If your company is subject to one of the ESG reporting standards that require Scope 3 emissions disclosure, such as the CSRD or ISSB, chances are you’ve already been reading up on how to engage with suppliers regarding their sustainability performance.
Beyond implementing best practices, however, Scope 3 emissions reduction remains a major headache. Meanwhile, the fact that companies are still struggling to make progress in this area indicates that there are hidden obstacles lurking and, potentially, golden nuggets of learning waiting to be unearthed.
In this article, we’ll explore some of those stubborn barriers to progress, along with how to overcome them, so you can engage productively with suppliers to accelerate emissions reduction. Let’s start, however, with a brief review of best practice.
tips to improve supplier engagement and sustainability reporting
- Identify and engage with a limited number of suppliers that account for the greatest percentage of company spend
- Integrate carbon requirements into procurement processes and business discussions, and ensure formal top management commitment
- Set clear expectations for suppliers to provide Scope 1 and 2 emissions data, but also to set timed reduction targets
- Encourage suppliers to sign up to the Science Based Targets initiative (SBTi) to ensure their data is verified
- Actively support suppliers to produce accurate climate accounting reports and reach set goals
- Join relevant industry coalitions and initiatives to leverage collective influence and pool resources and efforts in a streamlined way across the supply chain
To be clear, none of this is a walk in the park. It can take years to successfully obtain top management support for ambitious targets and programs of this magnitude. Not to mention the effort and skill required to build internal consensus and collaboration across various business lines, legal and procurement functions. Making the business case, and obtaining the resources, to make consistent progress can also be a major challenge as company priorities shift in line with volatile market conditions.
However, if the foundations are pretty much in place to support robust supplier engagement, there could still be some barriers to tackling your Scope 3 emissions. Below are the key obstacles – and opportunities – that AMCS has uncovered so far.
stubborn barriers to scope 3 reduction
conflicting purchasing practices
One of the biggest challenges to improving suppliers’ sustainability performance, including reducing carbon emissions, is the mismatch between procurement and sustainability goals. It can be counterproductive, for example, to set strong sustainability requirements that result in increased costs for suppliers while at the same time imposing challenging business requirements, such as lower prices and tighter lead times for product deliveries.
Possible solutions include identifying this as a material issue and evaluating options with top management to internalize costs. For instance, if a retail brand typically maintains a 40% profit margin and its suppliers have a 2-5% profit margin, the brand could decide to pay a higher price in return for supplier commitment to reach more ambitious carbon emission reductions.
focusing on normalized emission reductions
It can be tempting to set emission targets that are normalized to your organization’s revenues or product sales so you can feel good about making reductions without restricting business growth. If the goal is to reduce the actual level of GHG emissions contributing to climate change, however, the focus must shift to absolute emissions. This requires more effort and investment, but also maximizes the effect of reduction targets.
There’s no doubt that it’s a learning process to identify where and how to reduce emissions across all scopes, but the sooner meaningful targets are set to reduce absolute emissions, the greater your organization’s ‘carbon fitness’, boosting corporate will power for innovation to achieve greater resilience.
Unintelligible, siloed data
Many companies continue to struggle with fragmented data sets that are rarely translated into a coherent picture. This makes it difficult for decision-makers to understand what is really going on and make informed choices.
Using a technology platform that enables managers to easily assess progress on emission-reduction objectives can provide the clarity required to identify bottle necks. For example, if 70% of suppliers have committed to provide Scope 1 & 2 data and establish emission reduction targets within 12 months but, 8 months on, only 10% of them have done so, the sooner this is flagged, the better.
limited industry coalitions
Although some industries have made significant progress in developing a common framework to address supply chain sustainability challenges, moving the needle on emissions reduction remains difficult.
One reason for this is that certification programs and audits tend to focus on processes that yield only incremental improvements. Industry coalitions could make greater progress by agreeing a sector-wide roadmap laying out clear targets for emissions reduction and other material issues.
Progress could be further enhanced by establishing a common platform for data collection across the supply chain, enabling suppliers to provide sustainability data just once in a given period rather than replying to multiple similar-but-slightly-different customer questionnaires.
But what about the hidden opportunities for greater positive impact? Three stand out as particularly compelling.
opportunities to accelerate emissions reductions
1. materiality mapping to identify hotspots
While it can be tempting to focus on a handful of key suppliers, this is not necessarily where the real impact lies in terms of emissions. A more diligent and potentially fruitful approach is to evaluate which activities in the supply chain are the biggest hotspots with the highest impact.
For example, you might achieve a higher overall emissions reduction by engaging a small supplier whose manufacturing process involves chemicals that emit high quantities of emissions. This might have a greater effect than engaging a primary supplier whose operations are relatively energy efficient.
2. innovation partnerships with suppliers
Some companies are taking the (double) materiality mindset further by setting emission-reduction targets to be achieved in partnership with suppliers.
For example, P&G has identified product use as a key Scope 3 category for target emission reductions. In practice, this might mean looking at a product like household detergent where 90% of the footprint comes from heating water in the washing machine. In this case, supplier collaboration might focus on developing new formulas that clean clothes effectively using water at room temperature.
3. use more carrot than stick
Companies that have been at this for a while often report better results from deep supplier partnerships that generate high degrees of trust. And while this might seem like common sense if we think about human relationships, it can often be overlooked in a business context.
A simple but effective step is to sit down with suppliers and discuss what each party values and how collaboration could result in a win-win for everyone and the planet. This approach also holds the most promise for engaging suppliers in more distant tiers of the supply chain.
If you would like to discuss your Scope 3 challenges, contact our team to see how we can help. Our cloud-based ESG Solution helps you measure, manage, and report your value chain emissions with at-a-glance dashboards to focus on the metrics that matter most and purpose-built tools to engage suppliers. Helping you achieve your sustainability goals more easily.