Our key takeaway: Companies are increasingly expected to reduce their supply chain-related emissions, which forms the largest percentage of their total GHG emissions. Notably, scope 3 emissions are “on average 11.4 times larger than direct emissions from operations.” For many companies, addressing scope 3 emissions may seem like a formidable challenge given the nature of global, interconnected supply chains and limited visibility over operations and impacts. This is a valid concern, however, the SBTi guidance on supplier engagement targets offers a way for companies to address their scope 3 emissions when they lack, or perceive to lack, this visibility. The focus of this approach is engaging with suppliers to set their own near-term science-based targets (SBTs) at different stages of the process, which includes 1) selecting the right suppliers for the right targets; 2) securing internal buy-in; 3) target implementation; 4) enabling and tracking supplier performance; and 5) monitoring and reporting target progress. A key theme of this approach is three-fold. Secure internal buy-in by tailoring the business case for setting supplier engagement targets to each team. Work with other business functions, such as sustainability and compliance teams, to capitalise on common objectives, synergies and processes. Support suppliers in capacity training, knowledge sharing, and other collaborative efforts so they have the means to set and implement effective SBTs.
SBTi published Engaging supply chains on the decarbonisation journey: A guide to developing and achieving scope 3 supplier engagement targets (June 2023) on how companies can use supplier engagement targets to address their scope 3 emissions reduction:
- Why does supplier engagement matter to companies? The report highlights several reasons why supplier engagement on scope 3 emissions is important: 1) Many companies must tackle their supply chain-related emissions in order to significantly reduce their overall GHG emissions and meet their net-zero targets. Indeed, scope 3 emissions are the largest source of emissions for many companies, which are “on average 11.4 times larger than direct emissions from operations”; 2) Companies face increasing pressure from key stakeholder groups, such as investors, customers and employees, to address their environmental impact across the full value chain; 3) Supplier engagement offers a way for companies to influence decarbonization efforts within their supply chain, especially when “granular emissions data is challenging to track or unavailable”; and 4) There are business opportunities to a supplier engagement approach, which includes higher-quality supplier relationships, and enhanced “efficiency, transparency, and resilience across the value chain.”
- How can companies work with suppliers to set their own emissions reduction pathways (Steps 1 and 2)?: The report breaks down the supplier engagement journey into five key steps: 1) Selecting the right suppliers for the right target; 2) Securing Internal Buy-In; 3) Target Implementation; 4) Enabling and tracking supplier performance; and 5) Monitoring and reporting target progress. Companies must first map their value chain (upstream and downstream) to calculate their scope 3 emissions; consider whether a supplier engagement approach is appropriate; for most companies, purchased goods and services, capital goods, and upstream transportation and distribution, make up the greatest share of supply chain-related emissions; and determine which supply chain actors are included in the target. The second step is to identify internal stakeholders who play an important role in setting, evaluating and implementing these targets. Relevant teams can include senior leadership; sustainability/ESG teams; sourcing and procurement; compliance/legal; product; accounting/finance. It is important to secure the buy-in from these teams from the start by considering the following questions - “What are these audiences’ primary concerns? What level of SBT knowledge-building is required? How should benefits or opportunities of the new initiative be framed for each group?”
- How can companies work with suppliers to set their own emissions reduction pathways (Steps 3, 4 and 5)?: The report states that target implementation should begin as soon as internal buy-in is secured. This includes designating team roles and responsibilities; defining supplier expectations and timelines such as setting SBT-aligned targets within the five-year target timeframe; communicating with suppliers on SBT expectations, relevant materials they can use, and why certain data and information will be requested; and implementing a supplier information or data-collection solution. The fourth step is enabling and tracking supplier performance, which includes training suppliers on how to calculate emissions and set SBTs, categorizing supplier performance based on program maturity, and incentivising suppliers to set SBTs. The fifth step is tracking progress on engagement targets and continually updating the supplier list to reflect business trends.