Eight supply chains account for more than 50% of global emissions and tackling them could be the key to accelerating climate action, a report said.
The report, by the World Economic Forum (WEF) and Boston Consulting Group (BCG), said the food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight supply chains represented half of global emissions.
Addressing supply chain emissions would enable firms within these sectors to impact a volume of emissions “several times higher than they could if they were to focus on decarbonising their own direct operations”, the report said.
“By engaging suppliers to create a net-zero supply chain, companies can boost their climate impact, enable emission reduction in hard-to-abate sectors, and accelerate climate action in countries where it would otherwise not be high on the agenda,” it said.
The report noted tackling supply chain emissions is an “extremely difficult task”, as emissions are distributed across “hundreds or even thousands of individual tier n suppliers in many different countries”.
It said: “There are also organisational problems that make monitoring and tracking upstream emissions difficult. Procurement teams may be unaware of low-carbon alternatives when they make purchasing decisions. It is difficult to manage procurement criteria without a clear hierarchy or internal alignment, and the incentive structures in procurement teams are not geared to sustainability today.
“In some cases, bringing down emissions requires intense, long-term engagements with individual suppliers. Not all procurement organisations are set up for this.”
However, the report found that creating net-zero supply chains would barely increase end-consumer costs.
It said around 40% of all emissions in supply chains could be abated with readily available and affordable solutions, such as circularity, efficiency and renewable power. Even with zero supply chain emissions, “end-consumer costs would go up by 1–4% at the most in the medium term”.
WEF and BCG identified nine key actions firms could take to tackle supply chain emissions:
1. Build a value-chain emissions baseline and exchange data with suppliers
Supply chain emissions can be calculated with different levels of granularity. More granular data should be used for tier one suppliers, and for products, components or commodities that contribute the most emissions.
“An effective technique is to exchange data with suppliers directly, building a specific view of the top suppliers that account for the majority of spend,” the report said.
2. Set ambitious reduction target and publicly report progress
Once there is transparency on supply chain emissions, firms should set a public target across all emissions scopes and understand what this means for their business. Companies should also actively cascade their targets through their supply chains.
3. Redesign products for sustainability
Firms must differentiate between products in series production and those in development. For in-series products, firms can try to lower the energy footprint in suppliers’ operations and increase the share of recycled input materials.
New products can be designed for sustainability “using greener materials, cutting waste, reducing product variance, increasing recyclability, improving repairability and switching manufacturing processes to lower-carbon ones”.
4. Design value chain/sourcing strategy for sustainability
Firms should consider emissions in their value-chain design choices, for example by rethinking their make-or-buy decisions and by limiting the need for long-range logistics.
5. Integrate emissions metrics in procurement standards and track performance
“Setting procurement standards for suppliers is one of the most powerful direct levers to address upstream emissions, “ the report said.
Strong standards link practices – such as a specific share and quality of renewable power or a required share of recycled materials – to procurement decisions. Firms should introduce sustainability metrics into competitive tendering processes and reward climate action among suppliers, for example, through better payment terms.
6. Work with suppliers to address their emissions
Reducing upstream emissions will require working directly with suppliers on joint abatement and circularity projects.
“In cases where reducing emissions requires suppliers to make financial commitments, companies may need to share the risk through co-investment, offtake agreements or joint decarbonisation initiatives,” it said.
7. Engage in sector initiatives for best practices, certification, traceability and policy advocacy
Ambitious firms should put pressure on industry bodies and other organisations to establish sector-level targets for climate action. “In doing so, they can move the entire sector and their supply chains, and allay concerns regarding competitiveness,” the report said.
8. Scale-up “buying groups” to amplify demand-side commitments
“Demand-side commitments can also be a tool to encourage investments in decarbonisation technologies,” the report said.
9. Introduce low-carbon governance to align internal incentives and empower your organisation
Firms looking to decarbonise their supply chains “need to change the way they operate”. They require more comprehensive data exchange with suppliers and need to set up an organisation capable of engaging them on their carbon emissions, integrating emissions into procurement standards and decisions, and aligning targets and incentives.
Firms should link up core business functions on decarbonisation and align internal targets, funding allocations and incentives to their decarbonisation targets.
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