Supply chain emissions

Understanding supply chain emissions is a vital step to becoming a Net Zero organization and ultimately becoming a leader in sustainability. Any organization that’s committed to climate action must act swiftly to report and reduce its supply chain emissions. 

What are supply chain emissions?

Supply chain emissions, also known as embodied emissions or scope 3 emissions, refer to the greenhouse gas emissions that are associated with the production, transportation, and distribution of goods and services within a supply chain - also known as upstream emissions. 

What are 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.

What are downstream emissions?

Whilst downstream emissions are distinct and separate from upstream emissions, they are still considered part of an organization’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 
• 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 organization and ultimately becoming a leader in sustainability. 

Research shows that supply chain emissions, part of an organization’s scope 3 footprint, are, on average, 5.5 times higher than direct operational carbon emissions. Often, supply chain emissions are where organizations 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 organization 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.  

Organizations 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

Calculating supply chain emissions involves estimating the greenhouse gas emissions associated with various activities and processes throughout the supply chain. The process can be complex and may require collaboration with suppliers, data collection, and the use of specialized tools or software. There are two main methods used to calculate supply chain emissions: spend-based and activity-based.

Spend-based methodology

This 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. 

Activity-based methodology

This 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 organizations 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 maximize 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 labor-intensive exercise quicker and easier by automating the processes of data ingestion and footprint calculation.

How Minimum can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.

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Sources

GHG Protocol Scope 3 Calculation Guidance

World Economic Forum and Boston Consulting Group

UNFCCC ‍

Sector by sector: where do global greenhouse gas emissions come from?

CDP