Uphill battle & the 80/20 Rule to Realize your Scope 3 Targets
While corporates focus on delivering on their scope 1 & 2 emission reduction targets, substantial scope 3 emission reduction remains a challenge, despite many having already set their scope 3 targets (e.g. as part of SBT).
Scope 3 and supply chain are probably the most mentioned and discussed terms in sustainability corporates’ departments, conferences and forums related to climate and decarbonization in the past 12 months. (Ref.: Corporate clients, edie 24 in London, World Net-Zero Summit in Berlin, webinars TCC and STICA)
Corporates are facing an uphill battle when trying to decarbonize their supply chains, as this comes with multiple complexities for sustainability and procurement managers, including data accuracy, accounting methodologies and boundaries, suppliers’ engagement, technical and financial feasibility of solutions, among others.
Cracking the “Scope 3 Challenge” Code
When we now speak about tackling corporate scope 3 emissions with renewable energy, we first must define some boundaries. The Scope 3 methodology differentiates 15 categories from up-to downstream (see table below).
On a recent research piece, based on the reports submitted to CDP by main players of several sectors (Electronics, Food & Bev, Logistics, Chemicals, Automotive, Apparel & Footwear), we have analyzed the relative impact of each scope 3 category over the total Scope 3 emissions, and mapped it against the potential to use renewable energy to reduce the emissions from each category (Table and Graph).
Scope 3 Categories | Relative impact over total Scope 3 emissions | Renewable energy decarbonization potential |
1. Purchased goods and services | High | High |
2. Capital goods | Medium | Medium |
3. Fuel and energy-related activities | Medium | Medium |
4. Upstream transportation and distribution | Medium | Low |
5. Waste generated in operations | Low | Low |
6. Business travel | Low | Low |
7. Employee commuting | Low | Low |
8. Upstream leased assets | Low | Medium |
9. Downstream transportation and distribution | Medium | Low |
10. Processing of sold products | Medium | Medium |
11. Use of sold products | High | Low |
12. End-of-life treatment of sold products | Medium | Low |
13. Downstream leased assets | Medium | Medium |
14. Franchises | Low | Medium |
15. Investments | Low | Medium |
Scope 3 emissions share per category in selected sectors
The category which has a greater impact, and that is easier to tackle with renewables, is category 1 – “Purchased goods and products”, meaning the upstream supply chain for a corporate.
Transportation, use of products, etc. are other categories which generally represent smaller shares over the total corporates’ scope 3 emissions. There are also areas where corporates have harder chances to make a significant impact with renewable energy as product innovation is needed.
Renewable energy remains the single most important lever, with established solutions available, that we can use to tackle scope 3 emissions – especially when we speak about purchased goods and products – and corporates are struggling to implement it beyond their “operational control” area.
And there is still a lot to be done. Results from the abovementioned research show that only 19% of the electronics sector’s supply chain electricity consumption comes from renewables. This share goes up to 31% in the Food & Bev sector, and 60% in the “most advanced” industry on this regard, apparel & footwear.
As we move upstream along any corporate’s supply chain, we find that individual suppliers’ emissions vary. Scopes 1 and 2 are more important for companies operating on the upstream levels of the supply chain. Based on these data and by a thumb rule, it is fair to estimate a potential 20-25% reduction in Scope 3 emissions for a corporate by supporting its suppliers use renewable energy.
The Challenges along the Way & their Strategies to Overcome them
The key challenges for corporates to tackle their supply chains’ emissions are, fundamentally: internal alignment, data, operations boundaries, supplier engagement, and cost.
To effectively tackle scope 3 emissions through implementing renewable energy along its supply chain, it is key for a corporate to address these challenges, and to prepare before starting the engagement with suppliers. It is fundamental to start engaging with suppliers only once a corporate has a clear plan and knows the certainty it can provide.
Challenge 0- Internal Alignment and Targets
Are my company’s key stakeholders aligned towards our Scope 3 emission reduction needs and potential benefits? If not, how can I bring everyone on board? What is the minimum level of alignment needed?
