Big businesses can reduce their supplier's emissions on scope 3 emissions. For most industries, 92% of a company's emissions come from scope 3 (indirect emissions) - meaning that only 8% of GHG emissions account for scopes 1 and 2 of emissions. The equation is explicit: for companies to reduce their emissions, they must set their efforts on scope 3 emissions and their entire supply chain. But since organisations do not control suppliers directly, how can companies measure their supplier's emissions to then be able to reduce them?
This article explains how to measure and reduce your suppliers' carbon footprint - including one of the best carbon accounting solutions available on the market.
The carbon footprint of supply chains
On average, supply chain emissions are 11.4 times higher than operational emissions, equating to approximately 92% of an organisation's total GHG emissions. In other words, the value chain and suppliers are a tremendous opportunity for companies to reduce their carbon footprint drastically.
Thus, suppliers are increasingly pressured to act for sustainability. According to McKinsey, Consumer packaged goods (CPG) companies are also expected to reduce their greenhouse gas emissions by 92% by 2050. Also, CDP's Supply Chain: Changing the Chain environmental report shows that suppliers could reduce emissions by a gigaton (one billion metric tonnes) by increasing their renewable purchases by 20%.
Climate risk is a financial risk for companies and suppliers. Consequently, suppliers expect environmental risks to have an economic impact of US$1.26 trillion in the next five years. It is also estimated that corporate buyers will face a cost hike of US$120 billion due to ecological risks raised by suppliers. This can be translated into higher costs, lower profitability and greater risk exposure if no climate action is taken.
Furthermore, new business practices now require companies to set emissions reduction targets throughout their value chain (scope 3). This process is only achievable with solid supply chain engagement. Nevertheless, businesses that do not engage suppliers in climate action will lose competitiveness and resilience, resulting in lower costs, better reputations and, ultimately, the ability to survive in an uncertain and unpredictable environment.
How to measure your suppliers' emissions?
There is a carbon accounting solution to calculate your suppliers' emissions. As part of its carbon management and ESG platform, Plan A just added an innovative suppliers module - adding to the family of scope three calculators.
What does it do? Plan A's new Suppliers Module allows businesses to track, report and reduce emissions beyond scopes 1 and 2 by providing a complete overview of Scope 3 supplier emissions. In addition, our platform's customisable reports allow for streamlined compliance with NFRD, SFRD and other ESG reporting requirements.
Why is it useful? The new supplier's module is the latest addition to the scope three emissions family calculator. Calculating your supply chain's emissions is the first step to reducing them. The supplier's calculator is the perfect tool to start your decarbonisation journey, giving accurate insights into your suppliers' carbon footprint.
How does it work? Collecting data from external sources, collating them and providing an overview of suppliers' emissions is a huge challenge. The Plan A Supplier Module solves this blocker by providing multiple ways to calculate the carbon footprint of your purchased goods and services.
Depending on the initial availability of data, companies can get started with spend-based data (invoices etc.) and work their way to data excellence by replacing it with activity and usage data.
Start your company's decarbonisation journey with Plan A's supplier's module. Measure and reduce your supply chain's emissions seamlessly.
How to reduce your supplier's emissions?
Once companies measure their supply chain emissions, they can set a reduction and decarbonisation plan. It is essential to identify suppliers as allies in GHG emissions reduction efforts. The supply chain emissions of a company often exceed its operational emissions. Therefore, the totality of each company's GHG emissions needs to be considered.
Here are a couple of recommendations to reduce your suppliers' emissions:
- Setting supply chain emissions reduction goals.
- Providing technical support to suppliers
- Sharing best practices
- Adopting supplier codes of conduct
- Incorporating sustainability standards in procurement of goods and services from suppliers.
Companies can explore energy efficiency, develop innovative packaging and transportation techniques, manage natural resource consumption, and encourage suppliers to purchase green power as renewable energy becomes more ubiquitous as they gain experience in reducing GHG emissions within their operations.
• Assess the economic and social value of supply chain engagement. Suppliers and participating companies benefit from monetary savings, decreased risk exposure, and better alignment between sustainable practices and customer preferences. Thus, strong communications are needed to share emissions risks and opportunities to investors and consumers, who increasingly demand companies report on their GHG emissions.
• Develop internal engagement support systems.
Build support from executive leadership and diverse teams across departments (e.g. procurement, green groups, operations) to ensure sustainability strategies are incorporated into business decision-making processes. Develop innovative practices across all levels of the organisation and encourage sustainable behaviour.
• Establish environmental goals in collaboration with suppliers. Establish a strategy for identifying and leveraging high-impact suppliers and replicating successful models throughout the supply chain. Companies shall include third-party technical assistance programs. Celebrate suppliers who have accomplished their goals and maintain open communication for best practices.
By developing relationships with suppliers that are collaborative and environmentally friendly, corporations will be able to adapt better to the uncertainty and change that can occur in the economy, physical environment, and regulatory environment.
Sign up for a free demo today if you are ready to measure and reduce your supplier's carbon footprint and lower your company's overall emissions.