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The importance of the supply chain in setting Net Zero targets

By Hannah Morris
18th May 2021

Will Jenkins, Director at Carbon Intelligence was invited to speak at Pinsent Masons webinar (18th May 2021), to discuss the importance of the supply chain to net zero and the role that legal teams can play

Taking steps to identify, measure, monitor and reduce Scope 3 (indirect) emissions is essential to achieving Net Zero targets. Scope 3  emissions typically make up the greatest proportion of a company’s footprint and they include emissions generated by activities outside of a company’s control -this presents specific challenges as well as opportunities for businesses. Below we look at some of the common themes discussed by the panellists.

 

PM Webinar 1

 

What are scope 1,2 & 3 emissions?

When we calculate a carbon footprint for a company we’re measuring all the greenhouse gas emissions that are generated as a result of all its activities. 

This includes emissions from facilities that a company owns and controls, like its offices or manufacturing facilities. It also includes emissions upstream in the supply chain and downstream for example – the transportation, use and disposal of a product.

The GHG Protocol defines three categories for carbon footprint assessment: 

  • Scope 1: are direct emissions from sources that are owned or controlled by the reporting company. This would include emissions from a company car or natural gas that is used to heat an office.
  • Scope 2: are emissions others create to generate the energy a company purchases – so typically Scope 2 emissions come from electricity use.
  • Scope 3: are emissions that occur both upstream and downstream in its value chain that are generated as a result of the company’s activities. 

Scope 3 captures the supply chain of a company– so all the emissions that have been generated to provide a good or service. This will include physical products, like IT equipment or food, but also things like insurance and legal services. 

Also under the umbrella of Scope 3 are the direct and indirect emissions from the use of sold products – so that could be energy used by a phone, or the energy used by a microwave when cooking a ready meal. 

Whilst many companies have been reporting Scope 1 and 2 emissions for years, Scope 3 emissions present a greater challenge, as they are the result of the activities of others, making it difficult to measure and manage, especially throughout the supply chain. 

 

Why is it important for companies to measure and report on Scope 3? 

“This is a board-level issue across all sectors. With a huge increase in the population’s education towards climate change over the years, there will be an adverse impact on your brand’s reputation if you don’t engage with your supply chain to report on your Scope 3 emissions. Companies need to share their climate ambition and action, and those who don’t will be left behind with a negative financial impact.” Stacey Collins, Pinsent Masons

 

How do you go about identifying and measuring Scope 3 and what are the challenges associated with that?

Increasing pressure from customers, investors and new legislation will drive the need for all organisations to accurately measure Scope 3 data.. Scope 3 data will be used in strategic decision making and investments, like which low carbon suppliers to work with and which low carbon products to buy. You must understand which of the 15 Scope 3 categories are the most material for your business and prioritise on getting the most accurate data available for these categories.

For most companies this will be their purchased goods and services. You want to know the carbon intensity of what you are buying, and this needs to be based on actual data not estimates. 

There is a data hierarchy you can apply:

  • Starting with spend-based data and industry average emissions factors – estimated
  • Moving to supplier-specific data from their annual reports – actual
  • And finally to product-specific data from lifecycle carbon analysis 

 

What are the challenges associated with measuring Scope 3?

  • Engagement – knowing who to work with to get the data, both in your organisation, upstream in your supply chain, and downstream in your customer base or investment portfolio. 
  • Data – using actual data, not sector averages or benchmark, and sharing data between companies. Data also needs to be auditable. 
  • Technology – You are working with large data sets so really you need a platform to help manage the data. As more and more companies report their carbon footprint publicly, ideally you would use a platform that has already collated a lot of the information for you.
  • Regular reporting – to really make an impact you need to be looking at this data quarterly, if you’re only measuring your footprint once a year then you will have far fewer opportunities for course correction. 

 

This Scope 3 guide explains in more detail how to overcome these challenges. 

 

What are the practical steps that can be taken to reduce emissions? Are there any ‘quick wins’?

When working with companies we will apply the carbon mitigation hierarchy to each source of carbon emissions to understand the practical steps that can be taken to reduce emissions:

  • Start with avoid: Stopping an activity altogether, this could be flying less, consuming less of a resource that your business buys
  • Then you want to optimise: Use more energy efficient data centres, optimising building management systems, and choosing products with a lower carbon footprint 
  • After you have reduced demand, you need to look at transitioning towards renewables: this means moving to 100% renewable power, using EVs rather than vehicles with internal combustion engines, or using heat pumps not natural gas fired boilers

If the majority of your emissions are in your supply chain, then a supplier engagement programme is needed to work with your suppliers and tackle their carbon hotspots. 

You want to work with your suppliers to take them through the carbon mitigation hierarchy – get them to set targets, collaborate with them to deliver projects that reduce their emissions and get them to commit to sourcing renewable energy.

 

What advice to companies starting out on the journey now?

  • Laura Ayre, Partner, Pinsent Masons: Understand who is doing what so you can understand your role within the supply chain.
  • Will Jenkins, Director, Carbon Intelligence: Educate the business on why Scope 3 is important, obtain Senior-level sponsorship through workshops to tackle Scope 3 emissions, engage key teams (Procurement, Finance) to get them involved from the start.
  • Stacey Collins, Partner, Pinsent Masons: It’s important to be willing to challenge how you’ve been doing things, the status quo and tackle it together.
  • Chris Hayes, Sustainability Operations Director, Skanska: Align it to your successful business proposition.  Engage your key supply chain partners to discuss how you might work together to achieve your net zero targets.

 

How Carbon Intelligence can help

We are committed to supporting organisations understand and reduce their emissions in line with climate science, engage their people and their supply chain to create long lasting system change that will turn climate ambition into action. 

Contact a member of the team at Carbon Intelligence if you would like to check if your net zero target strategy will stand up to scrutiny and how it compares to others in your sector. Email info@carbon.ci

 

Further resources

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