How to protect your business from the difficulties of sustainable sourcing

Written by Chris Bowden, founder and managing director of Squeaky, the marketplace for 100% clean energy.

Scope 3 emissions (i.e., emissions produced in an organisation’s supply chain) now account for 80 to 90 percent of the emissions connected with a great deal of end products.  Arguably, this makes Scope 3 emissions the most important emissions to address. As a result, businesses are looking to find new and innovative ways to reduce them, especially those who have big targets to meet.

However, the materials needed to help businesses meet their green goals – those with lower emissions intensity such as green steel – are already in low supply. And whilst some organisations have locked in supplies of low emission materials already, others are still some way behind.

Those businesses that have failed to lock in supplies of low emission materials, could now be forced into a dilemma; should they pay sky-high premiums for low emission materials to ensure they meet emissions targets, and keep relationships with key stakeholders (investors, consumers and employees) intact. Or, should they opt for the more cost effective, but consequently polluting materials and risk breaking their climate promises? It’s a tricky dilemma for companies, not least because evolving global factors continue to put supply networks under huge pressure.

There are a number of long, and indeed, short-term initiatives that can help organisations navigate the complex maze of sustainable sourcing and help them make the right decision.

Make long term, strategic sourcing decisions: Many organisations have drawn up long-term strategies for reducing Scope 3 carbon emissions. And although the race to secure low-emission resources is still in its infancy, efforts appear to be focused in three key areas. Firstly, organisations are helping partners in their supply chain switch to 100% clean energy. Not only will this help to decarbonise their energy use. But it will also help improve their own credentials with a commitment to the purest energy source. Secondly, the mix of materials used to make a product is being modified. For example, using cleaner materials or developing products that can be recovered easily for recycling or reuse. Thirdly, organisations are collaborating with their suppliers to develop production capacity for green materials. And, to implement low-emissions processes. Organisations that establish green-sourcing partnerships now can expect them to yield benefits starting in three to seven years.

Acquire better insights to navigate continued market uncertainties: As market conditions continue to change, so too will the supply, demand and pricing of materials. Organisations that have been successful in their quest to lock in supplies of low emissions resources, like green steel, have found it beneficial to model these factors over time. Specifically, modelling tools organisations use often include emissions intensity, supply and demand scenarios, pricing scenarios, and projections for suppliers’ capacity buildouts.

To ensure they are up to date with the active market, organisations usually pledge to update them every six to 12 months. Let’s take for example the demand for green steel, this is set to rise exponentially and it’s no surprise given it is one of the most carbon-intensive industries on earth. In fact, the sector accounts for 10 percent of the global total of carbon dioxide emissions.

Firms are increasingly seeking green materials in their mission to reduce their own Scope 3 emissions, and this only contributes to the demand and subsequent shortfall of green steel. Smart organisations will have long accounted for this.

Invest in new capabilities: Supply chain management is just one piece of the Scope 3 emission jigsaw. To reduce Scope 3 emissions, the majority of organisations will also need to invest in a number of capabilities to upgrade equipment processes. For example, analytical and strategy-setting, product or packaging design, and engineering. It’s no secret that remodelling a business in this way will take time. However, organisations cannot afford to delay action when it comes to reducing Scope 3 carbon emissions.

Measure all insights, no matter how small: In the near term, it’s beneficial for organisations to develop their understanding of the emissions produced in the manufacturing of every material. Plus, the exposure to supply, demand and price volatility of every material acquired. It is worth noting that Scope 3 emissions and risk exposures can differ hugely among organisations. Which is also the case for the goods obtained by an organisation.

Track emissions at every step of the chain: Unfortunately, very few have mastered the skill of tracking and tracing emissions. And fewer still have mapped their supply chain emissions using primary data.

In fact, research presented at the World Economic Forum by Carbon Intelligence identified that a lack of high-quality data is the most common challenge in managing Scope 3 emissions. Without accurate data from within the supply chain, decision makers are often left relying on guesstimates. However, some organisations have already acknowledged how important data is to the decarbonisation of their supply chain. Large organisations across a number of sectors are using digital tools to collate, store and report. Not only did this prove to be helpful during the Covid-19 pandemic, when lockdown restrictions made in-person checks very difficult. But digital tools that provide up-to-date and valid information helps organisations to avoid greenwashing accusations.

We know that businesses who work to decarbonise their supply chain and reduce their Scope 3 emissions are likely to face some huge challenges. However, these are challenges that must be tackled head on. Not least because, if businesses continue to pump out polluting fuels, our world will deteriorate at a cataclysmic rate. Those organisations that take action now and plan for the future will make significant progress on their mission to reduce Scope 3 emissions and will help us all on the journey to a cleaner, greener planet.