Tackling scope 3 through collaboration

Organisations have their plans to achieve net-zero emissions but they need to also address the challenge of Scope 3 emissions.

A group of business people hands are cupping a young plant. Climate change concept

In August, US President Joe Biden signed into law the Inflation Reduction Act which represents the single largest investment the United States has ever made to address climate change. While the $369 billion investment will modernise the American energy system, it will also likely put North American carbon emissions strategies under the microscope.

Scope 1 (greenhouse gas emissions) and Scope 2 (indirect emissions from consumptions of energy i.e. electricity, steam heating etc.) have commanded the lion’s share of attention from organisations across the globe. To date, Scope 3 emissions which encompass those produced indirectly by suppliers and customer activities, have largely been overlooked.

Less than half of leaders polled in the 2022 Fortune 500 CEO survey have included Scope 3 emissions in their plans to achieve net-zero emissions by 2050 or before.

Scopes 1 and 2 address this requirement largely in-house, with organisations across all industries seeking more efficient ways to reduce emissions in their products and production processes. Scope 3, however, requires proof that emissions are being reduced outside the immediate control of the enterprise.

To address the challenge of Scope 3 emissions, which for most companies worldwide represent the bulk of their carbon impact, it’s important to look beyond the four walls and make this 30-year journey a collaborative one – across continents, across industry sectors and within supplier relationships.

Ultimately, it is an organisation’s supply chain that holds the key to reducing Scope 3 emissions. Here is where Scope 3 presents a significant challenge.  

Renowned luxury goods manufacturer, Moët Hennessy, for example, reports that Scope 3 type emissions account for 93% of its total carbon footprint. According to computer peripherals manufacturer, Logitech, Scope 3 emissions account for 99.8% of greenhouse gas (GHG) emissions along their value chain. 

As a whole, the tech industry currently accounts for 2-3% of global emissions, and given the rate of digital transformation for both users and suppliers, the industry will be under even more pressure to reduce their Scope 3 emissions.

Tackling Scope 3 will require a two-fold approach. Firstly, companies will need to become more stringent and innovative, striving to make small gains in hard-to-reach places. And secondly, they should acknowledge that these gains cannot be achieved alone.

Instead of trying to solve the problem of Scope 3 single handedly, organisations should look to the circular economy: and collaborate across the supply chain to share, lease, re-use, repair, refurbish and recycle existing materials and reduce their environmental impact. To take advantage of this potential, US companies and their European counterparts will need to embrace a united, transparent, collaborative and data-driven approach.

Closing these visibility and engagement gaps is critical to reducing emissions, but we’re a long way off. Spend Matters found that almost 70% of organisations’ emissions come from their supply chain. However, our latest supplier sustainability research found that just 24% of suppliers are being measured routinely on carbon emissions.

A top priority should be getting a 360-degree view of suppliers, including emissions data, across the supplier network. That visibility should factor in data from suppliers, companies and external sources. One such source, Ecovadis, measures supplier sustainability and provides impartial data on their ESG impact and insights on compliance risk. With this information, organisations are able to select suppliers responsibly and monitor performance throughout their supplier relationships.

“Circling back”

Many enterprises are utilising the circular economy to help reduce Scope 3 emissions.

Global IT services provider Accenture has committed to achieving net-zero emissions by 2025 by reusing and recycling 100% of their e-waste, such as computers and servers, as well as all office furniture. They’ve also started requiring that 90% of their key suppliers disclose environmental targets and actions being taken to reduce emissions by 2025.

Logitech says it aims to reduce Scope 3 emissions by at least 50% by 2030 compared with its 2019 levels. Their plans involve making products last longer by refurbishing and reselling them, and using more low-carbon materials.

At an industry event earlier this year, Moët Hennessy, Volvo, and aircraft equipment manufacturer Safran discussed how using the circular economy has helped them reach their emissions goals. In part, they realised that applying circular economy strategies could reduce overall emissions by 55% by 2050 (going a long way to achieving Europe’s Green Deal goals.)  These leaders also discussed the nuanced, bespoke and innovative solutions they are developing in partnership with suppliers.

For instance, Moët Hennessy’s Golden Seeds project helps to ensure that liquids extracted from the harvesting process are reused and recycled across other operations and projects. Moët Hennessy has made great strides – but progress on emissions is traditionally harder to come by in other industries, where Volvo Group and Safran stand out as pioneers in the circular economy conversation.

Volvo is working alongside two key partners as part of its ‘green steel’ project, taking surplus green hydrogen already being used to construct the steel, and using this to power filling stations and vehicles. Meanwhile, Safran is recycling 60% of its raw materials used for titanium and nickel alloys thanks to an investment into EcoTitanium® – the first European plant to develop aeronautical grade titanium alloys through recycling. This plant is already beginning to produce titanium ingots from scrap collected from the company and its subcontractors.

Collective intelligence

It’s clear from these examples that almost any industry can apply circular economy approaches and, companies can bake them into their long-term core business strategy, without having to compromise on economic benefits. It’s also evident that anyone falling behind on ESG standards could potentially be called out or perhaps worse, fall behind more innovative competitors. This, in turn, would negatively impact the brand, its growth prospects and the ability to attract critical talent.

Regulations are tightening, and consumers are casting a watchful eye over sustainability protocols, increasingly choosing brands based on CSR values. As such, most organisations are now revealing strict and ambitious targets for 2020-2050.

Despite all efforts, the scrutiny will continue, especially when it comes to Scope 3 emissions. It’s one thing to lay out plans for progress; and another altogether to deliver against, measure and prove it. This is where the need for digital intervention and the ability to effectively assess individual supplier performance becomes clear.

Progress can be measured by financial commitment – the amount being invested into collaborative projects. To that end, documented evaluations of transport or distribution channels, and the emissions these produce will be required. It might involve more auditable displays of emissions coming from material and energy use. And, in some cases, progress can even appear in the form of broader industry affiliations, such as Volvo Group’s involvement with Catena-X – a data sharing platform used between suppliers and plants.

The examples also make it abundantly clear that addressing supply chains is among the most important elements to optimise and reduce overall emissions. The collective accountability required can only be achieved if everyone is able to share information on emissions across the supply chain – even from sub-tier suppliers – and operate with a single source of truth. Collaboration tools connecting companies, suppliers, and stakeholders will also be a critical foundation for the circular economy. Tools that drive a smarter, more connected, visible, transparent and collaborative approach are needed to help organisations to define and execute circular economy initiatives like selecting suppliers who meet sustainability thresholds.

58% of organisations are setting a minimum qualification for suppliers to meet sustainability requirements. (The State of CSR and How to Move it Forward 2021 Forrester Research).  Scopes 1 and 2 may be under control as we edge closer to key milestone dates, but Scope 3 remains a challenge for industries across sectors and for US companies conducting business at home and abroad. By bringing suppliers and partners into the planning process, and into the very heart of day-to-day progress, tackling Scope 3 becomes more manageable, measurable and achievable.

Alex Saric is a Smart Procurement expert and the CMO of Ivalua, where he works closely with companies to support their Digital Transformation efforts through effective spend management. Prior to Ivalua, Saric was at Ariba for 12 years, first building and running the spend analytics business as General Manager. He then built and led Ariba’s international marketing team until successful acquisition by SAP, transitioning to lead business network marketing globally.