February 8, 2024
Written by
Mike Paul

What is Supplier Decarbonisation?

In this era of climate change and heightened environmental awareness, businesses are increasingly recognising the need to adopt sustainable practices. One crucial aspect of this shift is Supplier Decarbonisation – a concept gaining momentum as organisations seek to reduce their carbon footprint across the value chain.

Supplier Decarbonisation is the systematic effort to reduce or eliminate carbon emissions associated with the production, transportation, and distribution of goods and services within a supply chain. It extends beyond a company's direct operations, encompassing the activities of its suppliers and the entire network involved in bringing products to market. The goal is to create a more environmentally friendly and sustainable supply chain by mitigating the carbon impact associated with various stages of production.

What are scope 3 emissions?

By way of a quick refresher, the GHG Protocol scopes 1, 2 and 3 cover direct and indirect emissions. Scope 1 covers emissions from a company’s direct operations, mostly related to the burning of fuel to create energy. Scope 2 accounts for indirect or purchased emissions, again usually covering energy such as electricity and gas bought to keep lights on and heaters running.

Scope 3 emissions then account for all other emissions associated with a company’s activities, including those generated by suppliers in the course of the production of whatever goods and services are purchased by the buying company. For most companies, according to research by CDP, scope 3 emissions are usually around 11 times greater than scopes 1 and 2 combined. While direct and indirect energy is far easier to measure, influence and reduce, action taken to reduce scope 3 emissions will see the greatest reductions in environmental impact. However, in order to take these actions, buying companies need to be able to convince suppliers – who are outside of their direct sphere of influence – to work alongside them; this is often the biggest sticking point with reducing emissions from scope 3 sources. You can’t just order your suppliers to do what you want, so how do you engage with them and encourage them to set similar goals?

There are 15 categories that make up scope 3 emissions:

  • Procurement of products and services
  • Fixed assets
  • Consumption of fuel and energy upstream
  • Transportation and distribution of goods
  • Waste
  • Employee commuting
  • Business travel
  • Leased assets upstream
  • Transportation of goods and services
  • Usage, transformation and end-of-life of sold products
  • Leased assets downstream
  • Franchises
  • Investments

For sustainable procurement professionals, the obvious focus is on the procurement of products and services, although some of the others, including leased and fixed assets, might also fall under the remit of procurement in certain situations. Influencing suppliers to work with the buying company to reduce scope 3 impacts through education, alignment, engagement and collaboration will be a key element of the procurement mix as we move towards 2030.

Additionally, as governmental and investor pressure increases on companies to keep the planet in line with below 1.5°C warming, reducing scope 3 impacts through supplier collaboration is going to be the only option. And procurement is going to take centre stage - being the key link between the business and its suppliers is the first step in establishing active, collaborative relationships that can lead to emissions reduction projects, while also feeding into internal corporate strategy and commitments to the move towards net zero.

However, this is a long journey that has to start today if you’re to have any chance of meeting these goals, especially if your organisation has committed to being net zero by 2050. Where do you begin?

Why do businesses need Supplier Decarbonisation?

Meeting regulatory requirements

Governments worldwide are introducing stricter regulations to curb carbon emissions and promote sustainable business practices, as outlined in our 2024 ESG Regulations paper. Although there is increasing action year-on-year to reduce CO2e emissions in the atmosphere, we’re still far from doing enough to avoid potentially catastrophic climate change. 

Upon releasing CDP's 2023 scores in February 2024, CEO Sherry Madera said: "It is only by laying the groundwork of disclosure that companies can show they take seriously the vital part they play in safeguarding the future. The stark reality is that we are incredibly far behind where we need to be, and progress is much too slow." It’s clear that operating sustainably and doing the right thing are no longer compelling enough events – but the raft of new worldwide regulation on reducing emissions should redress that.

By actively engaging in Supplier Decarbonisation, companies can stay ahead of regulatory requirements, avoiding potential legal and financial penalties.

Global carbon emission reduction

As the world grapples with the consequences of climate change, businesses are under increasing pressure to contribute to global efforts to reduce carbon emissions. Supplier Decarbonisation provides a comprehensive approach to address the environmental impact of supply chains, making it a key element in achieving broader sustainability goals. 

Mitigating climate risks

Climate change poses significant risks to businesses, from disruptions in the supply chain due to extreme weather events to increased regulatory scrutiny from mandatory reporting regulations. Supplier Decarbonisation helps companies build resilience against these risks by fostering a more sustainable and adaptive supply chain. 

Enhancing corporate reputation

Consumers are becoming more environmentally conscious and are increasingly making purchasing decisions based on a company's commitment to sustainability. Supplier Decarbonisation allows businesses to align with consumer values, enhancing their reputation and brand image in the eyes of environmentally conscious customers. 

Strategies for Supplier Decarbonisation

Emissions baselining 

The first step towards Supplier Decarbonisation is establishing a baseline emissions number for your key cohort of suppliers who you identify as being the main contributors to your scope 3 emissions. Companies must therefore collaborate with suppliers to gather data on energy consumption, emissions, and other environmental impacts. This transparency lays the foundation for informed decision-making and targeted interventions.

Vizibl's platform facilitates supply chain transparency by centralising data related to supplier practices. This includes information on spend, emissions in tCO2e, CDP score and SBTi status, empowering companies to make informed decisions and drive positive change within their supply chains.

