Most corporations that seek to voluntarily reduce their greenhouse gas (GHG) emissions must dig deep into their supply chains to uncover and pursue opportunities to reduce the indirect GHGs emitted at every link. Known as Scope 3 GHGs, this includes raw materials extraction and processing to packaging and shipping.
While the data varies by industry, research shows that Scope 3 supply chain GHGs are typically more than 10 times as high as the direct emissions generated by a company’s own facilities and activities. Yet because of the complexity of accounting accurately for GHGs across large, multi-tier supply chains, most companies have made little progress in even reporting their Scope 3 GHGs, let alone collaborating with suppliers to reduce those emissions.
But activist investors, non-governmental organizations (NGOs), and countries threatened by climate change are ramping up the pressure. In March 2021, the Marshall and Solomon Islands—nations that are already losing land and resources due to sea level rise—asked the International Maritime Organization (IMO) to charge cargo ship owners $100 per metric ton (MT) of carbon-dioxide emitted. The nations and their supporters say most of the money should be used to help vulnerable countries adapt to climate change, while some goes to R&D on low-carbon shipping fuels.
The IMO’s Marine Environment Protection Committee has been discussing the idea since October, and the full group may adopt such a carbon fee to help achieve IMO’s pledge to reduce GHGs from ocean shipping 50% by 2050. For reference, $100 per MT is almost twice what GHG allowances have been trading for on the EU’s carbon trading exchange.
Another indication that Scope 3 GHGs are getting more attention: investment analysts are asking executives about the issue more frequently. According to financial data firm Sentieo, analysts asked questions that included the phrase “Scope 3” more than 100 times in earnings calls in 2021. While the frequency of inquiries on this topic was small compared to topics such as “capex” (mentioned more than 5,000 times) and “synergies” (nearly 2,000 times), Sentieo data show that the first question about Scope 3 was posed in 2017, and in 2020, such questions were asked only 25 times during earnings calls.
This trend notwithstanding, few companies are yet engaged in even counting their supply chain GHGs. This is due to the complexity of the task, which requires “cradle-to-gate” analyses of the GHGs associated with mining, farming, manufacturing, waste management, land-use impacts, transportation, and other activities engaged in by a company’s suppliers and logistics providers to deliver materials, parts and component to its loading docks.
Yet, in the view of analysts at McKinsey, “Active supply-chain decarbonization is becoming a license to operate for businesses. According to McKinsey’s June 2021 report there are formidable difficulties that must be overcome to reduce GHGs produced in supply chains. These include, “opaque carbon-accounting and tracking practices; the need to work collaboratively with customers, supply networks, and industry groups; and the difficulty of keeping stakeholders engaged in a complex, multiyear change effort.”
Resilinc and other supply chain experts agree and suggest that robust and effective supplier collaboration—like that supported by Resilinc’s dashboard—be the starting point to reducing Scope 3 GHGs. “No organisation stands a chance of reducing scope 3 emissions without working closely with their value chain,” observes Mark Perera, CEO of Vizibl, in a recent article for Enterprise Times.
A valuable resource for executives tasked with developing Scope 3 GHG mitigation strategies is World Business Council for Sustainable Development which sponsors papers and guides such as this March 2021 report—Value Chain Carbon Transparency Pathfinder: Enabling decarbonization through Scope 3 emissions transparency.
Two valuable resources that will be helpful for executives tasked with developing Scope 3 GHG mitigation strategies: The GHG Protocol’s Corporate Value Chain (Scope 3) Standard and the World Business Council for Sustainable Development’s Value Chain Carbon Transparency Pathfinder.
