Scope 3 and the supply chain: How businesses are taking sustainability leadership to a new frontier

The world has reached a crucial point in the effort to combat the climate crisis. Limiting average global temperature increases to below 1.5C – as envisioned through the Paris Agreement – requires a reduction in emissions of around 45% in the next 10 years. This, according to the Intergovernmental Panel on Climate Change (IPCC), would put the world on a trajectory to reach net-zero emissions by 2050.

Corporates are actively playing a role in this transition. At the time of writing, 942 companies are “taking action” by setting emissions reduction targets aligned with climate science through the Science Based Targets initiative (SBTi). For many companies, especially those that have already taken action to decarbonise their facilities, operations and purchased energy (Scope 1 and 2), the bulk of their climate impact is now located outside of their direct control, in the highly complex labyrinth that is Scope 3 emissions.

The GHG Protocol defines Scope 3 emissions as “all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream”. Already it becomes clear to see why this is a much harder area to abate. Businesses are now striving to engage with suppliers and create low-carbon and easily recyclable products and services to reduce value chains emissions.

If Scope 3 emissions represent more than 40% of a company’s overall emissions, the SBTi requires that a target is put in place to cover the impact – and for a lot of companies it does. Of the 900+ companies to have set or committed to science-based targets, around 90% have set scope 3 reductions too.

Many organisations report that 80% of their emissions fall under the auspices of Scope 3 and, for some, Scope 3 accounts for as much as 97% of their overall emissions. Therefore, in the context of the UK government’s 2050 net-zero target, they are arguably the most important emissions to address.

Fortunately, some corporates are adopting leadership positions on how to engage the supply chain in reducing emissions.

To note the launch of the edie Explains: Scope 3 carbon emissions business guide, you can access an in-depth case study of how Nando’s absolute zero-emissions target features a heavy focus on engaging with the supply chain.

—DOWNLOAD THE SCOPE 3 EXPLAINS GUIDE HERE—

Alongside Nando’s, plenty of other businesses are adopting leadership positions on how to engage the supply chain in reducing emissions. Here, edie explores some notable examples.

Carrot or stick?

BT’s supplier engagement forum is industry-leading, launching the Better Future Suppliers Forum (BFSF) in 2012. It is aimed at reducing supply chain risks by introducing suppliers to the concept of sustainability, before encouraging them to embark on a 10-step journey that culminates in that company getting benchmarked against a best practice approach.

The company’s Scope 3 emissions constitute 94% of its end-to-end net carbon footprint. Since 2016, BT has achieved a 7.3% reduction in supply chain emissions, with a target in place to reach 29% by 2030.

In a recent edie webinar, the company’s head of sustainable business policy, Gabrielle Giner spoke of the need to get suppliers to think and act more sustainably, rather than leaving them behind. Giner noted that any approach to supply chain resiliency must come through engagement and businesses using their voices to lobby for a green recovery plan that enables supply chains to integrate more sustainable and ethical practices.

“We have certain key suppliers and we don’t want to strike anyone out,” Giner says. “We want to work with them on the issue to try and resolve it.”

More recently, online fashion retail platform Zalando has built on its commitment to carbon neutrality across its own operations by committing to having 90% of its key supplier set their own science-based targets. Zalando also confirmed it will be the first retailer signed up to the Sustainable Apparel Coalition (SAC) to use a new module that will make sustainability assessments mandatory for its private labels and partner brands sold on its platform.

As a result, the company’s relationship with the brands it sells on the platform, including fashion heavyweights like Nike, Burlington and boohoo, could change.

“For the retailer, the Scope 3 aspect of our science-based target will really have to start to include the brands that are on the platform and part of the business model, so a key discussion will be how we interact with them,” Zalando’s director of corporate responsibility and sustainability Kate Heiny told edie at the launch of the targets.

In fact, Zalando’s chief executive Rubin Ritter claimed that the organisation would cease partnerships with brands that didn’t act sustainably, but that the metrics of what could lead to this hadn’t been defined. However, it could reach a point that Zalando removes brands from its platform based on sustainability performance.

Microsoft is another organisation that has revamped its approach to supply chain management, this time as part of a carbon-negative commitment. The tech giant will reduce its emission by more than 50% across its entire business and supply chain by 2030 while investing to remove more carbon than it emits annually.

In a recent interview with edie, Microsoft’s chief environment officer Lucas Joppa outlined the reasons why the company was looking beyond its own operations to ignite change.

“Making sure the world achieves a 1.5C future goes well beyond Microsoft’s own internal commitments, which is one of the reasons why we started to proactively invest outside of our own four walls,” Joppa says.

“We see that we have been committed to this space, self-regulating for quite a while, but we realise that no matter what, if we don’t use our technologies and convince partners all around the world to come with us and to reduce environmental impacts in the future then it isn’t a win for Microsoft to do this.”

Mobile network provider O2 is another that is both incentivising and demanding that its suppliers act more sustainably. O2 pledged to achieve net-zero across its entire business and mobile network by 2025 – a move it claims will make it the UK’s first net-zero mobile network provider.

