The upcoming disclosure standards from the International Sustainability Standards Board, coupled with regulations such as the SEC's Climate-Related Disclosure regulation, will necessitate that companies report their scope 3 emissions. This requirement is a significant step towards enhancing transparency and accountability for the environmental impacts within their supply chains.
The upcoming disclosure standards from the International Sustainability Standards Board, coupled with regulations such as the SEC’s Climate-Related Disclosure regulation, will necessitate that companies report their scope 3 emissions. This requirement is a significant step towards enhancing transparency and accountability for the environmental impacts within their supply chains.
While the majority of organisations that produce annual sustainability or ESG reports have mostly got across Scope 1 and Scope 2 emission calculations, reporting Scope 3 emissions on the other hand introduces a dual challenge: the acquisition of improved supply chain data and the enhancement of supplier emissions performance. Although this challenge might initially seem daunting, there exist three straightforward steps that any organisation can undertake.
Three tips for tackling supply chain emissions
1. Communicate upfront to all suppliers that they will be evaluated on their emissions reduction activity
Include requirements for emissions reduction and weighted evaluation criteria in pre-qualification or tender specifications. Use core (minimum) requirements in your request for quotations or tenders so that supplier performance on emissions reduction commitments can be compared. A requirement might look like:
- Demonstrate that you are measuring your Scope 1 & 2 emissions and have a target and plan in place to reduce those emissions.
- Do you have a Science-Based Target?
- Do you publicly report on decarbonisation initiatives?
Signal that those suppliers that are taking action on emission reduction will be preferred, by weighting evaluation in their favour.
Be sure to communicate any expectations upfront and as early as possible in market testing and supplier engagement.
Use minimum requirements and stretch or desired emissions reduction criteria to set the bar– tell suppliers where you want to go and let them pave the way to get there.
2. Consistently ask for emissions data and embed decarbonisation questions in standard go-to-market activities
Request data during supplier selection. Set clear boundaries on the data you need to inform your baseline. Data requested should be meaningful and manageable making it simple for your suppliers, increasing success of receiving the information and making it easier for you analyse and use. A simple short list may look like this:
- Total annual organisational Scope 1 and 2 emissions
- Total annual organisational Scope 3 emissions by category
- Product or service emissions footprint
- Bonus: information includes all of the above by intensity and any methodologies
Include this in your next EOI, RFQ, RFT. Embed emissions reduction into category planning and supplier selection.
Be open and transparent to suppliers, that you are both at the early stages of understanding supply chain emissions, that there will not be penalties for lack of data, and that you value progress over perfection.
3. Incentivise emissions reduction by embedding expectations into supplier contracts
Clearly define emission-related contract requirements (such as providing annual data as listed above) and KPIs and ensure that suppliers understand and agree to them. Consider including clauses or performance scorecards that promote and reward emission reporting, disclosure and continuous improvement. This integration sends a clear signal that emission reduction is a priority for you.
Incentives may be look like recognition, preferential business such as longer contracts, more work or beneficial payment terms or pay for performance agreements.
Remember that the requirements, incentives, and the level of support provided to suppliers will be dependent on supplier size.
While a suite of standard requirements for emission reductions can be developed, the approach will need to be tailored to the size and maturity of your suppliers. Your procurement team can help you write the most appropriate contract requirements.
Procurement Manager, a Sustainability Manager’s new BFF
Do these three things sound familiar? These are all procurement tools that all organisations have at hand. You can use them to address scope 3, circularity, modern slavery or nature or better yet, integrate these issues into a supplier code or sustainable procurement strategy and start communicating expectations to suppliers.
Next steps
If you take one next step, it should be to simply start the conversation on Scope 3 emissions internally with your procurement team, and externally with your priority suppliers.
