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Originally published on: Carbonsink – Achieving impact and leadership with supply-chain decarbonisation – Borsa Italiana

Despite greenhouse gas emissions dipping in 2020 due to the COVID-19 pandemic, this created no significant difference to long-term climate change, and greenhouse gas emissions are still over 50% higher than in 1990. United Nations’ scientists have indicated we have 10 years to cut global greenhouse gas emissions before reaching the point of no return. A window that is getting narrower as current government policies around the world are insufficient to meet the Paris Agreement goal of limiting temperature rise to 1.5°C above pre-industrial level by the end of this century, and are projected to result in about 2.7°C warming.

This means one thing: it’s key for the private sector to act now if we want to reach a low emission economy in the near future and avoid the most dire consequences of climate change. Stretching from raw materials sourcing to the delivery, disposal and recycling of the final product, business supply-chains are a crucial and opportunity-filled space for corporate climate action.

Why supply-chains?

Decarbonising business means more than reducing direct emissions linked to operations within the company premises. Data from CDP has shown that the emissions in a company’s supply chain are on average 5.5 times higher than its operational emission, mainly due to purchased goods and services, representing the largest share of corporate carbon footprints. This is also because suppliers are often based in markets characterized by high carbon intensity, and they often consume large volumes of electricity such as in the apparel, tech or food and beverage sector. Reducing these emissions sits within large corporations’ responsibility and will be essential to achieving a net-zero future.

But addressing supply-chain emissions is not always easy and companies often face complex challenges: for example, accessing credible data on suppliers’ carbon footprints and information on market emission reduction opportunities, as well as achieving the internal capacity to facilitate implementation. On the other hand, engaging with suppliers on their carbon footprint is a key tool for companies to understand and overcome sector-specific risks that might hinder the achievement of corporate climate goals.

Thankfully, new solutions are becoming increasingly available (and affordable) across both developed and developing markets to reduce supply chain emissions. New digital technologies to engage with suppliers for the measurement, reduction and monitoring, as well as compensation of supply-chain emissions can support this process. Furthermore, renewable energy sourcing is now an easy and effective way to reduce supply-chain emissions, and solutions such as Power purchase agreements (PPAs), Renewable energy certificates (RECs) and on-site generation (such as rooftop solar) are accessible to companies wanting to drive innovation, improve their positioning and achieve a competitive advantage.

Albeit slowly, companies are moving in the right direction. Scope 3 target setting is now standard practice: 94% of companies with approved science-based targets have set scope 3 targets in line with climate science (Science Based Target data). We are also seeing a cascading effect of science-based target setting as companies seek to reduce their supply chain impacts, with more and more companies setting supplier engagement targets requiring their suppliers to set their own science-based targets. Furthermore, 70% CDP supply-chain members are actively engaging their suppliers on the topic of renewable electricity.

Achieving bigger impact and leadership 

Addressing supply-chain emissions gives companies the opportunity to impact a volume of emissions several times higher than what they would otherwise if they focussed on decarbonising their direct operations only. This shows how important supply-chain engagement is for any company willing to develop an effective climate strategy and reach net-zero targets. It is also a key opportunity for companies, including SMEs, to achieve and show climate leadership, encouraging other companies to follow best practice and reduce their carbon footprint, driving collective action on climate change.

From a wider perspective, corporate climate action is also necessary if we want to remain competitive and boost economic growth, as devised in the New Industrial Strategy for Europe, announced in January this year, to sharpen EU’s competitive edge through clean-tech investment and continue leading on the path to climate neutrality. Creating low emission and resilient supply chains and rethinking business models for more sustainable production systems are not just the private sector’s interests, but everyone’s.