Are you reducing scope 3 emissions?

Most leading corporations have pledged to reduce greenhouse gases, yet in less guarded moments, senior leaders may wonder if their efforts will make any real difference. The challenge is so big. Progress feels so slow. As a senior operations executive, you can focus sustainability efforts where they can make maximum impact: scope 3. The Greenhouse Gas Protocol defines scope 3 as emissions generated upstream (by suppliers) and downstream (by customers) in your value chain. These account for two-thirds or more of the typical company’s carbon footprint.

How are your powers of influence, persuasion, and cooperation? By definition, scope 3 emissions are beyond your company’s formal span of control. You might reasonably assume, “My scope 3 footprint will automatically go down as our value chain partners reduce their scope 1 and scope 2 footprints, while we address ours.” But there are limits to that assumption. Many suppliers may lack the scale and resources to effectively pursue decarbonization on their own. And business community commitment to climate action remains uneven. To reduce scope 3, you’ll have to cross into territory where you do not wield direct authority. That makes scope 3 a distinct leadership challenge—one that demands your full personal powers of influence, persuasion, and cooperation.

What’s working? While many companies are in “wait-and-see” mode on scope 3, others are taking it on with vigor. These leaders have moved beyond asking “what do I ask my suppliers to report?” into challenging themselves and partners to aggressively decarbonize their supply chains. In our work with these clients, we see some key action steps working:

• Clarify the ambition and targets. The Science Based Targets Initiative (SBTi), for example, is a rigorous target-setting and measurement schema that companies across many industry sectors can adopt and share with suppliers and customers alike. SBTi experts can objectively and scientifically validate that suppliers’ targets are sufficient to meet the goals of the Paris Agreement—limiting global warming to well below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C. Translating the ambition into specific targets across scope 3 categories and suppliers helps set the priorities and road map for attacking scope 3 emissions.
• Use third-party data sources. Current estimates of scope 3 baselines rely heavily on calculations using general emissions factors based on aggregate industry data. While useful to directionally understand “hot spots,” this is not sufficient for designing and measuring the true impact of specific efforts. Companies are therefore tapping third-party sources such as ecoinvent and Carbon Minds to more accurately measure baselines and model the effects of alternative strategies.
• Build sustainability targets into supplier scorecards. For instance, a large shipper has built sustainability incentives into contracts with their 3PL. Monitoring these scorecards gives companies an early read on whether suppliers’ progress will be sufficient or if switching suppliers or dramatically reconfiguring their supply chain is required to get where they need to go.
• Rethink product design. Some of our most exciting client work is under way in PERLab, which blends expertise in sustainable product design with a range of other crucial factors such as user experience, industrial design, packaging design, and manufacturing excellence.

Where to start? To begin, you’ll need to set shared goals and progress metrics with your value chain partners. But a scope 3 strategy is much more than setting up a reporting system. Decarbonizing across complex value chains requires robust baseline analysis and pinpointing the most viable pathways (for example, feedstock change, green power, process technology, and so on) for your supplying industries.

“Why?” A scope 3 strategy will deliver more immediate benefits than saving the planet. Closer connections with value chain partners should yield radical innovations that drive future growth and strengthen your supply chain’s ability to respond in synch to almost any kind of disruption.

Admittedly, scope 3 is hard to get your mind around. It is big, complicated, and unlike anything you’ve encountered before. But then, so is climate change.

Kish and Imran

This article was written by Kish Khemani and Imran Dassu and sent as part of a monthly perspective Kearney shares with our clients on the bigger trends unfolding across the operations landscape. Like to receive next month's note? Sign up here.

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Kish Khemani is a partner in Kearney’s Energy and Process Industries practice, based out of Chicago. Originally an electrical engineer, he helps clients with operations transformation and ESG strategy.?

Imran Dassu is a partner in Kearney’s Strategic Operations practice and is based in London. He has been with the firm for more than 21 years and his work focuses on sustainable and responsible procurement.