Supply chains generate around 60 percent of all carbon emissions globally, making them critical in the fight against climate change. Business leaders recognize that they must reduce emissions faster. According to an Accenture study, almost half of CEOs claim that building a responsible supply chain is now part of their sustainability strategy.
A global trend toward more regional sourcing and production helps mitigate the issue. However, commitment and regionalization strategies don’t change the fact that companies lack visibility into the largest source of emissions – their upstream supplier base. These suppliers are responsible for the bulk of what’s known as Scope 3 emissions. By not seeing their Scope 3 emissions, companies can’t take the actions necessary to reduce them.
Here’s the scoop: We have found that Scope 3 emissions are 11.4 times greater than all other emissions combined. Our analysis also provided additional crucial insights for supply chain executives:
Network complexity strongly influences emissions strategies. For example, in the energy, utilities and natural resources industries, most upstream emissions are concentrated in suppliers closer to the purchasing company. But in the aerospace and defense, high-tech and automotive sectors, upstream emissions are concentrated in suppliers further up the supply chain. On average, 80 percent of high-tech companies’ upstream emissions come from Tier 2-plus suppliers.
Sources of emissions vary significantly by industry sector and location. For some industries, hot spots are power generation. For others, it may be raw materials and transportation. Those hot spots could vary within the same industry depending on where in the supply chain a supplier sits. The same sector also faces different emissions challenges in different regions. For example, for the Chinese high-tech industry, 79 percent of the upstream emissions across multi-tier suppliers are generated within China. That figure drops to 59 percent and 46 percent for Japan and the US and UK high-tech industries, respectively.
Based on the insights from our research, we’ve identified five key actions companies need to focus on to begin making an impact:
Action 1: Set effective targets
Conduct a detailed, multi-tier emissions hot spot analysis to determine the largest sources of emissions. A global pharmaceutical company combined their Tier 1 purchasing data with industry and country-level data to identify their Tier 2 and 3 emission sources. These hot spots were then traced back to their Tier 1 suppliers. With this data-driven analysis, the company’s supply chain team could initiate conversations with their suppliers about concrete actions to reduce emissions.
Action 2: Embed sustainability into supplier selection
Ensure environmental, social and governance (ESG) criteria permeate across sourcing and decision-making processes. For instance, with the hot spot analysis on hand, companies can create customizable category plans with emissions reduction strategies that address these hot spots head-on – and even go beyond their Tier 1 suppliers to their purchases. One example is a global financial services company that embedded its ESG procurement policy into its documentation and processes while also educating sourcing teams on priority initiatives, such as net zero and supplier diversity. The result? A procurement function that successfully incorporated sustainability and responsible practices throughout its planning and supplier selection.
Action 3: Integrate emissions into the supply chain control tower and implement a digital twin
Control towers – dashboards that use data to centralize visibility – help with decision-making and guide actions. A powerful complement to a control tower is a digital twin of the supply chain. This virtual replica not only maps physical material flows and uncovers sub-tier suppliers and risks but can also simulate the carbon footprint of the entire network.
Action 4: Bring suppliers into the fold on decarbonization efforts
Suppliers are key stakeholders in increasing the visibility of Scope 3 emissions. Companies should create a supplier engagement program that allows them to work with suppliers on their own decarbonization efforts. Such a program can provide training to set science-based targets and report on ESG performance, which leads to better data quality and accuracy. A supplier engagement program for one aerospace and defense manufacturer focused on three initiatives with its company’s suppliers: creating a code of conduct, ensuring compliance with regulation and managing supply chain and reputation risk, and guaranteeing the responsible sourcing of materials.
Action 5: Increase collaboration
A majority of the private sector has consistently asked for clear data and measurement criteria to track and report progress on sustainability efforts. One way to remedy this problem across supply chains is by aggregating data from multiple sources. Doing this effectively requires collaboration that involves peers, suppliers and ecosystem partners committed to improving their data quality and willing to act on recommendations. For instance, a US-based multinational retail corporation created an intelligent operating model that gave suppliers the resources and support to pursue decarbonization efforts – including financial incentives for SBTi-validated targets to renewable energy access.
For a list of the sources used in this article, please contact the editor.
Kris Timmermans leads Accenture’s global supply chain and operations business. Jan-Willem Jannink leads the sustainable value chain at Accenture’s Industry X business. Accenture is a leading global professional services company that helps the world’s leading businesses, governments and other organizations build their digital core, optimize their operations, accelerate revenue growth and enhance citizen services—creating tangible value at speed and scale.