During our supply chain emissions webinar on May 19th, industry leaders from CDP, Engie Impact, and Philip Morris International came together to explore trends in Scope 3 emissions reporting and what tools and strategies are out there to turn supplier data into action on Scope 3.
Companies are under more pressure than ever before to mitigate their climate impact. This means it’s time to shift focus to where the greatest climate risks are found – the supply chain. As noted by Sonya Bhonsle of CDP during the webinar, supply chain emissions are 11.4 times higher than operational emissions on average, according to CDP’s new calculations.
Moderated by SupplyShift’s very own Jamie Barsimantov, all panelists provided great insights into how brands can navigate their supply chain emissions journey in a way that will lead to meaningful change. Continue reading for three key takeaways from our webinar. Plus, our panelists chime in on important questions raised during the webinar’s Q&A period.
Don’t Let Perfect be the Enemy of Good
A common theme that rang true throughout the webinar is that there is no one or best way to tackle Scope 3 emissions. As Devon Lake of Engie Impact pointed out, Scope 3 is a journey. It’s important not to get stuck thinking you need to achieve drastic emissions reductions right away.
The key is to start with the strategy, then focus on what data will lead to action.
For example, your supplier engagement and data collection tactics will look different if your business has set absolute versus engagement Scope 3 targets. Absolute targets create quantitative, time-bound Scope 3 impact goals, such as when a company commits to a 30% reduction of Scope 3 emissions by 2022 from 2015 levels, or PMI’s commitment to achieving carbon neutrality in operations by 2030 and the entire value chain by 2050. On the other hand, engagement targets typically involve companies committing to moving their suppliers towards a specific action, such as setting emissions reduction targets themselves. Learn more about best practices in Scope 3 emissions management from Science Based Targets.
Similarly, you are going to need different data if you are prioritizing capacity building with suppliers as opposed to renewable energy aggregation. With the former, you might collect information on your suppliers’ maturity and general emissions profile to help them make targeted reductions. With the latter, you may want to focus on programs to encourage renewable energy use across your suppliers’ manufacturing facilities.
The goal here is to find a Scope 3 data collection mechanism that is the best fit for your company. By working backwards and creating a Scope 3 strategy based on your current emissions impact, your available reduction levers, and your approach to supplier engagement, you reduce the risk of collecting large sums of data with little potential for meaningful impact.
In short, having a strategy in hand will not only inform what data you need and how you might gather that data, but it will also ensure that the Scope 3 data you collect from suppliers is actionable.
Elevate the Role of Procurement
Procurement professionals’ position of leverage with suppliers gives them a unique ability to normalize sustainable procurement practices and redefine global supply chains. This is especially true when it comes to Scope 3 emissions reduction.
While Scope 1 and 2 carbon reduction depends on a company’s own decisions, Scope 3 requires ongoing engagement with external partners and suppliers. As Cesare Guarini, Director of Sustainability Procurement at Philip Morris International (PMI) pointed out during the webinar, today’s carbon reduction trends have presented us with a once in a lifetime opportunity to elevate the role of procurement beyond the traditional bottom line focus. “Our role is to engage with our suppliers and position carbon reduction as a key topic in their license to operate with us,” Cesare mentioned.
At PMI, procurement represents a spend of $10 billion, which covers a base of over 34,000 suppliers across a variety of industries, from paper to electronics. With such a direct role in supply chain management, the procurement function has the potential to become a key driver of a company’s long-term strategic objectives, including sustainability and Scope 3 emissions. After all, the majority of a brand’s emissions reductions will be realized in the supply chain.
Need for Increased Supplier Engagement
The Science-Based Target initiative (SBTi) has undoubtedly been a huge driver in drawing Scope 3 boundaries. While there has been a significant uptick in the number of businesses setting science-based targets, so far supplier engagement has been lacking. As Sonya of CDP mentioned, reducing Scope 3 emissions is only possible with robust supplier engagement efforts.
Interestingly, Sonya has noticed that many companies who started their supply chain emissions journey by setting ambitious absolute targets are now leaning towards engagement targets, often at the request of their procurement teams. According to Sonya, this signals an emerging shift in focus from what you buy to how you can engage and help your suppliers improve.
However, cost-efficient scalability is key to a successful supplier engagement program. To scale these efforts, Cesare of PMI noted that integration of industry-certified due diligence standards, digitization of data collection, and collaboration are essential.
Not sure where to start? Cesare gave us some highlights from PMI’s Supplier Engagement program they launched in 2020. Because carbon reduction is such an integral part of PMI’s strategy, PMI is working with its suppliers to create CO2 reduction plans and seeking commitments in alignment with the 5% YoY reduction needed to achieve their science-based targets.
