The foundation of a robust Scope 3 strategy is having access to accurate supply chain data. In late 2021, Sustainability Leaders created a working group to explore the most effective ways companies can gather this data. Examples included how companies segment their suppliers, develop new platforms and tools to log emissions data, and adapt their governance models to facilitate data sharing.
Almost one year on, Sustainability Leaders will be reconvening the working group to discuss progress and updates on collecting Scope 3 emissions data. Participants can expect to share and learn a number of different points:
Businesses are growing increasingly interested in tracking the carbon footprint of their supply chains. Spurred on by an expanding regulatory environment, consumer demand and investor pressure, more than half of companies in Sustainability Leaders’ Scope 3 working group – which comprised 19 companies and met four times between October and December 2021 – are now asking their suppliers to share carbon data (see Figure 1, below).
Yet despite its importance, sustainability executives still struggle to obtain accurate CO2 data from their organisation’s supply chains. On average, the working group’s participants report having visibility of 13% of their Tier-1 suppliers, that is, those from which the company makes direct purchases. This figure drops to 2.5% for lower tiers of the supply chain, from Tier-2 to the point-of-origin.
The working group highlights several reasons for this lack of visibility. First, their organisations have not historically reported this information, making the expectation to do so new to their purchasing teams. Second, because many suppliers do not have a robust approach to emissions reporting, they lack the necessary capability to quantify their footprint. And lastly, definitions of what counts towards a supplier’s footprint can vary between the company, its suppliers, and a host of other stakeholders such as competitors, local governments and NGOs, further complicating the process. Organisations must address all of these factors to make meaningful progress towards their Scope 3 ambitions.
“Standardising anything in this space is difficult. A consumer company’s goal of getting the footprint of a supplier might be different to our goal with the same supplier, as we’re in different businesses. This creates inconsistency”
VP, corporate environmental affairs, technology business
The way in which organisations ask for and track the CO2 footprint of their supply chain varies. Many sustainability teams (45%) prioritise obtaining information on the supplier’s overall footprint, which typically includes its Scope 1 emissions (from its controlled operations) and Scope 2 (from the energy it purchases). This reflects the relative ease of obtaining this data compared with other methods – increasingly, suppliers now disclose their CO2 footprint, making it less onerous for buying companies to track this information.
An equal proportion of organisations look at the carbon intensity of the materials they are purchasing and track those with the highest footprint. Typically, the company will combine a materiality assessment with a spend analysis to determine which materials are associated with high levels of CO2. Although it is more time-consuming than obtaining publicly available emissions data, this process helps businesses develop a more targeted approach to reducing emissions.
“We identified the materials in our value chain with the highest carbon footprint and then identified the 30 top suppliers of those materials. We focus on working with these suppliers”
Sustainability lead, beverage company
Some 40% of respondents, meanwhile, track the supplier’s footprint as generated from serving the buying organisation. Several working group participants expressed their intent to track suppliers’ footprint using this method but pointed out that requesting this type of data is difficult due to suppliers often being unable to calculate CO2 emissions in this way.
The least popular means of tracking emissions is by individual supplier site, at just 19% of respondents. This is chiefly due to the complexity of doing so – buyers would have to be granted access to supplier sites, which is uncommon within procurement.
Broadly speaking, how working group participants track supplier emissions follows a maturity curve (see Figure 4, below). This starts with obtaining information on the supplier’s footprint overall through their public disclosures or emissions factors published by government agencies. Participants generally agree this data can be of limited use however, as the data is generic and may not reflect the realities of a supplier’s operations, such as its energy mix.
Companies then move on to requiring more detailed and specific data. The type of data often depends on the industry in which the company operates. Consumer companies typically transition towards obtaining information on the carbon intensity of the materials they source, as materials such as plastics, metals and glass will have an environmental impact both upstream and downstream in their value chain. Others may prioritise site-level emissions and the supplier’s footprint by serving the buying company, as the bulk of their emissions resides upstream in the value chain.
Many solution providers offer tools and services to help companies to overcome the challenges associated with collecting CO2 data from suppliers. These range in scope, with some focused exclusively on data transparency, others on data integration, and others on analytics.
Most organisations within the working group have used one or more of these providers for some time. These include:
Despite the variety of data solution providers available, the working group findings suggest that none can fully meet organisations’ needs. No company has reported its solution provider has been ‘very successful’ in supporting its Scope 3 strategy (see Figure 5, below).
Working group participants report several reasons for the limited success of these providers. Third parties often provide data at a corporate level, meaning the CO2 footprint that belongs to each downstream organisation is unavailable. This makes it more difficult for companies to move along the maturity curve from having general CO2 data to more specific information difficult.
“Corporate level data isn’t adequate for our goals now. It doesn’t help us understand how to get to a 30% reduction of emissions. We need access to more primary data.”
Head of sustainable sourcing, consumer business
There is also often an issue with the number of companies that use these platforms. Because numerous providers exist, companies within a given sector will typically be spread across using several different platforms, which can undermine consistency.
The consensus from the group is that solution providers should not be seen as a permanent fix for acquiring supplier CO2 data. Rather, working with a solution provider must be combined with a robust internal approach for tracking suppliers’ carbon footprint.
The findings of this working group were informed by a pulse survey and four working group sessions that took place between October and December 2021, with the following companies participating: Arla Foods, Becton Dickinson, British American Tobacco, Colgate-Palmolive, FMC Corp, General Mills, Gilead Sciences, Heineken, IBM, Jabil, KWS, Leonardo, Milk Link Processing, Perfetti Van Melle, PZ Cussons, Royal Dutch Shell, RWE, Societe Generale and Telus.