A recent study finding that FTSE 100 supply chain emissions rose by 3% from 2022 to 2023 exemplifies the challenge in decarbonising faced by companies.
The study by Inverto, which is part of Boston Consulting Group, found that an additional 62 million tonnes of CO2 was emitted by FTSE 100 companies year on year, taking the total to 3.3 billion tonnes in 2023.
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Supply chains form part of a company’s scope 3 emissions – those that are related to their activities but that are out of their control, such as the production and transportation of raw materials. Companies can put pressure on suppliers to decarbonise or switch to greener suppliers, but it simply may not be possible to find suppliers for certain things that are deemed adequately green.
Emitwise is a carbon accountancy firm with a platform aimed at measuring, tracking, reporting, targeting and reducing emissions across supply chains. Speaking to Energy Monitor, Mauro Cozzi, the company’s CEO and co-founder, outlines the challenges faced in decarbonising supply chains, what progress is being made and what action is being taken.
Could you give a broad overview of the ways in which supply chains are decarbonising globally in 2024?
Mauro Cozzi: There are three key things happening right now in global supply chains. Firstly, businesses at the top of supply chains are building stronger relationships with their suppliers to map how their supply chain contributes to their emissions. Businesses are assessing which suppliers have the highest emissions and where they are in their journey towards decarbonising – at the very beginning of their journey or actively decarbonising.
Secondly, larger businesses and their suppliers are coordinating through well-structured supplier engagement programmes. Emitwise is seeing this with customers such as CBRE and DP World – some of the biggest businesses in the world – who are having conversations with some of the largest suppliers to start aligning on plans and targets to decarbonise better. For now, most of these programmes are voluntary for suppliers, but this is expected to soon become mandatory.
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By GlobalDataLastly, some of the most advanced businesses such as Apple and Unilever are already using carbon emissions as a key metric when informing their purchasing, partnership and wider supply chain decisions, in addition to costs and quality. Some of our customers such as Specsavers are actively choosing to buy materials with a lower carbon footprint, or from suppliers with lower emissions.
What is the regulatory landscape that is spurring this change?
There are three main drivers from a regulatory point of view. The Corporate Sustainability Reporting Directive (CSRD) in Europe involves an overall overview on ESG reporting, but it also includes an important section called ESRS 1, which is key for Scope 3 reporting. It requires businesses to provide data and evidence to back their plans and targets in place to address their supply chain emissions. To do this, businesses need to engage with their suppliers, collect data from them and in turn work with them towards bolstering decarbonisation.
In addition to CSRD, we also have the Carbon Border Adjustment Mechanism (CBAM) in Europe, which taxes foreign suppliers for their carbon footprint on things such as metals and fertilisers. This gives local European suppliers a competitive advantage and in turn allows businesses to understand and quantify the carbon footprint of their international suppliers.
The Corporate Sustainability Due Diligence (CSDDD) is another European law aimed at helping businesses to understand the environmental impact of their suppliers.
Are specific industries facing more challenges than others, and how so?
In the sustainability sector, generally, more energy-intensive industries such as cement, steel and concrete, have been under greater regulatory burden for some time now. However, the newer set of regulations seems to be industry-agnostic, even though there are some sector-specific requirements. Large organisations must comply with these regulations – it doesn’t matter if you are a manufacturer or a finance firm.
This is positive and encouraging because, ultimately, if you look at the supply chain of most companies, it includes having a broad mix of suppliers from a range of different industries. Therefore, the fact that everyone has to comply with the regulation means everyone is moving forward at the same time.
In your opinion, are supply chains decarbonising at the pace needed to meet climate goals?
No, supply chains are not decarbonising at the pace needed to meet climate goals. Supply chains are unfortunately quite far from being at a level where they have the capabilities, data and cooperation needed to decarbonise at the scale required.
On average, we should be reducing supply chain emissions globally between 2-5% today to be aligned with the Paris Agreement.Even with the largest businesses, the Fortune 500 for example, it is still hard to tell what their supply chain emissions look like. Keeping that in mind, we cannot be certain that we are decarbonising by 2-5% when we don’t have access to those numbers in the first place, let alone be in a position where companies can actually start making decisions towards making reductions.
My expectation is that, in the next few years, when companies actually start having access to their supply chain carbon emissions data and realise just how much they need to do to start decarbonising, they will also realise that the targets they had been setting in the past were sadly setting themselves up for failure.
But on a more hopeful note, technology and expert advice is available for the taking, and when businesses eventually have the data, they will already have all the internal knowhows and domain expertise to reduce their carbon footprint and meet their targets.
What is your advice for companies looking to decarbonise their supply chains in the most effective way?
First of all, focus on the most material suppliers. Second, make sure to find the business-profitability or return-on-investment angle to decarbonising your supply chain, which always helps in securing more funding. Outlining the clear business case for going on a decarbonisation journey, for example by making it a core part of how you pitch yourself, will allow you to attract more investment to decarbonise faster.
It is also important to work with a partner who can help you with contacting and engaging your suppliers, gathering data from them, along with quality controlling and auditing. So, whilst your designated partner is handling that and providing you with the data you need, you can focus on making the larger, transformatory decisions, such as switching suppliers and changing materials.
