Reducing Scope 3 impacts through supplier improvement
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July 10, 2023 - Businesses anticipate increased investor and customer scrutiny resulting from new rules proposed by the US Securities and Exchange Commission (SEC) related to public companies’ disclosure of climate-related risks. Among these include the potential requirement for companies to report the GHG emissions of its entire value chain, also known as Scope 3 emissions. Although companies have less control over Scope 3 emissions, these emissions represent everything upstream and downstream in an organization’s value chain (read Notes from the summit, Part 1: Introduction to scope 3 impact). The scale and complexity required to manage Scope 3 emissions is also daunting; even more challenging is the prospect of reducing those emissions once a company can measure them.
Companies with complex, global supply chains often struggle with driving improvement in supplier performance and overall environmental related impacts. The depth of engagement required to impart behavioral skills, management systems, and technical knowledge can be difficult to scale across time zones, languages, and levels of supplier maturity.
Reducing Scope 3 emissions through supplier engagement can be a challenging task, but it is an important area of focus for companies to achieve their sustainability goals. This is particularly pertinent for companies setting science-based targets (SBTs), which require a Scope 3 target be included if those emissions are 40 percent or more of total emissions. Scope 3 SBTs are required to include two-thirds of Scope 3 emissions and can be focused on requiring suppliers to set their own targets. To support these efforts, companies need to establish an effective framework that includes:
- Assessing supplier performance: To understand your current direct or indirect impact, you need to measure it. In the case of GHG emissions, that requires gathering business activity data from a wide range of internal and external sources, choosing the most appropriate methods and emissions factors to calculate emissions, and producing reporting in accordance with the GHG Protocol and ISO 14064.
- Setting clear targets and goals: Once you understand your baseline, you can develop a target to reduce those emissions. Targets can focus on absolute reductions (e.g., at least 4.2 percent fewer total emissions per year linearly for a 1.5°C SBT), intensity targets (e.g., a reduction in emission per unit of business activity, which can be measured relative to specific units like items manufactured or total dollars earned), and supplier engagement (setting a target for how many of a company’s vendors set their own SBTs). In all cases, commitments need to be aligned with the Intergovernmental Panel of Climate Change’s pathway that limits warming to its 1.5°C target. SBTs are aligned with this pathway and require both a short-term target for reducing emissions in the next five to ten years aligned with 45 percent reduction by 2030, and a long-term target for reducing emissions aligned with net zero by 2050.
- Develop a carbon reduction management plan: The development of the plan and setting of targets are iterative, as each informs the other and are designed to:
- Instill a high degree of confidence that targets are credible.
- Determine specific actions to carry out to reach net zero GHG emissions and to drawdown existing atmospheric GHGs.
- Identify who will be responsible for selecting specific tactics and determining how/when they will be applied within individual sites and functions.
- Enable these individuals with the skills and tools needed to support this effort.
- Create a financial budget and 5- and 10-year GHG reduction forecasts to support pathway toward net zero by 2050.
- Instill accountability to the individuals responsible for advancement of each tactic.
- Communicating, engaging, and training suppliers: When engaging company functional representatives or suppliers, review all sources of emissions, business activity, and functional owners, and the educate those suppliers on GHG reduction strategies that are relevant to their work.
- Develop carbon budgets, incentives, and track progress: The most successful carbon reduction programs are tied to organizational strategy, identify differentiators and opportunities, and hold participants accountable. This requires leadership advocacy and functional carbon budgets to incentivize successful adoption. As projects and programs are adopted, it is crucial to measure and report progress publicly to hold the entire organization up to the targets to which they have committed. From a procurement perspective, this means that successful supplier adoption and GHG reductions are recognized and integrated into buying decisions.
Driving improvement in the performance of your supply chain and supplier impacts is a challenging task. However, by developing a clear and comprehensive strategy, dedicating a team toward supplier engagement, using digital tools, building partnerships, and communicating with suppliers can take steps to overcome these hurdles.
Join BSI Sustainability Practice Director Ryan Lynch during AAFA’s Reducing Scope 3 GHG Emissions webinar as he provides an overview of the drivers, challenges and methods related to scope three GHG accounting. In addition, he will share information about BSI’s innovative methods to engage internal stakeholders and suppliers to enable them to develop and execute their own GHG reduction strategies.
Follow along with Ryan’s Tackling Decarbonization series for more insights on implementing your carbon reduction initiatives and other future-ready approaches to organizational sustainability. For more supply chain, digital trust, and environmental, health and safety topics that should be at the top of your list, visit at BSI’s Experts Corner.