How to get started with renewables in your supply chain to reach net-zero?
Why do corporates need to tackle greenhouse gas Scope 3 emissions and what are the barriers for corporates to get started on supply chain engagement? What is ideal for a first step case?
In April 2021, Preben Munch from ECOHZ invited Carlos Sanchez, Climate advisor at carlossanchez.eco and Manager Environment at PMI, for a discussion around Supply Chain. Below we share a summary of the discussion:
First, thanks for joining us for this conversation Carlos!
The IEA just published the Global Energy Review, which forecasts that energy production-related emissions will surge by 1.5 billion tonnes in 2021 against 2020 values. The report highlights a few critical points:
- The pandemic induced reduction is not systemic. If this forecast materializes, 2021 will be within a couple of percentage points from the peak year 2019
- Most of the increase comes from burning coal in Asian power plants, particularly in China
- Renewable energy (RE) change has been and will continue to be demand-driven. This is directly relevant to the supply chain discussion.
Carlos, why do corporates need to tackle Scope 3 emissions?
Why do corporates need to tackle Scope 3 emissions?
Thank you, Preben, for inviting me to this discussion. During these years working in corporate carbon management, I have noticed that corporates’ Scope 3 emissions are becoming a key focus. There are three reasons behind this interest:
- Uptake of Net-Zero targets. According to scientists, we need to reduce 50% carbon emissions before 2030 and achieve net-zero before 2050 to keeping us safe from the catastrophic consequences of climate change.
- Reducing risk and seeing opportunities. On the risk side, we have transitional risk due to the shift to a low-carbon economy such as New Zealand new climate law or the recently approved carbon tax in Canada. Besides, there are opportunities such as attracting ESG investors or reducing the cost of capital.
- Size of supply chain versus own operations. According to CDP, companies’ supply chain emissions are 11.4 times greater than companies’ emissions, so the potential for reductions is huge. That’s why companies aspiring to have ambitious and credible targets must include supply chain net-zero targets in their CSR strategy.
Supply chain emissions are on average 11.4x higher than operational emissions (CDP 2020)
The SBTi criteria have increased focus on Scope 3 emissions, with specific requirements for companies with 40% or more of their value chain emissions in Scope 3. Engaging with suppliers becomes key to having emissions reduction targets approved by SBTi.
What are the hurdles and barriers to getting started on Scope 3?
What are the hurdles and barriers to get started on Scope 3?
You cannot improve what you cannot measure. Therefore performing a carbon footprint survey with your suppliers should be the first logical step.
The challenge is that collecting from your supplier’s direct fuel consumption or emissions is not that simple. There are three barriers that most companies find:
- The number of suppliers. On average, a corporation has around 50,000 suppliers, and requesting them information requires tools and know-how.
- Quality of data. You need data that you can rely on, and getting from your suppliers quality data for their emissions in Scope 1 and 2, and even more difficult in Scope 3, is difficult.
- The workload for the suppliers. When suppliers need to deliver different data to their individual customers, it can work for the suppliers.
Preben, you have experience working with different companies. How can companies get started?
How to get started on supply chain engagement?
Well, I can answer with a question. How do you eat an elephant?
You eat it piece by piece!
You have to break the total number of suppliers down into smaller groups.
Engaging all your suppliers at once is too much. With smaller groups, you simplify the start, and the learning curve you are sure to experience becomes manageable.
- Start by categorizing your suppliers
- Identify a sample group. It can be based on critical strategic suppliers, or spending, or related to a specific project.
- Onboard the sample group and make sure you are clear why it is essential that they align with your ambitions and targets as a part of your value chain.
In the initial stages, do you typically gain some low-hanging fruit benefits?
As an example, last year, we started working with a global consumer electronics brand.
To help companies overcome the challenge of engaging their suppliers, ECOHZ has developed a Supply Chain Portal that allows you to work renewables into your supply chain efficiently. The portal enables our client’s suppliers to have easy access to renewable energy solutions.
Through dialogue and webinars in their language, our customer’s suppliers were onboarded. In this first phase, our client started with a minor group of important strategic suppliers. Through the process, we gained experience working with our customer, our customer to engage suppliers in the RE field, and the suppliers to understand the RE market and implement solutions. Because this first sample was small, we could handle the process, creating a win for the customer.
Getting it right with the first group allows to collect low-hanging fruit compared to targeting a large supplier population in one go. This win constitutes the platform needed the next steps incorporating the next more extensive group of suppliers and grow the positive Scope 3 impact and create new wins.
How can a corporation’s own targets benefit the supply chain?
When you think about reducing carbon emissions from your suppliers or a sub-set of suppliers, you should focus on cascading corporate ambition, and building the suppliers’ capabilities should be the focus.
In the area of reducing emissions, renewable energy is a significant tool that companies use. Recently the RE100 initiative has celebrated the milestone of 300 members. These 300 companies have started to cascade their ambition into their suppliers.
More than 300 of the world’s most influential businesses committed to 100% renewable electricity. The members are already driving enough renewable electricity demand to power a medium-sized country. These 300 companies have started to cascade their ambition into their suppliers.
The good news is that if you have built capabilities to achieve this internally in your companies, you can use them to help your suppliers reach those goals. Companies can help their suppliers by sharing their experience from Scope 2. Build capabilities of your procurement team, develop specific programs in key procurement categories and getting support from external when needed.
How comprehensive must the measuring and reporting be in the initial phase?
Measuring the impact of Scope 2 reduction is easy. You just multiply your consumption with the country’s or your supplier emission factor, and you have the emissions.
Scope 3 is much more complex. In the initial phase, most companies use spending data and using EEIO tables. They estimate their emissions. This approach is excellent for the first model.
Nevertheless, you should aim at incorporating overtime data from your suppliers to track improvements and to increase ownership among your procurement team.
Reducing supply chain emissions is wider than using renewable energy, how do carbon offsetting and insetting fit into the picture?
How to get started to reach Net-Zero?
Companies should reduce their emissions according to the latest science. In this sense, Science Based Targets Initiative – SBTi enables businesses to take swift climate action by setting ambitious emissions reduction targets.
Once companies have done energy efficiency, purchased renewable energy, switched fuel and reduced supply chain emissions, they still have some unavoidable emissions that need to be addressed. Those residual emissions should balanced out with investments in activities that reduce/avoid or remove CO2 from the atmosphere by using voluntary carbon offsets.
Voluntary offsets are purchased at the companies discretion and have become a widespread and controversial instrument to fight climate change.
Carbon offsets concerns are around additionality, double counting and greenwashing with no standards in the market. Moreover, the SBTi has committed to publishing guidance before COP26 that will bring clarity.
In any case, companies should start by using offsets validated, verified and registered under well-known standards such as Gold Standard or Voluntary Carbon Standard. To transparent and publicly communicate its use. And Invest to fund programmes that empower local communities, tackle poverty and contributes to other Sustainable Development Goals – SDGs.
Thank you, Carlos, for the insights. We are organizing a carbon market webinar that will focus on offset instruments and best practices.
Let me summarize our conversation:
Companies need to make assumptions and get started step by step.
Then start with a small group, build on that win both internally and externally. Make sure your suppliers understand and share why aligning with your program is essential.
When you start the journey, it will not be right from the beginning – but showing results from the first experience is an essential signal to all stakeholders.
Finally, meeting increasing focus and expectations from investors is one important fallout of Scope 3 programs. Anything else on your side?
Just saying thank you for your having me here today
You are welcome, and looking forward to reading from your on your blog and social media and perhaps in a future discussion.