Engaging Suppliers to Encouraging C-Suite - The Road to Decarbonization

Is decarbonization on your agenda??

?If that’s a yes, aspirations alone will not suffice. The road to net zero needs a strategic plan of action, strengthened capabilities for accurate data collection and reporting as well as cohesive stakeholder engagement. Keeping suppliers engaged and incentivizing them tops the list.?

To measure Scope 3, reporting organizations need to identify all emission sources in the value chain. This requires transparency into changes in production materials and location and complete control over high-emission hotspots. These are crucial steps in establishing concrete metrics to quantify the decarbonization efforts.?

Starting Right- Keeping Suppliers Engaged?

Building capabilities to reduce scope 3 emissions is a way to streamline data collection and reporting. It also helps in laying the foundation for foolproof data models. The next big step is solely focused on supplier engagement and PWC recommends some solid strategies for incentivizing suppliers;

1. Leveraging procurement: Embed carbon-reduction agenda into the procurement process. A performance management contract with stricter measures, including termination of contracts will influence enterprises to follow the decarbonization processes.
2. Building capability: Learn and lead decarbonization efforts within organizations. Upskill suppliers in crucial areas of scope 3 while peer benchmarking to strengthen the focus on emission reduction.
3. Rewarding progress: Incentivise suppliers when they meet emission targets. Invest in long-term initiatives such as carbon inset projects. Or reward suppliers by paying a premium for low-carbon.
4. Enforcing performance: If suppliers do not meet the targets, further penalize them by eliminating discounts or even terminating the contract as per point 1.?

Meeting the Decarbonization Goal?

Meeting the decarbonization goal is to achieve the targets as per Science Based Targets (SBTi).

Experts advise companies with significant downstream emissions to build and enhance capabilities to switch to green business segments. The move will help generate value while lowering the overall carbon footprint, particularly from processing and product use. Another recommendation is to explore low-carbon opportunities in sourcing and production. A collaborative study by World Economic Forum (WEF) and Boston Consulting Group (BCG) suggests that if the difference in total life cycle emissions between the two products is positive, the product has lower life cycle emissions than the reference product. Enterprises also need to keep in mind that growth and decarbonization are two sides of a coin. The outcome of successful strategies would be profitable growth with increased ROI.?

Despite all the frameworks and actionable plans, the non-static nature of supply chain emissions is a challenge for organizations. The emission is scattered across the supply chain. The cost of technology adoption to tackle this also seems high at this stage. Additionally, organizational-level challenges make monitoring and tracking of scope 3, crucial. The C-suite and board play a critical role in tackling this.?

Empowering Leadership to Make the Change?

Sustainability practitioners and ESG professionals have a role in making the board aware of the impact of scope 3 emissions. When the C-Suite is actively involved in the process, there is a visible impact across business units and other functions. Decarbonization isn't the sole responsibility of a Chief Sustainability Officer (SCO) but that of a CEO, CFO, and even CHRO.?

When the leadership is aligned on the goal, ensuring data accuracy becomes seamless and the data models will be free of flaws. A CFO need to comprehend the cost-optimization practices while the information security leader has to implement automation in data collection and more. A marketing head on the other hand plays a huge role in educating the customers about a brand’s Scope 3 strategy, just as the human resource educates employees.?

Meeting the Scope 3 targets and reducing carbon emissions is a collective effort; everybody has a part to play and it is everybody’s responsibility.

Read about quantifying Scope 3 and setting Science-Based Targets for impactful results.