We know from our work helping companies across industry sectors and markets to develop and execute decarbonisation strategies, that a major hurdle to achieving board approval of climate targets is dealing with Scope 3 emissions. These sit largely outside of a company’s direct control (for example upstream in the supply chain or in the downstream use of products and services), and therefore seems like a big leap into the unknown. 

However, as Scope 3 represents 70-90% of a company’s carbon footprint, and reporting is becoming mandatory, those leaps of faith need to be taken to have any chance of reaching a Net Zero emissions future and avoid risk further down the line. As unsettling as this may sound, it is achievable. First, by understanding that the nature, scale, and timeframe of change required to address these emissions needs a different approach compared with usual corporate planning; and that collaboration, engagement and innovation are critical for success – starting with your supply chain. 

Scope 3 decarbonisation is a smart investment – make the case for it

Taking action on supply chain emissions requires time and investment. However, looking at this through the lens of risk and opportunity will help make the case for action and bring it to board-level attention. Some of the most significant sustainability-related risks for companies lie within the supply chain.

Also, the sustainability performance of products and services can expose a business to other risks from shifting demand, technologies, and regulations. In-depth risk analysis can support the development of a comprehensive supply chain decarbonisation effort, as demonstrated by the approach taken by global nutrition company Glanbia.

A two-pronged collaboration strategy to scale and deepen influence on supply chain emissions

Vertical collaboration: Quick wins, scalable approach, where you are the driver

With an investment case completed, and a clear step by step Net Zero transition plan in place, a set of actions can then be implemented with your suppliers, which can be piloted, scaled and flexed. These include:

Procurement policies, processes, and contractual terms to incentivise suppliers to decarbonise.

For example, setting minimum performance standards (e.g. with the introduction of mandatory due diligence frameworks under CSDDD); reporting and disclosure commitments (e.g. CSRD, CBAM) and requirements to participate in external initiatives and programmes (e.g. Science Based Targets Initiative, CDP Supply Chain Programme). Longer-term purchase agreements can also be used to incentivise suppliers to invest in measures that have longer payback times.

Supplier development initiatives and programmes.

Structured deployment of resources (funded or subsidised) helps suppliers build skills and capabilities. VELUX Group for example, has established a programme with a clear initial objective: getting suppliers to report their emissions data. Through this, suppliers are developing the awareness, motivation, and capabilities to initiate their own climate journey. Companies can also facilitate supplier access to green/sustainability linked loans to finance their decarbonisation.

Horizontal collaboration: Achieving together what can’t be done on your own

Horizontal measures involve companies working with peers and wider industry players to create a multiplier effect, leveraging capabilities and funding at scale. An industry-level collaboration model can be used where a set of organisations pool their resources and influence to collectively tackle common challenges and accelerate progress. Companies can learn from the approach taken by the Sustainability Joint Industry Programme (SUS-JIP) where offshore wind developers are collaborating to drive industrial decarbonisation of their supply chain. Strong governance, management, and alignment of incentives are important to the success of such programmes, which can run over multiple years. This type of collaboration enables:

• Creation and adoption of industry wide standards and practices
• Critical mass of influence over the market
• Efficiency of pooled resources and coordination

It’s a marathon, not a sprint

We understand that Scope 3 emissions pose a challenge. However, our work with clients and partners demonstrates this is achievable through collaboration on common interests. By breaking down the challenge and addressing it through multiple approaches, the task of reducing these emissions becomes more manageable, accelerating engagement and results towards Net Zero. This also sets the foundation for evolving and innovating your business model to ensure it remains competitive and fit for the future.

For further information on how you can drive down Scope 3 emissions, please see our Scope 3 guide and video or visit the Carbon Trust website. You can also contact us here. To stay informed of our latest insights, guides and events please subscribe to our newsletter.