The hidden costs of supply chain emissions

When it comes to cutting greenhouse gas emissions, the supply chain often gets neglected. Only 44% of suppliers have a climate plan, and yet with some quick wins, more than a billion tonnes of CO2 can be removed. Companies can engage with their supply chain to stay ahead of environmental regulation and achieve their emissions targets.

What are supply chain emissions?

As a quick refresher, there are three Scopes when measuring a company's carbon footprint. Scope 1 & 2 are the emissions that are produced directly from a company's own facilities (heat) and indirect emissions (the electricity they purchase). Scope 3 are the emissions that come from a company's supply chain. In other words, Scope 3 emissions are all the other emissions that come from a company's activities, but which aren't directly under its control (here's a handy guide).

Measuring and managing supply chain emissions is important because they represent a significant portion of a company's greenhouse gas emissions. In fact, according to the EPA, supply chain emissions account for 60-80% of a company's total emissions - and for some companies, it can reach as high as 90%.

Why is it important to measure your supply chain?

Unlock cost and emissions savings

Transitioning the supply chain towards net zero could unlock incredible savings - both on emissions and costs. A report from the CDP highlighted that 'in 2019, suppliers cut 563 MtC02e worth of emissions - equivalent to removing 119 million cars from the road for a year - and reported subsequent savings of over US$20 billion.'  

If suppliers to the largest 125 multinationals increased just their renewable energy by 20%, it would represent a saving of over 1 billion tonnes of CO2 which is equal to the total emissions of Brazil and Mexico combined.

Supply chain reporting will become mandatory

As regulations tighten and investors increasingly demand action on climate change, measuring and reducing emissions from the supply chain will come into focus. While the current regulation being proposed is focused on big corporations, they all include a level of supply chain reporting which can be a challenge for the SMEs who make up 90% of all businesses.

This year, the United States Securities and Exchange Commission (SEC) proposed a new rule which would require over 12,000 companies to report on their supply chain emissions. The Task Force on Climate-related Financial Disclosures (TCFD) will affect more than $130 trillion of financial assets, and includes emissions from the supply chain that are 'material to an assessment of climate-related risks and opportunities.' CSRD is a new EU-wide regulation which will include over 50,000 companies in its reporting for 2023.

In other words, companies that don't measure their supply chain emissions - and take action to reduce them - could be at risk of financial penalties.

Boost your company's reputation

95% of companies believe that suppliers who show environmental leadership make better business partners. By working with suppliers to reduce emissions, companies can improve their reputation and win new business.

What's more, as consumers become more concerned about climate change, they are increasingly likely to seek out products and services from companies that are taking action on the issue. In fact, 60% of consumers say they would pay more for goods and services from companies that are committed to positive social and environmental impact.

By measuring and reducing emissions from the supply chain, companies can position themselves as leaders in sustainability and reap the rewards - both in terms of cost savings and improved reputation.

Which companies are leading the way in supply chain reduction?

A number of companies are leading the way in measuring and reducing their supply chain emissions. Here are a few examples:

In a new initiative called Project Gigaton, Walmart has committed to reducing emissions from its global supply chain by one gigaton by 2030. To do this, they are working with suppliers to improve energy efficiency, reduce transportation emissions, and switch to renewable energy.

Nike has set a goal to reduce emissions from its supply chain by 30% by 2025. To achieve this, they are working with suppliers to improve energy efficiency and move to renewable energy. They are also using more sustainable materials in their products and investing in low-carbon transportation options.

Apple has committed to becoming completely carbon-neutral by 2030. They are working to reduce emissions from their manufacturing processes and supply chain.

These companies are setting an example for others to follow. By measuring and reducing their emissions, they are not only reducing emissions but also boosting their reputation and winning new business.

How can you measure supply chain emissions?

There are a number of ways to measure supply chain emissions. One is the spend-based approach and the other is called activity based.  

Activity-based emissions accounting is a little more complicated. In this approach, you calculate emissions by looking at the total volume of activity within the supply chain. For example, you would calculate the total distance for a flight between London to Paris and multiply it by the emissions factor for the fuel used. This approach gives you a more detailed view of emissions but can be more time-consuming.

If you're just getting started calculating your supply chain's carbon footprint, the Greenhouse Gas Protocol recommends using the spend-based approach. The spend-based approach uses the total amount spent that a company spends on goods and services from suppliers as a way to calculate emissions. This approach uses emissions factors - this is a number that represents the number of emissions produced by a certain activity. For example, the emissions factor for a flight might be 3 kilos of carbon per pound/dollar spent. This approach gives you a wide view of your company's carbon emissions, allowing you to identify the most significant sources of your CO2.

At Dodo, we use the spend-based method to get you started on your supply chain emissions report. Our carbon accounting algorithm can convert data into supply chain emissions by utilising an export from your accounting software, or a direct connection. We offer a carbon calculator that takes into account the entire supply chain, not just emissions from energy usage or production processes. This allows companies to accurately measure their environmental footprint and work towards reducing it.

What is the future of supply chain emissions management?

Companies are increasingly recognising the importance of measuring and managing their emissions, and are taking steps to reduce them.

There are a number of reasons for this. First, reducing greenhouse gas emissions is important for both environmental and economic reasons. Second, companies are realising that reducing emissions is soon to become mandatory while it can also help to improve their bottom line. And third, new technologies (like Dodo!) are making it easier for companies to measure and manage their emissions.

As a result of all these factors, the future of supply chain emissions management is looking very promising. Companies that take action now to reduce their emissions will be well-positioned to compete in the global economy.