Supply chain emissions: what challenges lie ahead?

The supply chain is often cited as one of the areas where companies have significant challenges in managing and reducing emissions. For lots of businesses, most emissions lie within the supply chain, and as such, these emissions are beyond a company’s direct control (Scope 3). This means supply chain emissions are simultaneously the most challenging and the most important.

Earlier this year, EcoAct and SupplyShift participated in a roundtable with several large companies focused on addressing these issues in their own extensive supply chains. The collective aim was to highlight the common challenges and potential solutions for managing emissions reductions in supply chains. 

With companies increasingly under pressure to address emissions outside of their direct control, we look at some of the discussion points from the event.

Although the event took place prior to the unfolding of the COVID-19 global pandemic, it is worth mentioning that this crisis has exposed weakness in supply chains. Keeping in mind some of the issues that have been exposed by COVID-19 (the need for transparency, visibility, collaboration, digitisation etc.) and applying them to the context of climate change may help better inform how to manage some of the challenges discussed below.

The challenges of tackling supply chain emissions:

Internal buy in and impact  

The growing focus and urgency in addressing supply chain emissions is noted by companies and is evident in regulation, investor questions and stakeholder demand.

These multiple stakeholder demands can cause internal company conflicts. For example, issues such as budget and non-alignment with procurement objectives came up as a challenge and a topic for discussion. Specifically, the comments made included:

• Incompatible business targets driven by public demands. For example, the zero plastics vs. Net Zero emissions vs. reduced food waste dialogues mean that companies are overwhelmed with large and often costly challenges that they must address.
• Understanding trade-offs is key. The environmental impact vs. commerciality of a product (i.e., sales push vs. sustainability push) will always need to be a consideration.
• Inclusion of other key company departments (procurement, marketing, risk) in the sustainability discussion is necessary to determine the best way to generate buy-in.
• How to create the best incentives for both suppliers and the procurement team in order to drive emissions reductions and promote engagement.

Complexity

The companies that participated in the roundtable confirmed that for them, complexity of the supply chain is a key challenge. This is because their supply chains are large and often global by nature. They are also highly diverse and decentralised meaning that there may be both direct and indirect suppliers in the chain. The challenges discussed included:

• Collecting the required data in this situation is often problematic. Commonality of the data is also an issue. Ensuring data can be shared across different platforms to avoid suppliers having to repeat the process is vital.
• Companies need a straightforward but effective process for measuring emissions in the supply chain. They need effective ways to measure risk and opportunity in order to understand emissions hotspots and how to prioritise reduction and climate mitigation activities.
• Companies need channels for supplier engagement to make sure they are providing the data, which brings us to the next challenge.

Uncertainty

The landscape for addressing impacts in the supply chain can often be uncertain. What is best practice? How to go about engaging suppliers? How to act on the data and monitor efforts to ensure impact? Companies also face challenges around the Return on Investment. Participants at the roundtable raised:

• Emissions reduction is going to be a collaborative process. Companies need to work with suppliers to overcome the challenges and reduce impacts. Through close collaboration, there is opportunity for all parties to benefit from innovation, increased efficiency and enhanced reputation.
• Companies discussed sharing best practices and communicating them with their suppliers. This places emphasis on the importance of peer pressure in supplier engagement programmes. To provide one example, collaborative site visits will demonstrate and share best practices horizontally. This ensures suppliers do not feel like this is being imposed but that it will genuinely result in more cost-effective operations.

What next?

EcoAct and SupplyShift ran a webinar on Wednesday 6 May 2020 to examine some of these points in more depth. Watch the full recording here.