O2’s largest source of Scope 3 emissions is through its upstream supply chain. As such, O2 has set a commitment to cut supply chain emissions by 30% by 2025. In order to achieve this reduction, the firm has said it will work to implement more ambitious targets for individual suppliers and create incentives that encourage suppliers to decarbonise their own operations.

O2 has notably already been certified to the highest possible level of supply chain management to reduce greenhouse gas emissions by Carbon Trust. Its largest suppliers are already contractually obliged to meet time-bound, numerical carbon reduction targets.

To incentivise this change, the company will allow O2 suppliers and partners to purchases renewable energy directly from SSE Business Energy at the same reduced rate as the telecoms company.

Most businesses tend to approach supplier engagement through a “domino effect”, whereby organisations implement changes with Tier 1 suppliers. CDP notes that a lot of corporates disclosing to them approach supply chains this way.

“There’s a level of confidence in that if you account for Tier 1 and Tier 2 suppliers, they should incorporate emissions further down the chain themselves,” CDP’s account manager for supply chain projects Matthew Sumners said during a webinar.

Investing in change

Alongside encouragement and contractual obligations, some companies are now investing into their supply chains to deliver emissions reductions.

Luxury fashion firm Burberry will create a “regeneration fund” to support a new portfolio of “carbon insetting projects” that aim to deliver regenerative agriculture practices across its supply chain.

Insetting, as opposed to offsetting, is based on tree-planting projects or regenerative agriculture practices that are carried out directly within a company’s supply chain. As well as working as a form of carbon capture, Burberry’s insetting projects will work with communities across the supply chain to improve climate resilience, promote biodiversity, restore ecosystems and support the livelihoods of local producers.

“At Burberry, we are passionate about creating real change in our industry to build a more sustainable future and I am proud that we can express this through our biggest brand moments like our runway shows,” Burberry’s vice president of corporate responsibility, Pam Batty says.

“As we look to the future, our move to implement carbon insetting in our supply chain is testament to our restless approach to finding new ways to protect our environment and strengthen our deep commitment to our local communities.”

Last June, Burberry set a science-based target aligned to the 1.5C trajectory of the Paris Agreement, committing to reducing its operational emissions by 95% by 2022.

Burberry has set the 95% reduction in its scope 1 and 2 emissions against a 2016 baseline, alongside a targeted 30% absolute reduction in scope 3 emissions by 2030 against the same baseline. The commitments expand on an existing goal to become a carbon-neutral operation by 2022.

Elsewhere, businesses like M&S and Primark have launched digital supply chain mapping exercises to better improve transparency and disclosure, while the likes of Unilever and Sainsbury’s have turned to blockchain technology to enhance the sustainability of supply chains.

Starting the transition

For business less far along on their supply chain engagement strategy, the SBTi notes that numerous options exist as to how corporates can go about setting and reducing supply chain emissions.

A “Sectoral Decarbonisation Approach” enables corporates to set scope 3 reduction targets based on sectoral differences such as expected growth and access to emissions reduction activities. Another method is to use “absolute contraction”. Under this method, the SBTi claims that the rate required to limit global temperature increase to no more than 2C is applied to all organisations.

Finally, the GEVA (GHG emissions per unit of value added) method enables corporates to set intensity-based targets that account for emissions against profit, but is again aligned to a 2C or less pathway.

Those looking across the CSR spectrum may also turn to the Supply Chain Sustainability School, which this week confirmed its 100^th partner. The School now consists of more than 40,000 registered users, 14,000 member companies and another 12,000 individual members.

The School is an initiative the aims to deliver a common approach to implementing sustainability across supply chains. It is led by a board of elected partner businesses and offers practical supports, training and actions plans – including a Climate Action Group focused on the net-zero transition.

Regardless of your approach to sustainability or the size of your value chain, businesses are realising that climate leadership and long-term resilient profitability depends on reducing climate-induced risk across the value chain, with emissions reductions becoming a mainstream requirement.

edie Explains Scope 3 emissions

What are Scope 3 emissions? How are they calculated? How can they be mitigated and reduced? And, what are the business benefits of doing so? This free edie Explains guide gives you everything you need to know.

Simply put, Scope 3 refers to all of the indirect carbon emissions which occur in an organisation’s value chain, which do not relate to the generation of purchased energy. Whilst Scope 1 and 2 carbon emissions tend to sit within the organisation, Scope 3 typically sits outside – both upstream and downstream.

Because Scope 3 carbon emissions are so wide-ranging in what they encompass, and vary so significantly for different types of organisation, they are the most complex part of
an organisation’s emissions.

The guide has been produced with assistance from supporting partners Carbon Intelligence and explains everything you need to know about Scope 3 emissions. It features a case study from Carbon Intelligence on the work they did with Nando’s to combine animal welfare with carbon emission reductions.

Download the guide here.

Matt Mace