‘A game-changing opportunity to fight climate change’: WEF pushes businesses on supply chain decarbonisation

Sourcing departments continue to prioritise shorter-term objectives over ESG considerations.

The guidance, released ahead of the original dates for its now-delayed Davos summit, outlines the major sources of emissions for the world’s eight biggest supply chains: food, construction, fashion, consumer goods, electronics, automotive, professional services and freight. Collectively, these supply chains are accountable for more than half of global annual emissions, according to the report.

Priority, most material sources of emissions, vary by sector. They include heat, chemical processes and the production and procurement of raw materials.

The report acknowledges that the business cases for tackling some of these emission sources are better than others. By using less material and increasing recycled content, for example, some businesses could mitigate CO2e at a rate of €10 per tonne. But the cost of mitigating one tonne of CO2e using carbon capture and storage (CCS) arrays or by switching to innovative fuels like hydrogen could be as high as €100 at present.

 The report urges businesses to consider how they can work with policymakers, regulators and other businesses to scale up emerging technologies and reduce costs. It also encourages businesses to update their forecasted cost-return models in line will falling costs in fields like renewable electricity generation and low-carbon steel.

However, the report also outlines some more general steps that all businesses, regardless of size or sector, can take to help decarbonise their supply chains.

Any business will need to gain more supply chain transparency to accelerate decarbonisation, the report notes. Without a baseline, meaningful and ambitious targets cannot be developed. The report also encourages more collaboration on co-funding emissions abatement, between end-user and supplier, and between multiple end-users sourcing from the same suppliers, and the development of financial incentives for suppliers to lower emissions.

The report also outlines the trend towards reconsidering geographical sourcing strategies to minimise emissions from transport. Many businesses have consolidated supply chains considering the impact of Covid-19, or to avoid hotspots for deforestation. On the latter, Mars, for example, is reducing the number of mills it sources palm oil from, from 1,500+ to fewer than 100.

Consultancy Boston Consulting Group worked with the WEF to collect the figures and to develop the action points.

“Supply-chain decarbonization will be a game-changer for the impact of corporate climate action,” UNFCCC high-level climate action Nigel Topping, former lead for the We Mean Business Coalition, said.

“Addressing Scope 3 (indirect) emissions is fundamental for companies to realize credible climate change commitments.”

Scoping it out

The average company’s supply chain emissions are estimated to be around five-and-a-half times greater than those generated by their direct operations, according to CDP. This makes Scope 3 emissions a key focus point on the road to net-zero, even though there has been a historic tendency not to account for them.

The good news is that companies are increasingly asking suppliers to measure and communicate information regarding their emissions, as well as their wider environmental impacts like water and waste. The number of companies calling on their supplier to disclose environmental data to CDP increased by 24% between 2019 and 2020.

It is believed that this trend could be attributable to the growing desire to set approved 1.5C-aligned science-based targets. Just a few years ago, only a handful of companies had made such commitments. Now, any big firms operating in nations with net-zero targets are striving towards this new measure of ambition.

The SBTi will require businesses to set Scope 3 targets if they wish to be classed as 1.5C compatible and if Scope 3 sources account for 40% or more of their annual emissions footprint. Such targets must have boundaries which address two-thirds of total Scope 3 emissions.

Sarah George