Supply chains are responsible for generating around 60 percent of all carbon emissions globally, according to a recent study by Accenture. That means addressing supply chains sustainability is an essential step in achieving net zero goals and maintaining global temperature increases to the 1.5 degrees set out in The Paris Agreement.
While supply chain sustainability strategies have long been integral to achieving corporate ESG initiatives, they are also now (more importantly) recognized as a key factor in achieving global decarbonization goals too.
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The topic of supply chain decarbonization therefore represents a giant, (until now, largely) untapped opportunity to address the climate crisis. However, reducing Scope 1, 2 and 3 emissions is easier said than done.
Chances are you’ll likely have heard of Scope 1, 2 and 3 emissions talked about in the press or within ESG circles, but you may be less familiar with what they actually mean – here’s a short overview:
- Scope 1 emissions are ‘direct’ emissions – those that a company causes by operating the things that it owns or controls. These can be a result of running machinery to make products, driving vehicles, or just heating buildings and powering computers.
- Scope 2 emissions are ‘indirect’ emissions created by the production of the energy that an organization buys. For example, installing solar panels or sourcing renewable energy rather than using electricity generated using fossil fuels can cut a company’s Scope 2 emissions.
- Scope 3 emissions are also indirect emissions – meaning those not produced by the company itself – but they differ from Scope 2. Scope 3 emissions are the indirect upstream and downstream emissions that result from a company’s operations. These emissions come from an array of places—vehicles that transport clothing and footwear to retailers, energy used in manufacturing (if at facilities not owned by the company), energy used to grow raw material and the greenhouse gas emissions generated as the materials decay in a landfill.
These are typically over 11 times larger than Scope 1 and 2 combined, and supply chains are a major source. Scope 3 emissions are the hardest and most difficult to tackle, often accounting for more than 70 percent of a business’ overall carbon footprint according to research from Deloitte. While Scope 3 emissions are outside an organization’s direct control, it is nevertheless important to recognize them and for companies to attempt to influence suppliers or actively choose to work with third parties and partners whose practices align to the pursuit of net zero goals.
To meet climate goals, Scope 3 greenhouse gas emissions are particularly important. But decarbonizing supply chains is not something that can be achieved overnight, or at the click of a switch, due to the challenges of measurement, reporting and reductions within broader value chains beyond the direct control of any one organisation.
Interestingly, the costs of getting to net zero may not be as expensive as previously thought as only a small proportion of emissions are produced during final manufacturing, with most embedded in the supply chain, such as in base materials, agriculture, and the freight transport needed to move goods around the world.
According to BCG, even full decarbonization across five key global industries would only increase end consumer prices between 1 percent to 4 percent in the medium term—to put that into context, that’s less than $1 on a $40 pair of Pacsun jeans, $600 on a $35,000 new car and considerably less than inflation rates sit at the moment across much of the Western world.
If not prohibited by price, then, what is preventing the decarbonization of supply chains and the pursuit of net zero goals? In short, it’s much the same as the challenge behind mapping Scope 3 emissions – complexity, lack of a clear path forward and a lack of tangible incentives.
Here are four steps worth considering ahead of any meaningful move towards a more sustainable, decarbonized supply chain:
- Redesign products for sustainability by making sustainability part of material sourcing, design decisions, packaging, and embracing circular economy best practices to extend the life of products through repairs, refurbishment, or recycling.
- Design the supply chain with sustainability front of mind to consider emissions in the supply chain from manufacturing, warehousing to transportation: for example, rethinking make-or-buy decisions and limiting the need for long-range logistics. Nearshoring can not only reduce transport emissions; it has the secondary benefit of making supply chains more resilient to disruptions too.
- Build an emissions baseline and share data transparently with suppliers. Integrating emissions metrics in procurement and establishing a comprehensive, scientifically grounded emissions baseline is a crucial first step. Defining a baseline using emissions factor databases, paired with direct supplier data is one of the most powerful direct ways to address Scope 1, 2, and 3 emissions.
- Encourage innovation and incentivize sustainable practices. Promote innovation within your supply chain to identify new and more sustainable practices. Offer incentives to suppliers and partners who actively participate in decarbonization efforts. Foster a culture of environmental responsibility throughout your organization and supply chain.
Supply chains have a vital role to play in the long-term health of our planet, and visibility and transparency (of goods and data) is the key to actively pursuing net zero, decarbonization goals.
It begins with mapping your organisation’s wider value chain for emissions assessments and benchmarking, and ends with companies collaborating as an ecosystem of partners and suppliers to create long-term, actionable sustainable impact by defining, measuring and reducing Scope 1, 2 and (especially) 3 emissions.
Having a strong digital core founded in innovation and business agility will enable companies to improve visibility across (and optimize) their networks, processes and inventory, not only benefiting overall operating and business performance, but also providing data to drive progress toward greater sustainability goals.
The message is clear. As an industry, we must do more to actively reduce the carbon footprint of global supply chains, not five years from now, not next year, but right now. Thankfully, with the power of digital technology, companies have the tools and data available to rewrite their supply chains for new levels of resilience, agility, growth and sustainability across the entire value-chain.
While the short-term cost of pursuing net zero and decarbonization strategies is tangible, it is not as prohibitively expensive many people may think. Besides, the long-term cost of inaction and unilateralism far outweighs any monetary sum. We have the technology to solve the climate crisis, we just need the will to accomplish what needs to be done, and starting with supply chains is as good a place as any to begin.
Ann Sung Ruckstuhl is Manhattan Associates’ senior vice president and chief marketing officer. In this role, she is responsible for generating awareness and demand for Manhattan’s supply chain and omnichannel commerce solutions. With over two decades of high-tech marketing and product management leadership, Ruckstuhl is an established Silicon Valley executive who has built successful startups and transformed Fortune 500 companies.
