COP26 sent a warning: it’s time to report and reduce your supply chain emissions.
Now, more than ever, leading companies know they must take responsibility for their indirect impact on climate change. And with increasing regulation and stakeholder demand, the business risks of carbon-intensive supply chains are set to rise.
The pressure is perhaps greatest for companies who source (or whose suppliers source) extractive and agricultural commodities — products with huge carbon footprints.
We’ve interviewed over 100 of the world’s most carbon-intensive companies to reveal why they’re taking action. Here are the top 5 reasons your business needs to start tracking supply chain emissions - and how to get started:
1. Sustainable sourcing has become an ESG imperative
Today’s sustainability leaders are taking action on the climate impact of their supply chains. Tracking and targeting emissions beyond direct operations (Scope 3 emissions) is the new yardstick:
- Global standards and frameworks are expecting it. The world’s most trusted ESG standards and corporate climate action mechanisms incorporate Scope 3 (e.g. the Greenhouse Gas (GHG) Protocol and science-based net-zero targets).
- Stakeholders demand it. Investors are calling for supply chain sustainability, and buyers are putting the spotlight on suppliers’ own supply chain emissions.
- Business leaders are doing it. 94% of companies with science-based targets include value chain emissions.
- Scope 3 underpins net-zero action. With supply chain emissions 11.4 times greater than operational emissions, neglecting them undermines decarbonization.
To report and reduce your supply chain footprint, you first need to measure it.
2. Make your risky supply chains resilient
Investors and purchasers know that supply chains harbor black boxes of unknown risks. With increasing carbon regulation and stakeholder demand, supply chains face rising costs, regulatory burdens, and reputational damage, which trickle up and downstream. According to CDP, environmental risks in supply chains could cost up to US$120 billion within 5 years.
Supply chain footprinting is crucial to climate risk awareness and mitigation. Measuring your emissions lets you identify carbon hotspots and understand how risk and regulation will affect you. By pinpointing opportunities, you can improve purchasing strategies and collaborate with suppliers to ensure resilience. Emissions reductions can also lead to significant efficiency and cost reduction benefits.
3. Where laggards face disruption, leaders will benefit
Measuring, reporting, and reducing supply chain emissions brings potential financial and reputational gains, such as:
- Respond to demand for low-carbon products from purchasers, banks and consumers;
- Access green finance by comprehensively managing and reporting carbon risk;
- Gain a competitive edge, for example by securing green suppliers before market demand hikes prices;
- Be a recognised sustainability leader through voluntary disclosure, innovation with suppliers, and quantified, transparent target-setting.
First-movers can seize these opportunities, while those who lag behind will be unprepared to tackle increasing risks.
4. Commodity supply chains carry higher risks
In the transition to a net-zero economy, high-polluting sectors face significant disruption. Businesses whose supply chains run through the carbon-intensive extractive and agricultural industries urgently need to understand and tackle their carbon risk (in particular, construction and manufacturing companies, logistics firms, commodity traders, and trade finance providers).
COP26 saw governments agree to end deforestation, and to clamp down on the emissions and financing of oil and gas, coal and steel. The effects of the rising price of carbon, the increasing cost of fossil fuel production, mounting public pressure and the risks of stranded assets will be felt across the value chain.
Quantifying your supply chain emissions helps you understand how your business will be affected, and where to take action to protect your supply chains.
5. Get ahead of new and changing regulation
With less than 8 years left to halve global emissions and stay on track for net zero by 2050, governments are under pressure to back words with bold action. COP26’s Glasgow Climate Pact requires countries to strengthen their NDCs (national emissions reduction targets) by the end of 2022. More scrutiny and regulation of the private and financial sectors — who are integral to meeting national and global climate goals — is coming.
With the take-up of mandatory disclosure (for example in the UK and the multilateral G7 commitment), the new International Sustainability Standards Board (ISSB) for global financial markets, scrutiny of net-zero transition plans, carbon leakage prevention schemes, and demands for financial institutions to manage financial climate risk (such as new guidance in Australia and climate stress tests), more nations will likely follow suit.
Credible net-zero transition plans and targets must address Scope 3 emissions, and they must be transparent and accountable. Companies who get ahead today with supply chain carbon accounting will be best placed to meet demand and comply with legislation.
While supply chain emissions are notoriously difficult to calculate, it’s essential for best ESG practice and to tackle your carbon risks.
The GHG Protocol sets out internationally accepted standards and comprehensive technical guidance for Scope 3 accounting and reporting, with guidance on how to categorise emissions, where to set your Scope 3 boundary, how to collect data, and calculation methods. These standards are accepted for CDP disclosure. Methods based on broad industry estimates are popular, but lead to weaker insights for tackling important carbon hotspots. More accurate approaches based on your company's specific supply chain activities require a huge amount of data gathering, and this information is often incomplete, unavailable, or expensive to obtain — especially in the most climate-critical and complex supply chains.
This is where automated software can help. CarbonChain provides the solution for emissions accounting in the most challenging supply chains: agriculture, metals and mining, oil and gas. Our carbon accounting platform turns your supply chain or trade portfolio documentation into a comprehensive carbon footprint with an accurate and granular emissions breakdown — and integrates into your workflow for ongoing automated tracking.
Get started today to discover your supply chain footprint, reduce risk, and accelerate your net-zero journey.Book a demo