracking and reporting of emissions are becoming increasingly important criteria for attracting investment.

‍How to calculate supply chain emissions

 There are two main methods used to calculate supply chain emissions: spend-based and activity-based.

• Spend-based methodology: estimates GHG emissions by collecting data on the economic value of purchased goods and services and multiplying it by industry average emission factors. As this method relies on industry benchmarks, the calculations can, on occasion, lack specificity. 

• Supplier-specific/ hybrid methodology: requires collection of activity data directly from both the company and its suppliers. Where that primary data isn’t available, the hybrid method fills the gap with industry averages. The problem is that gathering this data has historically been extremely time-consuming and dependent on the quality of data suppliers may or may not keep. 

 How to reduce supply chain emissions

A report by the World Economic Forum and Boston Consulting Group, suggests that organisations can drastically reduce their carbon footprint by engaging meaningfully with their supply chain emissions, even more so than if they were to focus on their direct impact and with hardly any increase in final consumer costs. 

The report offered 9 key actions for supply chain emissions reduction:

1. Build a comprehensive emissions baseline, gradually filled with actual supplier data
2. Set ambitious and holistic reduction targets
3. Revisit product design choices
4. Reconsider location-based sourcing strategy
5. Set ambitious procurement standards
6. Work jointly with suppliers to co-fund abatement levers
7. Work together with peers to align sector targets that maximise impact and level the playing field;
8. Use scale by driving up demand to lower the cost of green solutions
9. Develop internal governance mechanisms that introduce emissions as a steering mechanism and align the incentives of decision-makers with emission targets.

Minimum’s straightforward and simple to use software tool makes this labour-intensive exercise quicker and easier by automating the processes of data ingestion and footprint calculation.