McKinsey Offers Retailers Roadmap to Cut Scope 3 Emissions

Retailers could reduce their Scope 3 emissions by 15% by 2030 using existing technologies, or achieve up to a 50% reduction with new technologies, according to a recent report from McKinsey & Company.

The report outlines a series of actions designed to help retailers achieve these targets, focusing on the complex challenge of managing emissions within their value chains.

Understanding Scope 3 challenges

Scope 3 emissions are the indirect emissions generated throughout a company’s value chain, covering activities from sourcing and manufacturing to transportation and beyond.

Unlike Scope 1 and 2 emissions, which are directly controlled by businesses and usually account for only about 5% of total emissions, Scope 3 emissions represent the vast majority of a retailer’s carbon footprint.

McKinsey’s report, titled Retailers’ Climate Roadmap: Charting Paths to Decarbonised Value Chains, highlights the complexities retailers face in reducing these emissions.

“As companies in all sectors work to shrink their carbon footprints and hit their decarbonisation targets, the path to reducing Scope 3 emissions is often anything but straightforward,” the report states.

It notes that, for many retailers, addressing these emissions can feel like navigating a "particularly Byzantine maze", given the multitude of sectors, industries and global regions involved.

Scope 3 reduction strategies

For retailers, Scope 3 emissions encompass the entire product lifecycle, including sourcing, manufacturing, transportation and packaging.

McKinsey notes that about 80% of these emissions are generated upstream in the value chain through activities like feedstock production, materials processing and manufacturing.

The complex nature of global supply chains, with multiple tiers of suppliers and inputs from diverse regions, makes it difficult for retailers to influence how suppliers manage or report emissions.

To tackle these challenges, McKinsey’s report identifies seven key themes where retailers can focus their decarbonisation efforts:

1. Transitioning to clean and renewable energy: Switching to renewable energy sources in supply chains can significantly reduce emissions.
2. Reducing farming emissions from livestock management: Addressing agricultural emissions, particularly from livestock, is crucial for lowering the carbon footprint.
3. Adopting regenerative practices in plant-based agriculture: Implementing sustainable farming practices can enhance soil health and reduce emissions.
4. Increasing circularity of products and packaging: Promoting recycling and reusability in products and packaging helps reduce waste and resource use.
5. Reducing waste and improving process efficiency: Streamlining operations to minimise waste and optimise resource use can lead to substantial emissions reductions.
6. Reducing emissions in transportation: Improving the efficiency of logistics and transportation networks is key to lowering emissions in this sector.
7. Transitioning from animal to plant protein: Encouraging a shift towards plant-based proteins can reduce the environmental impact of food production.

McKinsey suggests that combining these actions could lead to a 55-65% reduction in Scope 3 emissions by 2030, although some initiatives may come with significant costs. The report notes that actions which do not increase system costs could still achieve a 12-17% reduction in emissions.

Leveraging decarbonisation levers

The report also outlines four key "levers" that retailers can use to drive down Scope 3 emissions:

1. Cost-effective near-tier levers: Retailers can engage with direct suppliers, their suppliers and consumers to promote renewable energy adoption, provide EV charging infrastructure and encourage sustainable consumption habits. These efforts can foster partnerships that drive emission reductions.
2. Cost-effective far-tier levers: Retailers can collaborate with suppliers and industry partners to implement cost-saving or cost-neutral sustainability measures. Sharing best practices and collaborating across the value chain can reduce emissions by 11-15%.
3. Costlier near-tier levers: By working closely with tier one, two and three suppliers, retailers can spark innovation and improve the feasibility of emissions reduction strategies. This may involve investing in new technologies or campaigns that promote sustainable practices, such as plant-based proteins.
4. Cost-prohibitive far-tier levers: Although challenging and expensive, retailers can collaborate with value chain partners to invest in circularity and recycling technologies. These efforts, though costly, could reduce Scope 3 emissions by 25-30%.

By adopting these strategies and leveraging these levers, retailers can make significant progress in reducing their Scope 3 emissions, aligning with broader sustainability goals and contributing to a decarbonised future.

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