Understanding Supply Chain emissions crucial for CPOs

With two-thirds of a company’s carbon footprint coming from their supply chain, understanding these indirect emissions is becoming Chief Procurement Officers' (CPO's) secret weapon.

Having strong visibility over these indirect emissions allows CPOs to make smarter decisions when identifying and tackling carbon hotspots in the supply chain, which will ultimately positively impact their company’s bottom line.  

With climate regulations escalating globally, it is not only an advantage but a necessity that CPOs keep a tight grip on their company’s supply chain emissions and select suppliers accordingly. Future-focused companies will therefore protect their companies from reputational damage and non-compliance penalty charges. 

The role of procurement in tackling Scope 3 emissions   

According to the World Economic Forum, over 50% of the world’s carbon emissions come from eight supply chains: food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services, and freight. While many companies are already running promising carbon-reduction initiatives within their operations, a business’s carbon footprint extends far beyond its own walls. This is where procurement’s role becomes critical.  

Scope 3 emissions, many of which stem from the supply chain, account for more than 70% of a company’s emissions. Thus, they need to be effectively measured and managed if companies want to achieve climate targets. These notoriously hard-to-measure emissions are indirect greenhouse gas emissions that come from sources not directly controlled by a company but that are still a result of its products or services sold.  

Understanding and managing these emissions is a vital part of every CPO’s sustainability efforts and can futureproof companies from a number of potential risks, as well as providing them with several benefits. Having this oversight is particularly important during such uncertain economic times, with the Russian-Ukraine war, climate change, and the combined effects of the pandemic and inflation causing great instability in global supply chains.   

Identifying carbon hotspots and preventing greenwashing accusations   

It is easy for procurement teams to get overwhelmed when trying to take into account the carbon footprint of all their suppliers, especially for companies with a large global network of partners. Supplier engagement takes time so it is pivotal that procurement teams have adequate visibility over their supply chain emissions in order to quickly identify carbon hotspots and strategically prioritise climate action. CPOs can then switch to suppliers with a lower carbon footprint and increase collaboration efforts with current suppliers by working with them to pursue carbon reduction incentives. This can include improving energy efficiency or designing eco-friendly products, reducing both costs and emissions in the long-run.   

It is also vital to consider that today’s consumers are becoming increasingly conscious of sustainability and brands’ action – or inaction. The ability to demonstrate climate-minded purchasing decisions can help prevent greenwashing accusations and protect a company’s reputation.   

Futureproofing operations against climate regulations   

Effective carbon management across supply chains also allows procurement teams to anticipate climate regulations that are coming into force in several parts of the world. 

Germany’s Act on Corporate Due Diligence Obligations, which became operational in January this year, defines requirements for responsible and sustainable supply chain management – with non-compliance resulting in fines of up to €8m.   

Similarly, the EU’s Corporate Sustainability Due Diligence Directive will require large companies and SMEs across Europe to identify “adverse environmental impacts” along their supply chain and work with suppliers to reduce their environmental impact.

The UK currently requires large companies to report on their climate-related risks under the Taskforce on Climate-related Financial Disclosures (TCFD) framework. In Canada, large suppliers are now required to disclose their Greenhouse Gas (GHG) emissions from 1st April this year.   

These regulations are just the tip of the iceberg, and procurement departments will benefit from finding the right tools and partners as supply chain and climate-related regulations come into force.

Understanding supply chains is an business necessity  

Companies are starting to realise that corporate responsibility for climate action extends beyond the remit of Chief Sustainability Officers (CSOs), and CPOs play an integral part in helping to achieve emission reduction targets. 

Ultimately, a clear understanding of supply chain emissions should be a CPO’s first port of call when planning their business and decarbonization strategy. This will help accelerate climate action in the most efficient way possible and empower companies to thrive in tomorrow's low carbon economy.

Companies must realise that sustainable procurement driven by effective supply chain emission management is not just about brand building, but a necessity to meet consumer expectations, comply with upcoming regulations, and futureproof revenue sources.

Rachel Delacour is CEO & Co-Founder at Sweep - the data-driven platform that helps businesses track and act on their carbon, so they can become forever companies.