Companies everywhere are coming under pressure to reduce emissions and become more sustainable. While many countries and companies have net-zero targets, 6G is the first generation where the ITU has also built sustainability into the overall design specifications. In the wake of the UN’s Sustainable Energy Week Alan Riley, Director at epi Consulting, outlines the most impactful work companies can take now to become more sustainable in the long term by focussing on the supply chain. The incentives and rewards for the bottom line can be considerable.

Supply Chains: Emission Impossible?

In the lexicon of corporate sustainability, emissions that originate in a company’s value chain, and therefore out of that company’s direct control, fall under the category of Scope 3. Emissions that are directly controlled – emissions from company vehicles, for example, or purchased electricity – fall under Scopes 1 and 2. Scope 3, as you can probably imagine, is responsible for the lion’s share of a company’s emissions. In fact, in 2023, corporations said that emissions from their supply chains were, on average, a whopping 26 times greater than their emissions from direct operations.

And yet supply chain emissions continue to be overlooked.

The same report, which came courtesy of the Boston Consulting Group and CDP, showed that corporates were twice as likely to measure operational emissions (those that fall under Scopes 1 and 2) than their supply chain emissions. Moreover, they were 2.4 more likely to set targets for the former emissions scopes compared with Scope 3. In fact, just 15 percent of the companies included in the report had set a Scope 3 target.

This is striking: companies know that Scope 3 is, by far, the most important emissions category. In fact, in some cases, with regards to meeting sustainability goals, tackling Scopes 1 and 2 is pointless if Scope 3 is not addressed. But they’re not dealing with it. Why?

It’s important not to let the perfect be the enemy of the good. In the climate conversation, there will always be those who say, ‘Well, it isn’t enough.’ And there will be those that condemn companies and refuse to engage with them if they’re not perceived as making enough effort to become ‘green’.

But addressing Scope 3 is difficult. Big companies frequently have sprawling, complicated supply chains that snake around the world, through uncountable cultures and jurisdictions. Even getting a clear idea of what Scope 3 emissions your company may be responsible for is difficult. Bringing those emissions down is harder still.

But those emissions do need to come down – and not just for the sake of the planet.

The financial risks of ignoring supply chain emissions are absolutely immense, with upstream emissions in certain key sectors representing a potential carbon liability of over $335 billion. And many companies, especially those in capital intensive sectors like telecoms, have tied their borrowing rates to hitting green financing targets. Given this, companies must accelerate Scope 3 efforts.

Tangible Activity

Step one is to engage with suppliers. Engaging suppliers on climate action is crucial: companies that do are nearly seven times more likely to set ambitious Scope 3 targets. The trouble is that fewer than half actively do so.

Before doing this, building an initial inventory is a good idea. Work out where in your supply chain the majority of emissions are coming from, even if based initially on spend-based estimates, and use this to prioritise. It can’t be overstated that it’s worth taking the time to get this right. If you do, you can take bold, targeted action and make a massive difference to your carbon footprint.

As with many things, corporate sustainability conforms to a Pareto principle. In other words, a small proportion of your actions will be responsible for the vast bulk of the progress you make. Just a few suppliers tend to be responsible for almost all of your emissions; sometimes just 20 will be behind half of all of Scope 3. If your inventory is thorough and honest, and if you’ve been able to identify your highest-emitting suppliers, you’re really starting to get somewhere.

So what’s next? This is where engagement really begins.

You can start by setting minimum sustainability standards across the board. You can incentivise suppliers in tender scoring. You can add clauses related to climate action to your contracts for key suppliers.

Most importantly, you can build tailored engagement programmes based on the prioritised list of the highest to lowest emitting suppliers. The first and most intensive programme is for the critical few highest-emitting suppliers, and involves an ongoing process of auditing supplier emissions inventories and LCAs (life-cycle assessments), making recommendations, and providing them with the encouragement, support and collaboration they need to drive carbon reductions.

What about the remaining long tail of suppliers? Well it goes without saying that the one-to-one approach takes time and resources to implement. A scalable approach to engaging with suppliers on the second ‘rung’, if you like – the 200 to 1,000 suppliers that make up the remaining half of your addressable carbon footprint – is your best bet.

We worked with the telecoms sector, which is plausibly one of the world leaders in sector-wide corporate sustainably, to do just this. We developed a ‘carbon maturity model’, which grouped suppliers according to their ability to cut carbon emissions. Some had basic ability (eg, they had limited targets, measurement and governance in place) and some had highly sophisticated sustainability programmes, high rates of renewable energy use, clear and ambitious net-zero targets, and the means to meet their goals. We then ran webinars for each tier of maturity; at these workshops, suppliers learned and shared the carbon reduction techniques and insights that were most appropriate to them, along with their peer groups.

Making Money Going Green

What’s really important to communicate to suppliers (and to your own stakeholders) is that it’s a myth that corporate sustainability hurts profits. Cutting energy use and going green can save a small fortune over time.

LCAs, whereby you track the ‘life’ of a product from its creation to its disposal, invariably reveal countless opportunities to use fewer materials, including fewer raw materials and less packaging. Meanwhile, nearly all factory energy audits will reveal energy efficiency opportunities of 5-15%.

Combined with preferential financing rates for greener companies, all of this means that if managed intelligently, sustainability initiatives can save money while improving those intangibles like reputational risk and supply chain resilience.

It remains the case that Scope 3 has to be dealt with. It is no longer a “nice-to-have”. Given this, taking action at the earliest opportunity is the wisest move. It might seem daunting. It might mean making somewhat radical changes to the way you typically do business. But leaning into the right areas can not only make an impact in this tough area, but can reap unexpected benefits:

• Having a more robust, more connected, more transparent supply chain
• Greater mastery over your environmental performance, which can then support e.g. preferential rates on green bonds
• Compliance with current and imminent climate legislation
• A stronger brand identity
• Access to a pool of climate-conscious talent and customers

…as well as the major financial incentives that go along with it.

Image by Kris from Pixabay.