Under increasing pressure from shareholders, governments, and customers, enterprise organisations have revised corporate strategies, making ambitious public promises to operate more sustainably to protect people and the planet. To do so, many of these companies have been addressing their Scope 1 and 2 emissions for some time.
Now, faced with looming deadlines and a landscape of mounting legal action against heavy corporate emitters, the pressure is on them to start grappling with the environmental impact of their value chains. If large organisations are to make meaningful progress against their sustainability goals, they cannot ignore Scope 3.
Solving Scope 3
As they sit outside of direct organisational control, tackling Scope 3 emissions is much more complex. This is because significant reduction in value chain emissions cannot be accomplished without close strategic alignment and collaboration with key players within those value chains. According to McKinsey, upwards of 80% of an average large company's total emissions will sit in their supply chain, which means that reducing supplier emissions should be a key business priority.
This presents organisations with a new challenge. They must now work closely with suppliers to reduce emissions that sit outside of their direct control, and they must provide robust reporting to prove their progress.
Procurement in the spotlight
To accomplish this task, businesses will be looking to procurement. Procurement has long owned the governance and day-to-day operational management of these relationships. Now, procurement will be pivotal to these organisations, defining and orchestrating how they manage, track, and prove their corporate commitment with regards to Scope 3 responsibilities.
But with an existing portfolio of targets centred around contract negotiations and cost savings, the buying function is navigating uncharted waters. Therefore, how can procurement now adopt a new set of KPIs centred around supplier alignment and collaborative partnerships to ensure the business can meet and deliver on its sustainability objectives?
Below, I have explored seven steps that primary organisations can take to start addressing Scope 3 emissions through supplier collaboration.
1. Define Your Project Scope
It may sound simple, but project scope will be determined by your organisation's sustainability commitments. What targets have your executive committee publicly disclosed? What are the deadlines for these commitments, and whom have they been shared with?
If you have committed to net-zero supply chain emissions by 2030, for example, it is key to define your ‘supply chain’ and whom it encompasses. Are your third, fourth and fifth-party suppliers included? How far upstream is it necessary to exert influence and reach emissions neutrality?
For some organisations, meeting their own zero-emission targets will require drilling down into six levels of their supply chain, a figure that is representative of the challenge many global enterprises are facing. This necessitates strategic alignment and collaboration amongst suppliers; eventually all will fall within the project scope.
2. Select Your Suppliers
The first step in addressing emissions across your entire supply chain is selecting an initial focus group. This will ensure the correct processes are in place and progress has been proven across a small cohort that contribute the most to overall emissions.
Doing this will allow your organisation to focus its time, energy, and resources on high emitters to make the most impact as quickly as possible. It will also allow you to establish a process for supplier collaboration around sustainability initiatives that can later be applied at scale.
3. Create a portfolio of KPIs
With a wide range of metrics to track, manage, and report to address Scope 3 emissions, leading indicators are a good place to start. These are any measurable data point of interest that predicts a change in another data series, process, or trend, before it occurs.
A leading indicator that assesses the total number of suppliers working towards sustainability initiatives is recommended. As your supplier collaboration programme matures, you can begin tracking lagging indicators to confirm individual and overall project success. Other indicators include:
- Having sustainability targets in place.
- Switching to renewable energy.
- Using CDP for carbon disclosure.
- Onboarded into a tool such as EcoVadis for CSR/ESG ratings.
- A commitment to Science-Based Targets.
- Aiming for 2030 net zero emissions targets.
4. Collect data and establish baseline performance
In order to measure and track supplier emissions as they improve, it is beneficial to have an idea of your baseline. While this is important, it should not preclude you from immediately starting the work needed to improve over baseline performance.
To define this baseline, many organisations use existing sustainability performance ratings providers. This saves time on in-house data collection whilst giving a representative understanding of your starting point.
5. Align and communicate vision and objectives
Stakeholders, both within your business and your suppliers, need to be aligned on objectives. To achieve this, there may be some knowledge and resource development required on both buyer and supplier side (not everyone will have a working knowledge of Scope 3, or its importance).
The development of a joint account plan, by key stakeholders in all organisations, will form the foundation of reducing emissions through collaboration. It should include the strategic objectives, and what success will look like. Once this is in place, it should serve as a reference document to assess progress.
6. Launch a portfolio of joint sustainability projects
While alignment is the first key element of relationship maturity, collaboration forms the second. This is where a structured project approach is vital. Working systematically allows you to break larger objectives into manageable collaborative projects with individual suppliers.
Projects should have their own objectives and outcomes, making it easier to judge both their impact on individual and overall goals of the relationship. These should be SMART objectives: specific, measurable, achievable, relevant, and time-bound.
7. Measure, track, report, prove
In conjunction with establishing clear goals, assigning value trackers to the projects that comprise your work on supplier emissions will allow you to monitor progress against key performance indicators over time, and adjust your strategy, as necessary.
Integrating proprietary and supplier data with data from external providers will enable reliable reporting, allowing organisations to establish a single source of truth for the whole team to work from, underpinning every project in the relationship.
To remain agile and scale the supplier collaboration programme, real-time data access is crucial. To maintain alignment and bust silos, it should be easily accessible to all stakeholders in the relationship, and not only include quantitative data, but also serve as a record of the tasks, actions, and meetings.
The best way to increase speed of execution and track progress at scale, is to adopt a purpose-built Supplier Collaboration platform. This allows for supplier sustainability and performance data to be tracked in one location, enables close monitoring on joint projects with suppliers and partners, and provides robust proof of their contribution to corporate sustainability goals.
The decade of our lives
The message is clear: organisations that fail to honour corporate climate pledges risk losing value and endangering business longevity. Given that an average company's supply chain generates more than 5.5x the emissions of its own operations, organisations cannot achieve this feat without working closely with their suppliers.
As businesses embrace a triple bottom line model, procurement is being presented with an opportunity. The function can now further embed itself in the strategic direction of the organisation, leveraging supplierrelationships to safeguard not only profit, but also the planet and its people.
By collaborating with key actors in our supply chains, we give ourselves the best chance of hitting this goal. The trick is to start small, implement proper processes, prove progress, and subsequently scale your success.