The race to zero

From the December 2023 print edition

Whether it’s alternative home heating sources, electric vehicles, or reconsidering air travel, people face multiple choices – and challenges – if they’re looking to reduce their emissions.

Governments are also working towards emissions reductions, with some having released plans to achieve ‘net-zero’ supply chains by 2050 or sooner.

Companies are taking on similar projects. Some organizations have ambitiously set carbon-neutral goals five or 10 years into the future. That’s an important move, given many consider a company’s environmental, social, and corporate governance (ESG) positions before purchasing its products or services.

Put simply, net-zero supply chain involves a balance between the amount of greenhouse gas (GHG) produced and the amount that’s removed from the atmosphere at the same time. There’s an equilibrium involved in trying not to emit more than what’s being taken out.

Emissions are divided into three categories: Scopes 1, 2 and 3. Scope 1 refers to emissions directly controlled and generated by an organization, like furnaces or company vehicles, notes Larry Berglund, principal at Presentations Plus Training and Consulting Inc.

“Scope 2 emissions are indirectly attributed to purchased energy, transportation, waste, business travel, employee commuting, and chemicals incurred by suppliers,” Berglund says. “Coal-fired versus hydropower GHGs would be vastly different in volumes, as an example.”

Scope 3 encompasses emissions not produced by a company and don’t result from activities from assets it owns or controls, rather by those that it’s indirectly responsible for, up and down the supply chain. An example is products from suppliers. Scope 3 is the area of most concern for supply chain professionals.
Tackling emissions requires proper reporting, visibility, and traceability across the supply chain. It also means developing a plan for, if not reaching net zero, getting as close as possible. That’s a daunting goal. Within Scope 3, 60 per cent of the risk lies in the supply chain, says Abe Eshkenazi, CEO of the Association for Supply Chain Management (ASCM).

“The unfortunate part is that, irrespective of the majority of it being in supply chain, just about 50 per cent of companies assess how Scope 3 emissions are going to impact their supply chain,” says Eshkenazi. “And less than half, about 40 per cent, have even benchmarked what the impact is going to be to their organization.”

With sustainability, appearances matter. Delta Airlines recently faced a class-action lawsuit over carbon neutral claims, Eshkenazi points out. The suit centred around the company’s use of carbon credits to offset emissions, which plaintiffs claimed were misleading. Delta says it has since moved away from the practice.

“The unfortunate part is that, within industries, we don’t have alignment on what appropriate metrics or reporting responsibilities are,” he notes.

Traceability and data
Traceability of goods and access to proper data are keys to improving this. Supply chains often have multiple tiers of suppliers, with lower tiers closer to the final product and higher tiers further away.

Many companies are mostly familiar with their Tier 1 suppliers which, according to Accenture, account for 36 per cent of Scope 3 emissions, says Pauline S. God, head of policy and partnerships at TrusTrace.
“In other words, 64 per cent of Scope 3 carbon emissions come from Tiers 2 and 3 and beyond, where brands tend to have little to zero visibility,” says God. “Hence, decarbonizing company operations should begin with improving visibility into the deeper tiers in the supply chain.”

Getting started on GHG reporting typically involves basic supply chain mapping of facilities, locations, and the distances between them, she says. Companies then use average emissions data to set a benchmark. While this is a starting point, gathering accurate data on actual supply chain emissions involves a structured process. Understanding emissions beyond simple averages means substantial sets of the raw data generated from each supplier involved in production and ensuring their data quality and integrity.

“Organizations must move away from secondary data and industry averages and start collecting the precise data directly from the supply chain, also known as primary data,” says God. “With primary data collected through a traceability program, they can calculate Scope 3 emissions accurately. This will help you know where your biggest decarbonization challenges are, as well as stay audit ready. Traceability
provides the first step necessary for organizations to move toward a ‘net-zero’ supply chain.”

Organizations must work with their suppliers on focus areas and solutions to reduce emissions, she adds. But suppliers can’t bear the costs alone. Some options for organizations to consider include establishing clear sustainability guidelines so suppliers know what’s expected; auditing and assessing supplier practices to ensure compliance and identify areas for improvement; collaborating on sustainable materials and encouraging use of materials with lower environmental impact; and providing incentives and support.

“The more companies can enable suppliers, the easier it will be for them to accelerate their sustainable transformation,” God says.

Looking for hotspots
While all three emissions scopes must be measured and dealt with, Scope 3 is the most challenging to reduce, says Michelle Albanese, director, ESG and responsible supply chain at Upswing Solutions. To move towards net-zero, companies must seek out their Scope 3 emissions “hotspots” along the value chain that contribute to the highest emissions. Only after an organization knows where to focus its Scope 3 efforts can it set targets and begin reducing emissions.

“First of all, it’s about understanding where your emissions are among the 15 categories of Scope 3, ‘where do we focus based on our biggest impacts?’ and ‘what do we want to do?’” Albanese says. “‘What Scope 3 target do we want to set?’ For most companies, supply chain and purchased goods and services is usually a focus on Scope 3. Essentially, you’re engaging your supply chain to reduce their emissions
as part of your target and then hopefully these suppliers reach out to their suppliers for the same reasons. So, it’s this cascading, ripple-down effect from buyer to supplier.”

Suppliers face decarbonization challenges of their own, Albanese says. Some are privately held SMEs and may lack resources; others may have no clear plan and must start from scratch. Other suppliers are larger, publicly traded companies with knowledge and resources, and you only need to collect data from them, she says.

Albanese cites the World Economic Forum (WEF), which notes a minimal increase to end-consumer costs from the process. Around 40 per cent of supply chain emissions could be abated with readily available and affordable methods, like circularity and renewable power. At most, end-consumer costs would increase by about one to four per cent in the medium term.

“There’s no reason we shouldn’t be able to do this, because four per cent is not high,” Albanese says. “It’s not like it’s 20 per cent. It’s not like it’s a reason to say, ‘it’s just not doable or feasible.’”

An organization’s leadership should adopt a mindset that looks at how to make this transition work, says Berglund of Presentations Plus. Supply chain professionals should use a total cost of ownership approach to sustainability, measuring and monitoring not only GHG emissions, but also freshwater consumption, resource circularity, waste management, and energy consumption.

“Any player in a market can’t achieve the emission reductions on its own,” Berglund says. “It requires the supply chain and value chain players to be in sync. Every action contributes to some form of emission – even breathing has an impact. The message is to control what you can within your sphere of influence.”