Procurement strategy: Managing Scope 3 emission suppliers for a sustainable supply chain

In the global push toward sustainability, businesses are increasingly being called to take responsibility not just for their direct operations (Scope 1) and energy consumption (Scope 2), but also for the environmental impacts associated with their broader value chains (Scope 3). Scope 3 emissions refer to the indirect emissions that occur throughout the value chain, including those generated by suppliers, product use, and end-of-life disposal.

Assess baseline emission

Assessing baseline Scope 3 emissions is a critical starting point for any company seeking to reduce its indirect carbon footprint and drive sustainability across its supply chain. To begin, it’s essential to understand what Scope 3 emissions are and where they come from. These emissions are all the indirect greenhouse gases generated from a company’s value chain, covering everything from the extraction of raw materials, transportation, and production processes, to the end-of-life disposal of products sold. For many organizations, Scope 3 emissions can make up the largest portion of their total carbon footprint.

 

Supplier engagement and collaboration

Supplier engagement and collaboration are key components in effectively managing and reducing Scope 3 emissions. Given that Scope 3 emissions often account for a significant portion of a company’s total carbon footprint sometimes upwards of 70%, companies must actively involve suppliers in their sustainability efforts. Rather than attempting to reduce emissions in isolation, engaging suppliers allows for a more collaborative, transparent approach where both parties work together to implement practical and impactful solutions.

Define vision, goals, and key performance indicators (KPIs)

Establish a clear vision and set measurable sustainability goals that align with global climate commitments, such as the Paris Agreement or Science-Based Targets (SBTs). Aim to achieve net- zero emissions across the entire value chain by 2030 or 2040, aligning with global decarbonization goals. Define clear and achievable emissions reduction targets (e.g., reduce Scope 3 emissions by 30% by 2027).

Engage suppliers and establish a collaboration framework

Foster collaboration with suppliers to improve their environmental performance and integrate sustainability into procurement decisions. Use questionnaires, data-sharing platforms, and emission reporting tools to collect emissions data from key suppliers. This data should include emissions from production processes, transportation, energy use, and waste management.

Implement emissions reduction projects with suppliers

Develop and implement concrete actions to reduce Scope 3 emissions within the supply chain.

• Work with suppliers to identify opportunities to reduce emissions, such as energy efficiency improvements, sustainable sourcing of materials, and the use of renewable energy in production.
• Help suppliers transition to renewable energy by offering financial incentives or access to renewable energy purchasing programs.
• Collaborate with logistics partners to optimize routes, reduce fuel consumption, or shift to low-emission vehicles, such as electric trucks.

Monitor, report, and iterate

1. Regularly track progress, evaluate the effectiveness of emissions reduction efforts, and adapt strategies to ensure continuous improvement.
2. Implement a system for continuous tracking of emissions across the supply chain. Use software platforms that provide real-time visibility into supplier emissions, track progress, and benchmark performance against targets.
3. Hold regular meetings or workshops with suppliers to review progress, share best practices, and address any barriers to  reductions.

Roadmap for managing Scope 3 emissions through supplier engagement

By following this strategy and roadmap, companies can build strong, collaborative relationships with suppliers, address their Scope 3 emissions comprehensively, and contribute to a more sustainable supply chain. With clear targets, regular monitoring, and a focus on continuous improvement, businesses can achieve significant emissions reductions and drive long-term environmental and financial benefits.

Data and technology

In today’s digital age, leveraging data and technology is critical for effectively managing and reducing Scope 3 emissions. The complexity of global supply chains and the multitude of emission sources necessitate advanced data analytics, automation, and digital tools to measure, track, and manage emissions across a company’s value chain. By using these technologies, businesses can enhance transparency, streamline emissions reporting, improve supplier collaboration, and drive data-backed sustainability decisions. The first step in managing Scope 3 emissions is accurately measuring and collecting data from suppliers. Given that Scope 3 emissions come from numerous indirect sources (e.g., raw material extraction, transportation, product use, and disposal), obtaining consistent and accurate data is a challenge.

Data sharing and collaboration

Cloud technologies also allow companies to share data across different systems whether internal systems or supplier databases—enabling seamless integration of sustainability efforts throughout the value chain. This integration improves transparency and drives more effective decision-making.

Implement responsible sourcing practices

Implementing responsible sourcing practices is a critical strategy for managing Scope 3 emissions, which often account for the largest share of a company’s overall carbon footprint. By embedding environmental and social considerations into sourcing decisions, companies can ensure that their supply chains are not only efficient and cost-effective but also sustainable.

Here’s a step-by-step guide on how to implement responsible sourcing practices to manage and reduce Scope 3 emissions:

Establish clear responsible sourcing policies and frameworks

Objective: Lay the foundation for responsible sourcing by defining clear policies, guidelines, and goals for sustainability and emissions reduction in your supply chain.

Action steps: Develop a Responsible Sourcing Policy that sets out expectations for environmental, social, and ethical performance across the supply chain. The policy should prioritize sustainability goals such as reducing carbon emissions, promoting fair labor practices, and ensuring resource efficiency. It should also specify the company’s commitment to Scope 3 emissions reductions and outline the steps suppliers need to take to meet these expectations.

Educate and upskill employee

Educating and upskilling employees is a critical component of successfully managing and reducing Scope 3 emissions in a supply chain. Employees at all levels of an organization need to understand the importance of sustainability and how their roles contribute to achieving broader environmental goals.

Focus on high impact suppliers

Focusing on high-impact suppliers is a critical strategy for reducing Scope 3 emissions in a supply chain. Since Scope 3 emissions come from indirect activities—such as those involved in procuring raw materials, transportation, and product end-of-life disposal—addressing the emissions of the most significant suppliers can lead to the largest and most impactful reductions in a company’s overall carbon footprint. The first step in focusing on high-impact suppliers is identifying which suppliers contribute most to your Scope 3 emissions.

Continuous improvement

Continuous improvement in the management of Scope 3 emissions is essential for companies aiming to meet their sustainability targets and drive long-term environmental impact. Scope 3 emissions, which originate from a company’s supply chain and product lifecycle, often represent the largest portion of a company’s overall carbon footprint.

References

Science-Based Targets Initiative (SBTi). (2020). Science-Based Targets: A Guide for Companies on Setting Net-Zero Targets in Line with the Latest Climate Science. Retrieved from: [https://sciencebasedtargets.org/]

CDP (Carbon Disclosure Project). (2023). CDP Supply Chain Report. Retrieved from: [https://www.cdp.net/en/]

Unilever. (2022). Unilever's Sustainable Sourcing Program. Unilever Annual Report. Retrieved from: [https://www.unilever.com/]

IKEA. (2022). IKEA Sustainability Strategy: People and Planet Positive. IKEA Group Sustainability Report. Retrieved from: [https://www.ikea.com/]

Walmart. (2021). Walmart’s Project Gigaton: Reducing Emissions Across the Supply Chain. Walmart Sustainability Report. Retrieved from: [https://www.walmart.com/]

JEL Codes: Q50 - Environmental Economics: General, M11 - Production Management, Q54 - Climate Change: Mitigation and Adaptation, Q56 - Environment and Development: Sustainable Development, C53 - Model Evaluation, Validation, and Selection

SC
MR