Whether you opt for absolute or engagement Scope 3 targets, the trick is to right-size your supplier engagement efforts in alignment with your own business priorities.
Our webinar attendees asked some engaging questions during the Q&A period. Although we didn’t have time to answer them all on the webinar, our panelists agreed to chime in and address those remaining below.
On the Challenges of Scope 3 Data Validation
One audience member asks our panelists about the importance of having Scope 3 data verified, and what challenges are associated with this process.
According to Cesare Guarini of Philip Morris International (PMI), it’s becoming increasingly important to move from “limited to reasonable assurances” when it comes to Scope 3 data validation, so that non-financial data (such as Scope 3 data) becomes as robust as financial data.
Sonya Bhonsle of CDP agrees with Cesare’s remark, pointing out that some companies are currently determining if and how they can encourage suppliers to provide verified Scope 1 and 2 data. If your company is using primary data, she explains, this helps address the problem of data accuracy and provides a more robust basis for getting your Scope 3 data verified.
However, Sonya also touches on some of the nuances and complications of using verified primary data, especially when it comes to small suppliers.
“There are also a few challenges to consider. Smaller suppliers cannot be asked to accept the financial burden of a third party audit, and by limiting yourself to only verified primary data right off the bat, you considerably curb the usage of that data for an initial period.”
As Sonya concludes, Scope 3 verification is an important goal but will be an iterative process, so be prepared for more grey areas to emerge as you progress.
On Managing Scope 3 Emissions Expectations
One attendee pointed out that because many companies don’t have clear insight into their supply chains, there may be a risk that “knowing more” and thereby “reporting more” will actually increase overall Scope 3 metrics for a time.
This audience member asks our panelists how companies should manage expectations around reducing Scope 3 emissions, taking into account that current Scope 3 reports are likely artificially low. Sonya Bhonsle of CDP chimes in on this question below.
“We have seen similar increases in data reported to CDP. As reporting improves with accuracy and coverage, so does the total value. Being clear internally that there will be a few years where you are improving data accuracy and getting a more holistic picture will help manage expectations. Consistency in methodology, accounting clearly for large changes, and investing in improving data quality will secure your process and confidence from internal and external stakeholders.”
In a nutshell, unveiling the extent of climate impact is part of the reduction journey. Cesare Guarini of PMI agrees, reminding us that the ultimate goal is to achieve real impact, or tangible CO2 reductions. “If increased knowledge leads to a higher Scope 3 baseline, this needs to be assumed as part of the process,” Cesare emphasizes.
On Procurement and Engagement with Small Suppliers
Echoing Cesare’s sentiment about the importance of elevating procurement, another attendee asks our panelists to touch on the intersection of increasing local procurement and gathering Scope 3 data. As this audience member points out, small suppliers likely have lower capacity to track their footprint. Cesare addresses this question below.
“To fully utilize the procurement function on a local scale, supplier engagement needs to be planned for as an integral part of the emissions reduction journey over time. This will mean moving from larger suppliers, who have greater resources and expertise, to smaller ones, where there is a greater need for support from your business and other global industry leaders.”
Sonya Bhonsle of CDP agrees that “smaller, local suppliers need more support and direct engagement to be able to provide emissions data.” She also names some strategies for success in engaging your small suppliers.
“Providing clear communication on why this data is important and how they can collect and report it, as well as offering feedback on performance and thanks are all key moves here. We have also seen success from companies convening smaller suppliers to discuss challenges in data collection and investing in resources or education sessions to address these. Close collaboration like this also has the benefit of strengthening commercial relationships if done well.”
Another audience member takes a step back and explores the role of emissions reduction versus physical or transition risk mitigation. This attendee wonders why the emphasis in Scope 3 engagement seems to be centered around reduction rather than risk mitigation, and how companies can design their supplier engagement strategies for both.
According to Cesare, these are one in the same. “Emissions reduction needs to be physical to generate a real tangible impact, and hence become a risk mitigation measure.” Sonya agrees, calling for “an urgent collective mitigation of impact that necessitates emissions reporting and reduction being at the heart of Scope 3 initiatives.”
However, risk mitigation can be a good basis for conversation with suppliers. As Sonya explains, “framing the narrative in risk mitigation can help persuade suppliers that emissions impact is relevant to them and that they should start quantifying their impact and risks associated with climate change.”
Many thanks to our panelists for chiming in on these thought-provoking questions. We look forward to seeing progress on the Scope 3 emissions challenge with increased reporting and more widespread adoption of supplier engagement strategies.
Want to watch the entire webinar? Get access to the recording here.
If you aren’t sure where to start your journey, book an intro call with our experts. We can help you chart the best course for your climate impact and supply chain sustainability journey.