Setting emission reduction targets

Establishing clear and measurable emission reduction targets is essential for Supplier Decarbonisation. Collaborating with suppliers is streamlined through Vizibl's tools, allowing companies to set specific emission reduction targets and monitor progress. The platform's features support the establishment of measurable goals, such as reducing overall absolute emissions or emissions intensity.

Supplier collaboration and engagement

Building strong partnerships with suppliers is crucial for successful decarbonisation efforts. Companies should actively engage with suppliers, providing support, sharing best practices, and fostering a collaborative approach to sustainability.

Vizibl's platform unlocks strong partnerships with suppliers, providing a centralised space for communication and knowledge sharing. Through joint initiatives, capacity-building programs, and collaborative projects, businesses can actively engage with suppliers to drive sustainability initiatives.

Supplier innovation

Encouraging the development of innovative technologies within the supplier base is a key driver of Supplier Decarbonisation. From adopting energy-efficient production processes to integrating sustainable materials, businesses can incentivise suppliers to create new solutions or invest in green technologies. This not only reduces carbon emissions but also fosters a culture of continuous improvement within the supply chain.

Supplier-sourced innovation through the Vizibl platform offers new approaches to tackle risk and resilience, ensure supply or uncover alternate solutions in critical categories, re-engineer and remove inefficiencies from business processes, and drive competitive advantage through new products or services. Most critically, it is the fastest way to support the transformation to sustainable business growth.

Barriers to Supplier Decarbonisation

Supplier financial constraints

Many suppliers, especially smaller enterprises, face financial constraints that hinder their ability to invest in sustainable practices or adopt green technologies. Companies can mitigate this barrier by exploring financial incentives, offering support for technology investments, or collaborating on cost-sharing initiatives. Establishing long-term partnerships with suppliers can create a collaborative environment where both parties share the benefits of sustainable initiatives.

Limited supplier visibility

Lack of transparency into the practices of suppliers, particularly those further down the supply chain, poses a significant challenge to decarbonisation efforts. Utilising tools like Vizibl's platform, companies can enhance supply chain visibility by centralising data and promoting transparency. Collaboration with suppliers to gather comprehensive information on their practices enables businesses to make informed decisions and track progress effectively.

Resistance to change

Suppliers may resist adopting new sustainability practices due to a fear of increased costs, operational disruptions, or concerns about the feasibility of implementing changes. Companies can overcome resistance through effective communication and collaboration. Clearly communicating the long-term benefits, providing guidance on implementation, and offering support throughout the transition can help suppliers embrace sustainable practices more willingly.

Lack of standardisation

The absence of standardised metrics and guidelines for measuring and reporting sustainability practices can make it challenging to compare and evaluate supplier performance consistently. Collaborative industry efforts and engagement with stakeholders can drive the development of standardised metrics for sustainability. Companies can play an active role in advocating for and contributing to the establishment of industry-wide standards to ensure uniformity in measuring and reporting sustainability efforts.

Short-term cost concerns

The upfront costs associated with implementing sustainable practices can deter businesses focused on short-term financial goals. By adopting a long-term perspective, emphasising the cost-saving potential of sustainable practices over time. Clear communication on the return on investment and resilience gained from sustainability initiatives can help overcome short-term cost concerns.

Limited regulatory alignment

Regulatory frameworks may not align across all regions, making it difficult for companies to navigate and implement consistent sustainability practices globally. However, companies can proactively engage with regulators, industry associations, and advocacy groups to influence and shape supportive regulatory environments. Aligning internal practices with emerging regulations ensures that companies are well-prepared for evolving compliance requirements.

Data and technology challenges

Inadequate data infrastructure and technology limitations may hinder the collection and analysis of comprehensive sustainability data from suppliers. Investments in robust data management systems, analytics tools, and collaboration platforms, such as Vizibl's, can overcome technology challenges. Collaborating with suppliers to enhance their data capabilities can also contribute to overcoming data-related barriers.

Opportunities associated with Supplier Decarbonisation

While the benefits of Supplier Decarbonisation are substantial, implementing these strategies comes with challenges. Vizibl turns these challenges into opportunities for collaboration, innovation, and the development of new technologies that can drive positive change throughout the supply chain.

Decarbonisation as a Service (DaaS) from Vizibl provides rapid access to our existing Supplier Sustainability Management solution. Establish relationships with the supplier cohort that represents the majority of your scope 3 emissions, quickly assess their performance using pre-configured CDP and SBTi frameworks, and move forward to emissions reduction actions through our Relationship Manager, Collaboration Workspace, and Innovation Hub.

Plus, we’ve also built every step of the Science-Based Targets Initiative's (SBTi) Supplier Engagement guidance framework into the Vizibl platform - allowing you to go from measurement to action in just four weeks.

Conclusion

Supplier Decarbonisation, coupled with innovative solutions from Vizibl, is a critical component of the broader movement towards sustainable business practices. By leveraging Vizibl's platform, companies can not only reduce their carbon footprint but also create more resilient and future-proof supply chains. Ultimately, Supplier Decarbonisation is not just a corporate responsibility but a strategic imperative for companies looking to thrive in a world increasingly shaped by environmental consciousness and sustainable business practices.

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