Internal stakeholder alignment is one of the main challenges corporates face when addressing supply chain emission reduction. Ensuring common corporate understanding and ambition, especially between sustainability and procurement functions, is crucial to effectively address these challenges. This alignment must be centered around aspects such as the corporate’s target (What does the Company want to achieve in terms of Scope 3 emission reduction with its suppliers?) and decision-making criteria (Which criteria is the company going to prioritize when choosing approaches and solutions for supply chain decarbonization?).
Challenge 1- Data
How big is my Scope 3? How does it affect my overall company’s emissions? Which share of Scope 3 emissions can be tackled with renewable energy in the supply chain? How do I account for these emissions? How do I track the process of the renewable energy measures implemented?
At this year’s editions of World Net-Zero Summit in February, and edie 24 in March, it was striking how, whenever “scope 3” and “supply chain” were mentioned in a conversation, the immediate next concern would be centered around “data”.
Everyone seems to be trying to get their data right and struggling with it. But what is the ultimate purpose of having 100% data accuracy? Is this even possible?
Several companies are doing a great job on the topic () and we echo the idea of data being key. However, data alone does not save a single ton of CO2 to the atmosphere.
It is interesting to see how applauded the idea of an 80/20 rule was in the conference in relation to this challenge: get 80% of your data right by using 20% of the effort needed to get 100% data accuracy; then, focus on action.
We recommend focusing on understanding the proportion of Scope 3 emissions that can be tackled with renewable energy solutions in the supply chain first. As crucial as getting your data right, or even more, is understanding your suppliers, their challenges, their drivers, who they work with, what they have done so far, and why haven’t they done more.
Following internationally certified accounting methodologies are important and will help the accounting process. However, focusing on action and actual emission reduction is even more critical.
Challenge 2- Operational boundaries and supplier engagement
What is under my control and what escapes it? Where can I directly implement renewables? Where does someone else (i.e., supplier) need to act? How do I deal with everything that escapes my operational control? How to act when there is resistance to change? How does all this affect my relationship with suppliers?
Once a company knows its Scope 3 and supply chain emissions and has reached a minimum degree of internal alignment, it is fundamental to define a clear boundary between the aspects the corporate has direct control over – regarding the implementation of renewable energy solutions for emission reduction –and those where require external (supplier) engagement.
Successfully reducing scope 3 emissions by implementing renewables along a corporate’s supply chain necessitates an effort on the corporate’s side to understand suppliers’ processes and their decarbonization journey. This involves profiling their characteristics, motivations for renewable energy and emission reduction, and assessing the corporate’s influence on them and identifying who else they work with.
It is crucial to understand suppliers’ level of maturity in this journey and their needs, including initiatives they have undertaken and the reasons behind their actions or inactions. Additionally, analyzing their competitors provides valuable insights into the overall industry trends and opportunities.
Finally, exploring potential aggregators such as suppliers’ or industry’s associations, can pose good potential for collaborative solutions and approaches.
Challenge 3- Cost and resistance to change
How much does implementing renewables cost for suppliers? Who should pay? Who pays if nothing is done along the industry? Are there any support schemes available?
When looking into some renewable energy solutions implementation, it is important to account for the initial investment needed. Understanding the financial burdens on suppliers and determining who is responsible for these costs are critical. Exploring available support schemes in different markets and leveraging every possible incentive can help alleviate the financial vulnerability for certain suppliers’ profiles.
Recognizing that the entire industry bears the cost of not decarbonizing should encourage collaboration and collective responsibility in addressing these challenges.
The first necessary step to Realizing your Targets is having a clear plan
In the journey towards substantial Scope 3 emission reductions, renewable energy transition remains the most effective lever corporates can utilize. While the path is fraught with challenges—from internal alignment and data accuracy to supplier engagement and financial feasibility—addressing these issues head-on is essential for impactful progress. By understanding the complexities of the supply chain, leveraging data strategically, and fostering collaboration with suppliers, corporates can make significant strides in their decarbonization efforts.
Ready to tackle your Scope 3 emissions and lead the charge towards a sustainable future ? Connect with nicolas.garciaortega@actrenewable.net to learn more.
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