The increased focus on sustainability by consumers, investors, corporations, and governments is plain for everyone to see. With COP26 around the corner, climate is now very much in the spotlight, and for many that means tackling the elephant in the room: Scope 3 emissions.
Perhaps “elephant in the room” is the wrong way to describe Scope 3 emissions, because, in most rooms, it is fairly easy to spot an elephant. Elephants are enormous, and in most room-based scenarios, they are going to stand out with every detail being visible. That’s where the comparison starts and ends with Scope 3 emissions; which are enormous, but quite hard to see, and it’s very hard to see the detail.
They are the problem that won’t go away, which makes them your opportunity.
Let’s start with the basics
The Paris agreement, signed in 2015 saw nearly 200 countries pledge to limit global warming to 1.5°C or well below 2°C above pre-industrialization levels by 2050.
Global temperatures are rising rapidly and achieving this target range means putting the brakes on Greenhouse Gas (GHG) emissions as soon as possible. While this may sound easy, it is for all intents and purposes not likely to happen – we are already at 1.1°C and rising fast.
What’s a few degrees though? It is estimated that around 4 billion people are living at significant risk from climate change, as well as the risk of loss of widespread biodiversity and ecosystems – wholesale change.
And so to the Paris agreement, and to COP26 and to your organizations Scope 3 challenges. There is a loud chorus and concerted effort being made to accelerate and jump start the world into tackling climate change. That means individuals are demanding for change, but more importantly governments and organizations are driving the change. So for your organization, it’s back to the elephant [in the room].
What’s your decarbonization target?
Pressure from investors, regulators, customers and profitability are forcing many organizations’ hands in setting GHG or carbon reduction targets. In our recent research, we found that over eight in 10 (85%) investment managers believe that businesses who do not have supply chain sustainability initiatives will see share prices fall as a result over the next decade.
In fact, the CDP (Carbon Disclosure Project) estimates that the world’s largest companies risk losing out on $1tr (due to climate change) if they get it wrong but being part of a $2.1tr opportunity if they get it right. That’s a $3.1tr swing. If I was a business leader, I would want a piece of that upside, in addition to knowing that I was doing the right thing for our planet.
While it is a nice idea that everyone is doing this because it is the right thing to do, realistically ‘doing good’ now can mean ‘doing well’ in the future and it makes good business sense too. There is a fine balance between speed, cost and profit that the organization will navigate if they are to do good and well simultaneously.
Is this a moral problem? Maybe. Is it a reality? Definitely. This is the world that we live in; decarbonization doesn’t happen without profitable decarbonization. The important thing is that today most organizations, including yours, have a decarbonization target, that is likely based on science. They just might not have a plan and that’s because of the elephant.
Time to tackle the Elephant, Scope 3 Decarbonization
In basic terms, Scope 3 is where most of the emissions accredited to a company sit, in value chain (loosely described as supply chain, usage, disposal). It’s not uncommon for Scope 3 to be more than 80% of an organizations total emissions (2020 Climate Action 100+ Progress Report, 2020), in fact some retailers, manufacturers and consumer electronics firm are reporting Scope 3 as well over 90%. That is the problem. If we are going to hit our decarbonization targets, the thing we need to control the most is the thing we have the least control over. That sounds like a problem, but it is our problem. It will be because the supply chain is usually, the largest component of Scope 3.
If companies are going to decarbonize, or even better profitably decarbonize, their ability to do so is going to be entirely linked to the change that you can affect in your supply chains.
Scope 3 – one step at a time
We have had some time to think about decarbonization, working with clients and partners to figure it out, and the answer is one piece at a time. There are a few ideas, tips, and callouts we have picked up along the way.
- Inertia, or greenwashing will get you in the end – “but why not just buy offsets”? Because this is kicking the carbon can down the road. Fast forward five years and your manageable carbon bill will have spiraled through incoming taxes, increased offset costs, and (at a point in time) increased cost of fossil fuels. And you will likely be falling foul of the due diligence applied by regulators, investors, government and consumers.
- Bad data is good data – You can’t accurately profile Scope 3 without doing a lot of work, but building that first ‘carbon cube’ to understand the rough shape of your emissions can be done relatively quickly. The picture won’t be perfect, but that’s the perfect reason to get started and get funded.
A carbon cube will tell you where you are starting from (suppliers, categories, etc.) and where your key exposures are likely to be, which will also likely encourage you to get some proper decarbonization technology. You can’t get perfect data quickly when it comes to carbon, but imperfect data can get you going.
- But real good data is a necessity – In the mid to long term you will want to get to near perfect data and that is going to come from deconstructing products and supply chains and aggregating emissions calculations. It sounds complicated, but this is where your supply chain knowledge meets science, analytics, and technology.
Really good data, and proper decarbonization technology will help you to report, forecast, and profile next actions against your plan to see what’s profitable and plausible, and in what timeframe. There is emerging technology in this space to watch out for.
- Communicate and collaborate with suppliers – the other elephant in the room is that there is no magic answer to decarbonization, no switch to click. Suppliers hold the answers, but they probably don’t hold all the answers right now. Energy is a good example; renewables will solve a lot of the carbon problems, but there isn’t enough supply – it’s a long game with moves to make along the way.
Decarbonization means understanding internal data and challenges, exploring market offerings, continuously orchestrating change and keeping an eye on the innovation needed in the mid to long term to make step changes where it matters. But don’t use collaboration and innovation as an excuse not to make progress now. You’ll find your action plan probably falls into three buckets:
- Big ticket ‘transformation & change projects’ that get to the heart of operations, offerings or customer experience. These are hard, but ultimately have to be addressed, requiring collaborative and innovative thinking.
- Start ‘quick win’ projects now that take advantage of today’s offerings or innovations. This will get you moving, demonstrate fuel excitement and intent in your culture, suppliers, and external communications. Good news is infectious, don’t delay.
- Everything in between, more midterm changes which might need minor specification changes, supplier searches or development, but again, achievable change that demonstrates intent and realizes results while you tackle the transformation and change projects.
- It’s an industry problem – it’s a global problem, but the problems are similar in each industry. For those bigger change projects, it might be a good time to collaborate not just with your suppliers but also with your competitors. Spread the cost, up the brainpower, increase the speed. It’s happening already. Don’t be on the outside looking in.
Decarbonization is the big theme coming out of 2021, and it is here to stay. It is complicated, hard, and in career terms, an infinite game. But getting started is a must and we all know why…
Read more about Decarbonization-as-a-Service from Proxima
This article was first published in Supply Chain Brain.