The effects of climate change have already shown themselves in the form of more frequent storms, flooding, wildfires, droughts, and more. Look at what's happening in the US: California wildfires, extreme drought in the Southwest forcing state governments to consider enacting water restrictions, severe flooding that knocked out drinkable water for over a week in Jackson, Mississippi. These events typically disrupt the supply chain, reducing the supply of goods and services, increasing consumer costs and reducing corporate profits.
Companies have a role in mitigating climate change's worst impacts. According to the US Environmental Protection Agency (EPA), a company's supply chain often accounts for more than 90 percent of its total impact on the climate. Thus, reducing supply chain emissions (or "Scope 3") is not only better for the planet, it also strengthens the resiliency of company business operations – which in turn, guards against product disruptions, reduces costs to consumers and strengthens a company's ability to compete and be profitable. As climate-related disasters and other risks become increasingly common, creating resilient businesses has never been more important.
But what are companies doing in this regard? A closer look at companies claims, such as "accelerating efforts to tackle the climate crisis" – often made in marketing and investor presentations – reveals that many of these assertions remain quite limited and ultimately fail to make any meaningful dent in reducing supply chain emissions. In fact, a recent survey by the Institute for Supply Management – the oldest, and largest supply management association in the world with more than 50,000 global members – found that only 37 percent of its members have either short- or long-term sustainability goals specifically for supply chain management, and that 60 percent of its members do not even require their Tier 1 suppliers to have any sustainability goals.
The primary constraint cited for lack of sustainability targets within supply chains is that the tools and metrics needed to execute such goals are still in their infancy. Indeed, a key challenge to driving meaningful emissions reductions in a company's supply chain is the lack of consistency in what is measured, as well as lack of a standardized set of data to measure against.
Encouragement vs. Requirement
The unfortunate reality is that most companies merely "encourage" their suppliers to reduce their emissions rather than requiring them to do so. I get it – I was formerly the chief sustainability officer at a Fortune 500 company. The prevailing attitude was very much that "if we don't want anyone telling us to do something, why should we tell our suppliers they must do something?"
Realistically, the pressures large companies are experiencing surrounding climate are still just the tip of the (ever-melting) iceberg. Most are not feeling the need to disclose and reduce these emissions yet.
Eventually, multinational companies will be forced to do so – as will their suppliers. Failure to comply will result in a competitive disadvantage, missed net zero targets and risking access to capital and a company's social license to operate. Additionally, in the US, the Securities and Exchange Commission (SEC) is weighing whether to require more robust disclosures from companies about their emissions, citing increased demand for more transparency from investors.
Rather than wait until reductions in supply chain emissions are mandated, there are tangible steps that companies can take now to best manage and control the reduction of supply chain emissions in a manner that both reflects the culture of a company and strengthens its relationship with suppliers.
There are four essential steps, and each should be built into investor and regulatory requirements:
- Map supply chain emission "hot spots" against long-term business-critical materials and services. This enables companies to quickly identify the suppliers that need to be engaged immediately to unlock reductions and safeguard supplies. This will also highlight the company's risks, which should be shared with investors.
- Begin engaging with all key suppliers to incentivize supply chain decarbonization today before it's mandated. The more time passes, the more challenging and expensive it will be to decarbonize. WBCSD's Incentivizing Supply Chain Decarbonization report, of which 11 WBCSD member companies participate, explores a range of incentivization options for companies and suppliers, and WBCSD is working with our members to implement these options.
- Verify emissions reductions using third parties, such as professional organizations and non-governmental organizations (NGOs). They would bring credibility (and possibly scrutiny) and transparency to a company's emissions reduction efforts, which are vital components to ensuring a company is not simply "greenwashing" or just "putting lipstick on a pig." It is worth noting that the steps of measuring and reporting can be done concurrently.
- Additionally, while engaging with suppliers to reduce emissions, companies should digitize their carbon and other greenhouse gas (GHG) emissions data with efficient systems, such as WBCSD's Partnership for Carbon Transparency (PACT). PACT works with an ecosystem of decarbonization partners to standardize emissions data and enable its exchange across the multitude of carbon accounting technology systems and platforms springing up.
As an example, several companies tested the PACT tech specifications in a pilot for the liquid laundry detergent value chain to ensure they achieve their objective. The pilot involved Aptar, BASF, Chevron, Dow, Solvay, and Unilever. Data was exchanged successfully using multiple different solutions currently under development by CircularTree, IBM, SAP, and Siemens, reflecting the realities of how transparency will be created. Through participation in such data exchange pilots, these companies are building the necessary foundations for the creation of emissions transparency – a key step for emissions reductions.
At Climate Week, I want to find those companies that truly drive meaningful impact. I will be looking for two things:
- Public and private companies that are requiring their suppliers to quantify, measure, and reduce their carbon and GHG emissions, and that are supporting suppliers on this journey.
- The degree to which they have developed ways to identify and measure a consistent set of data that cut across their entire value chain and assured disclosure of said data.
The global shocks to the supply chain we have seen over the last few years – from the COVID-19 pandemic, the war in Ukraine, and the devastating impacts due to extreme weather patterns resulting from climate change – will create long-lasting, evolving challenges to supply chains.
Making meaningful reductions in a company's supply chain emissions is critical to protecting domestic and global supply chains against these ongoing disruptions. Doing so will help strengthen the resiliency of supply chains and ensure the continued flow of goods and services, which ultimately will decrease costs for consumers.
