In recent decades, organizations have become enthusiastic about corporate social responsibility and environmental, social and governance issues. Whether it’s cost and efficiency improvements or helping to heal the planet, many companies have adopted sustainability goals such as reducing greenhouse gas (GHG) emissions or have committed to even loftier goals, such as becoming net-zero emitters.
Although many organizations have sustainability plans, there often seem to be problems in getting these plans in motion. Few organizations that have set ambitious goals are on track to meet them.
Companies can find opportunities in their own practices, and they can find even greater profits in Scope 3 issues, both up and down the value stream. However, some challenges stand in the way of identifying those opportunities.
Initiatives aimed at reducing greenhouse gas emissions or achieving Scope 3 net-zero emissions in the value chain face some hurdles, mainly because these initiatives rely on external partners.
For emission reduction initiatives in the supply chain, companies need data from outside organizations. Some organizations may not have a solid foundation for carbon accounting, with ineffective or non-existent processes to measure greenhouse gas emissions. If data is to be collected, organizations must ensure that the data is complete, accurate, timely, and consistent and capture the required metrics.
In addition, organizations need to understand the data in order to analyze it, knowing what insights they are looking for, what benchmarks they compare to, and what success looks like. There are also technical considerations, such as the tools to perform the analysis.
If team members are not proficient in these areas, the organization will need to close the skills gap to efficiently collect, analyze and act on the insights gained from the data.
Organizations must also take suppliers into account. Initiating change within an organization is one thing; influencing a third party to participate can be quite another. Organizations must put a lot of time and effort into encouraging suppliers to take appropriate measures, especially if the scope extends beyond Tier 1 suppliers.
Supplier business models can even promote decisions based on economic factors at the expense of environmental factors. Savings structures can encourage bulk purchases that reduce costs, but sacrifice sustainability goals, due to the consequent need to increase storage or transportation costs.
5 actions to overcome challenges
The challenges may seem daunting, but they are not insurmountable. A well-thought-out five-point plan of action can help reduce risks and remove obstacles on the way to achieving emission reduction targets.
1. Prepare. Assemble a team with representation across the organization. It is essential to have the executive leadership and to involve stakeholders from different departments to ensure both organization-wide adoption of and alignment with the initiative.
Then determine the operational limits for Scope 3 emissions; which of the 15 categories defined in the GHG protocol are within the scope of the organization; and who within the organization is responsible for this.
2. Educate. After the operational limits have been established, the purchasing/chain organization must assess which emissions come from external partners. By using the spend-based method to calculate Scope 3 emissions, organizations will quickly find emission hotspots in their supply chains.
From there, organizations can determine where to collect more accurate emissions data based on more precise approaches, such as average data or vendor-specific methodologies. By learning what others in the industry are doing, what stakeholders and customers expect, and what laws apply, gaps and opportunities can be identified to stay ahead of the competition.
3. Set goals. With an understanding of the data, metrics and benchmarks, organizations must work with suppliers to set meaningful, actionable, quantifiable goals. These targets should also be ambitious, as this will foster innovation in the search for solutions.
Organizations should use their goals as criteria when selecting suppliers; focus on supplier relationship management to maintain momentum for the initiative; and adjust goals as they and their suppliers gain insights from data and include more partners.
4. Join us. Since supply chains can be extremely complex, it is best practice to target specific suppliers first. Implementing an average data method, which uses volume and quantity data to determine emissions per unit, can provide more accurate insight for decision making than what can be collected with a spend-based method. Other criteria include the size and importance of the suppliers to the organization, whether their emission reduction strategies align with the organization’s, and which categories contribute most to supply chain GHG emissions.
Knowing where and who to contact can help you make more efficient use of resources and the potential of quick wins: working with targeted suppliers to collect supplier-specific emissions data and determine their progress in reporting emissions, their targets, and strategically aligned metrics that can help the organization track progress toward its goals. To do this efficiently, with an audit trail, organizations may need to upgrade their procurement technology suite.
5. Expand. After organizations get through with a targeted list of suppliers, they should consider expanding their programs further down the supply chain. It is beneficial to categorize suppliers based on progress towards their emissions reduction targets, from suppliers with solid GHG reduction strategies and effective reporting to suppliers that are unsustainable.
Technology is vital to enable this process, and organizations must work within a technology ecosystem to efficiently collect data, perform analytics, and gain insights to make supplier-driven decisions. These categories identify opportunities for co-innovation or training and for identifying new partnerships with suppliers whose goals are more aligned with the organization’s goals to reduce greenhouse gases.
Successful with supply chain data
Committing to reducing greenhouse gas emissions or becoming a net-zero emitter is easier than achieving that goal. To succeed, accessing supply chain data and integrating tools into the procurement technology suite is essential, because you can’t manage what you can’t measure. Knowing the challenges it faces and having a plan to address them can increase an organization’s chance of success in achieving its long-term sustainability goals.
Find out how GEP can help your organization achieve Scope 3 emissions targets.
This post A 5-point plan to reduce your organization’s greenhouse gas emissions was original published at “https://hbr.org/sponsored/2022/04/a-5-point-plan-for-reducing-your-organizations-greenhouse-gas-emissions”