In the past few decades, an increasing number of organizations have adopted environmental, social and governance (ESG) initiatives to help heal the planet as well as to make cost and efficiency improvements in their supply chain and procurement operations. In the process, these enterprises have adopted policies to reduce greenhouse gas emissions or even become net-zero emitters. For instance, according to a recent report from Energy and Climate Intelligence Unit, 21% of the world’s largest organizations, representing $14 trillion in revenue, have made commitments to achieve net-zero emissions.[1]
However, turning a commitment into an executable plan of action is easier said than done; few of the organizations that have made net-zero commitments are actually on track to make them. While enterprises may be able to find reduction opportunities in their own operations, many of the bigger gains can be found by addressing Scope 3 emissions — accounting for more than 70% of a company’s total emissions — up and down the supply chain.[2]
What obstacles are companies facing in making the most of this opportunity?
Organizations that embark on Scope 3 emissions-reduction initiatives in their value chain encounter a number of hurdles; the challenge lies in having the right information at the right time and knowing what to do with it, as well as needing to rely on and work closely with external parties to gather Scope 3 data.
- Data quality — Most information is either found indirectly or self-reported by suppliers, and data are reported at various intervals, from weekly to annually. Thus, organizations must make sure that data are complete, accurate, timely, and consistent as well as capture the required metrics.
- Data accuracy to aid in decision-making — One must have a system to draw insight from data. Otherwise, it provides only a historical view but does not enable firms to forecast future performance or adapt to an evolving regulatory framework.
- Readiness —- Companies lack a framework and guidance around best practices and do not have the time to establish these for themselves.
- Scale and complexity — Enterprises typically have thousands (or tens of thousands) of suppliers across the globe, with different maturity levels and characteristics.
What can enterprises do to overcome these impediments and implement processes that can drive Scope 3 emissions-reduction initiatives?
- Having the right data is key, as you need to know where are before you can determine where you plan to go. You need to have a system that allows you to connect data sources, leverage actionable intelligence to enable the enterprise to capture all emissions scopes and other environmental and ESG metrics, and establish and execute on Scope 3 emissions reduction and reporting goals. Such a system should be able to convert spend into emissions so that you can establish baselines.
- By mapping their supply chains, organizations can establish these starting points to understand which emissions come from external partners and where the climate-related risks lie. As an organization’s supply chain can be extremely complex, trying to implement a Scope 3 emissions-reduction plan across a large global network is particularly challenging. It is best practice to identify strategic suppliers with whom to partner. By using a spend-based method to first identify hotspots and then an average data method for more accurate insight for decision-making, enterprises may be able to target specific suppliers.
- Next, the enterprise can set targets. Understanding the data, metrics and benchmarks can help the organization collaborate with suppliers to set meaningful, actionable and quantifiable goals. To encourage co-innovation in the search for solutions, it’s beneficial for the targets to be ambitious. Furthermore, they can serve as criteria when selecting suppliers.
- Organizations may be able to sustain momentum for Scope 3 reduction initiatives by cultivating the supplier relationship as well as adjusting targets as they and their suppliers gain greater insights from data. Once the enterprise has made inroads with strategic suppliers, it can begin to incorporate partners further along the supply chain. Looking for suppliers who share and have made progress on similar emissions-reduction goals is key to fostering progress.
- Technology plays a vital role, and the organization should work within a holistic, unified technological ecosystem that can help it collect, analyze and draw insights from data efficiently as well as collaborate with suppliers in real time. It is critical that this system has the capability to quickly establish a framework and the flexibility to adjust and evolve it for long-term success.
Organizations that commit to and embark on Scope 3 emissions-reduction initiatives struggle to turn that commitment into a plan of action and show quantifiable results. Challenges arise from the need to collaborate with external partners along a complex supply chain to influence their behavior, and these obstacles are compounded due to limitations in data handling and technology. By implementing best practices, processes and technological systems that serve as a platform for collaboration and data collection and analysis, organizations can make data-driven, insightful decisions and greater progress toward becoming net-zero emitters.
Alex Zhong is Director of Product Marketing at GEP. Alex has more than 20 years of practical experience in supply chain operations and has advised many Fortune 500 companies on their digital transformation. At GEP, he leads product marketing for the company’s AI-enabled supply chain solutions. He is passionate about the role technologies play in driving supply chain excellence and business growth.
[1] George Smeeton, “Report: Fifth of world’s largest companies now have net zero target,” Energy & Climate Intelligence Unit, 23 March 2021| https://www.unglobalcompact.org.uk/scope-3-emissions/
[2] “Scope 3 Emissions,” Global Compact Network UK | https://www.unglobalcompact.org.uk/scope-3-emissions/
