Greening supply chains: a change that no business can afford to ignore
Even the world’s largest cargo airline is on a mission to cut emissions. Global delivery firm FedEx Corporation has set itself a target of being carbon-neutral by 2040, and will be investing $2 billion to make it happen. This isn’t just about the company’s own brand values; it is also because of growing pressure from FedEx business customers, who want their delivery logistics to have less impact on the environment.
Many businesses already have a strategy for reducing their greenhouse gas emissions, waste, resource consumption and so on. But now they are widening their focus beyond their own operations to explore the environmental impact of the businesses they work with: their so-called value chain. Since most successful businesses rely on strong relationships with other businesses – clients, transport logistics, suppliers, waste disposal and more – it no longer makes sense to think about green issues as if you are operating in isolation. Businesses are taking a hard look at their value chain to see how many other companies share the same standards.
It is a similar story in the public sector. In June the UK government updated its procurement guidance in an effort to make its own value chain greener. Now, any supplier bidding for a contract of over £5 million a year must have a commitment to achieving net zero emissions by 2050 and a credible carbon reduction plan.
Scope 3 emissions
Some of this outward focus is driven by the need to account for Scope 3 emissions, also known as value chain emissions. These are greenhouse gas emissions associated with the activities of a business but not directly generated by that business or the energy it buys. They are distinct from Scope 1 (direct) emissions and Scope 2 emissions (from the energy that a business buys from suppliers for its own use).
For most businesses, Scope 3 emissions account for at least 80% of their total, and it could be as high as 97%. Any respected system for setting emission reduction targets takes Scope 3 into account. For example, the Science-Based Targets initiative (SBTi) requires all participating businesses to set Scope 3 targets if Scope 3 represents more than 40% of their total emissions. To know if they are excepted from this requirement, businesses will still need to identify all possible sources of emissions in their value chain and crunch the numbers.
This is why more and more companies are talking to the other businesses in their supply chain, asking for emissions data and working with them on ways to bring those emissions down. Retail giant Walmart has launched Project Gigaton, with the aim of removing a gigaton of emissions from its global value chain by 2030. Many other huge corporations have set ambitious targets for Scope 3.
Sustainable sourcing and recycling
For some industries, environmental concerns don’t centre on emissions. The processed food sector has long been criticised for its heavy use of palm oil, which drives deforestation and biodiversity loss Mars Incorporated dealt with the issue by taking a year to focus on its supply chain through its Palm Positive Plan. It drastically cut the number of palm oil mills it works with (from 1500 to less than 100) and has signed longer-term, more stringent contracts with the ones who remain. This means that Mars can now claim to have a deforestation-free supply chain.
Electric vehicle manufacturers are also looking at their impact on the planet, despite playing a key role in the UK’s strategy for decarbonising the transport sector. The batteries represent a potential threat to the environment, with an estimated recycling rate of just 5%. But some EV makers are working to tackle this problem by rethinking their entire value chain. Groupe Renault is working with chemical company Solvay and waste disposal firm Veolia to collect batteries that have reached the end of their life and recover the metals for reuse. This kind of innovation only happens when businesses think beyond their own role in the lifecycle of a product and work with their value chain.
Why your business can’t afford to ignore this change
The move towards greening supply chains is just getting started. If your business works in collaboration with other organisations, it is likely that at some point you will come under pressure to disclose your environmental credentials and be transparent about what you are doing to reduce your impact on the planet. For some businesses, their response to this could be the difference between signing a successful contract renewal and losing a client.
There is also growing pressure from other sources: customers, employees, shareholders and more. Nearly 6 in 10 customers are willing to change their buying habits to have a less negative impact on the environment, while 65% of workers would rather work for a company with strong environmental policies. Businesses that don’t take environmental issues into account are opening themselves up to reputational risk. So it makes sense to be proactive by taking stock of your company’s environmental impact and coming up with a plan to improve it. You might start by reducing or removing harmful practices, but by the end of the process have found a way to have a net positive impact on the planet.
One of the quickest ways to reduce your emissions at this early stage is to change your energy supplier. If you switch to a genuinely green energy supplier (avoiding the greenwash), you can legitimately claim zero emissions from your use of purchased energy. This can make a very significant difference to your overall emissions, allowing you to report excellent progress in the first few months before moving on to the trickier problems. Having solid environmental policies in place, with proof that you are following them, could make your business the strongest link in someone else’s value chain.
