We head towards a global population of ten billion people that places ever-increasing pressures on our natural capital. The number of companies addressing their environmental and social impacts has been rising fast. No large company seriously questions that sustainability is on the agenda. Though, the battle is not over. Big problems remain. Our economic model, which overuses resources, encourages unfettered consumption, and pours wealth into a few hands, is hurtling us towards a cliff. The global challenges we are trying to solve (climate change in particular) are getting worse. We are not going fast enough in changing it to the better.
Not only are we facing drastic weather-related disasters, climate change and sixth mass extinction, but we have also polluted the air, rivers, oceans and depleted the soil on a massive scale. The latest Climate Action Tracker, published at COP26, gives a picture of of what we are heading towards: With current policies, we’re shooting for a 2.7 degrees Celsius increase in global temperatures by 2050. By delivering on the 2030 targets, this will fall to 2.4 degrees C, and by fully implementing all submitted and binding targets we’re heading for a 2.1 degrees C scenario. In the right direction, yes. Yet, we’re still heading for disaster.
According to the Intergovernmental Panel on Climate Change (IPCC), we need to keep global warming well below 1.5 degrees C. This half degree will make the difference from bad to catastrophic for billions of people, affecting lives and livelihoods. The past couple of years have already given us a flavour of what is in store: Extreme heat waves; floods; arctic winters; droughts; wildfires; and irreversible changes in the world’s ecosystems — it’s already happening.
It’s no surprise that half of all CEOs (49 percent) state that Supply Chain interruptions due to climate change are among their top risks, according to a recent United Nations Global Compact-Accenture Strategy CEO report, “Climate Leadership in the eleventh hour”.
In this article we will investigate, how the Supply Chain can accelerate the journey to net zero emissions with advanced Supply Chain technology.
What can the Supply Chain do?
Net zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. We reach net zero when the amount we add is no more than the amount taken away.
Companies must help prevent the worst impacts of climate change by reducing their green house gas emissions (GHG). It has to happen as quickly as possible and as far down the Supply Chain as possible. The Supply Chains are responsible for the majority of global emissions.
According to the GHG Protocol, corporate emissions are categorized into three main groups: scope 1, scope 2 and scope 3. Scope 1 emissions are direct emissions produced by the burning of fuels of the emitter. Scope 2 emissions are indirect emissions generated by the electricity consumed and purchased by the emitter. Scope 3 emissions are indirect emissions produced by the emitter activity, but owned and controlled by a different emitter from the one who reports on the emissions.
There is a growing urgency
There is a growing urgency to reduce GHG emissions wherever possible and this includes reducing scope 3 emissions in addition to scope 1 and 2 emissions. To date most companies have been focusing on reducing their emissions under their direct ownership or control (scope 1). As well as their purchase of electricity, heat and steam (scope 2). Indirect emissions upstream and downstream in a company’s value stream (scope 3) are often left unabated.
Scope 3 emissions are the largest source of a company’s emissions in many sectors and is the hardest to influence and control. Approximately 40% of global GHG emissions are driven, or influenced, by companies through their purchases of goods and services and through the products they sell.
Focusing on scope 3 emissions can reduce the impact on climate change and can lead to substantial business benefits. Companies can mitigate risks within their Supply Chains, unlock new innovations and collaborations, and respond to mounting pressure from investors, customers, and civil society. Also, by disclosing Supply Chain emissions, the company will earn trust from its stakeholders and potentially gain new customers that support the transformation. A Sustainable Supply Chain can be a competitive advantage.
How can Supply Chain technology help accelerate the journey to net zero?
To reduce or improve the scope 3 intensity an organization can initiate projects, programs, business decisions or other actions and set targets, that are in line with the percentage reduction of absolute GHG emissions required. There are different ways you can work with your emissions reduction. A good advice is to take a look at your category and your supply market at the same time.
Here are some examples:
- Secure your supply: If you believe that the supply market will decarbonize then you would need to be engaged as a first mover to shape this and avoid being disadvantaged versus your competitors.
- Let the market work for you: If you believe that the market will decarbonize then you will need to take advantage of the options that the market offers as they become available.
- Transform and optimize the category: The supply market may not decarbonize unless you make it happen. You need to be highly activist, commit resources and take control of the agenda.
- Engage with selected suppliers: The market may not decarbonize alone. You need to make selective investments and find partners to share the burden.
Technology can help you design the sourcing strategy
As soon as you have an overview of your supplier base, in relation to how they could potentially help you reduce your scope 3 emissions, you can choose different actions.
- Emission based Supplier selection
It can be difficult to obtain the transparency needed to make the right sourcing decisions. Typically, the decision will be a trade-off between CO2 and cost. Technology can help the business make robust decisions – even when data is incomplete or inaccurate. Technology can help deliver decisions quickly.
- Supply base expansion
If you are looking at your current supplier base you know exactly where your suppliers are located today. This might change if you are looking to expand your supplier base with new and more emission friendly, so to say, suppliers.
To stay in control, you can use technology to model the future supply base both from a cost and CO2 perspective. This will also help you determine what the related cost of the change potentially could be. Technology can help you increase business value and reduce time-to market with prebuilt templates.
Transform your design with Supply Chain technologies:
- Supply Chain reconfiguration
Reconfiguring the Supply Chain can be a time-consuming and challenging exercise. Most often the amount of data is extensive. Also, the speed in developing a decision-making model can be limited to yearly or quarterly exercises because time limits it. Technology can help you solve the toughest problems across your industry with innovative algorithms in a speedy fashion.
- New business model
Meeting sustainability targets does for some companies mean developing new business models. Having a decision-making model can help you reduce development time.
- Greening end-to-end planning
Optimizing the company’s approach to end-to-end Supply Chain planning from a CO2, as well as a cost and performance perspective, is also a well-known approach. In practical terms it means, focusing on the stock-to service curve. This means having only the stock that is needed to serve the clients. Fewer but right goods ensure lower obsolescence. It also translates to fewer freight ton kilometers, as less goods need to be transported. Efficient inventory management creates a more sustainable approach to producing, transporting, and selling goods across the globe.
What does the journey look like?
Build a Supply Chain emissions baseline
Establishing a comprehensive emissions baseline is a crucial first step. Starting with tier 1 suppliers and the products, components, and commodities that account for the most CO2 emissions, companies should define a baseline using emissions factor databases, paired with direct supplier data where available.
Share your data and set targets
It is a good idea to share your data with your suppliers so they can take on the shared responsibility. The company should also set ambitious reduction targets on scopes 1 to 3 and publicly report on the progress. Once they have transparency on their Supply Chain emissions, companies should set a public target. Companies should also actively cascade targets through their supply chains.
Automatically calculate, follow-up and report on your emission reduction targets
When you have collected the actionable sustainability data you can easily determine the as-is footprint. You can use this insight in your reporting as well as supercharge cross-functional communications. Besides saving CO2 you will save time and costs.
Design the Supply Chain and sourcing strategy for sustainability
Companies should consider emissions in their Supply Chain design choices, for example by rethinking their make-or-buy decisions. Nearshoring can reduce transport emissions and has the secondary benefit of making supply chains more resilient to shocks. There are many actions that a company possibly could take. So prioritization is key. This is where advanced Supply Chain technology can support.
About the author
Alis Sindbjerg Hinrichsen is a thought leader and strategic advisor with Opti lon. She has more that 25 years ofexperience from working with opti mizing Supply Chains as well as working with sustainability. Optilon is a Nordic company who specializes in scanning the global market for Supply Chain technologies andimplementi ng them. They work with all kinds of industries.