“Big Challenges, Simple Remedies” - Engage for Action

In our journeys towards net-zero, companies are increasingly recognising the importance of addressing Scope 3 emissions - those indirect emissions that occur in a company's value chain. A recent report by the Carbon Disclosure Project (CDP) and Boston Consulting Group (BCG) found 3 statistically significant factors that mattered in managing Scope 3 and for climate action:

1. Climate-responsible board
2. Supplier engagement
3. Internal carbon price.

The report found these 3 key factors (out of 20+ others), when working together, had the biggest chances of success for Scope 3 target setting and action. They create a dynamic process - an action flow, a feedback loop, a domino effect that will mobilise change. 

In this blog, we’ll be taking a look at the Supplier Engagement piece and how your company can start engaging with suppliers.

‍Why engaging with your Suppliers matters?

“Supply chain emissions are 26 times higher than operational emissions”
“Supplier engagement is critical to Scope 3 action”
“Supplier engagement = realistic target setting”

Source: Pg 8, 17, 19 respectively

In 2023, CDP found companies reported their upstream Scope 3 emissions from suppliers were, on average, 26 times higher than their emissions from direct operations (Scopes 1+2 emissions).

Despite the awareness of this disproportionate scale, they found progress on Scope 3 was still falling short as corporates were:

• 2x more likely to measure Scope 1 and 2
• 2.4x more likely to set reduction targets for Scope 1 and 2 than compared to Scope 3
• only 15% of corporates reporting through CDP have set a scope 3 target (out of ~23,000 corporates)

“The first step to action is to create transparency on supplier emissions data.”

Looking back to the action flow diagram, the engagement process starts with step 1. Data Collection. Companies need to get a picture of their supply chain emissions and need transparency over their supplier emissions data. This transparency will enable them to set realistic targets towards net zero, provide the right incentives and support for suppliers, and work with them in a way that aligns with their climate transition plans… and become a virtuous circle that is heading towards net zero emissions.

Exhibit 9 shows the impact on climate action by type of supplier engagement, from a transactional ‘Information Collection’, to ‘Incentivise’, to a partnership based approach where companies are collaborating with each other. The more collaborative and partnership based the approach, the higher the prevalence of 1.5°C aligned plan, and a much higher chance we’ll get to a world where we do limit global warming to 1.5°C.

We are all starting somewhere, and that first step is to ask suppliers for their emissions data. 

The Simple Remedies to the Big Supplier Engagement Challenge

The report found these were the typical supplier engagement blockers (pg 20):

1. Buyers/Procurement office not engaging with suppliers on climate
2. Suppliers non-responsive to requests for climate data
3. Purchasing corporate has limited leverage to influence suppliers
4. Suppliers lack the capability to comply with climate requirements
5. Suppliers lacking access to capital to implement decarbonisation measures
6. Climate not considered in current sourcing/procurement policy

💡 What can you do and how can Sumday help?

Challenge #1 & #3: Upskill your procurement team with our 2 hour Carbon for Procurement Professionals course in Sumday Academy to get their buy in and engage with suppliers. Help your buyers and procurement managers realise the important role they play in motivating suppliers and teach them what they need to know when working with their supplier contacts. 

Challenge #4: Support your suppliers with access to education, support, and tools to measure their emissions to an audit-ready standard so they have the capabilities to comply with climate requirements. This means working with their sustainability teams and bringing along their accountants and finance team to embed carbon accounting as part of their business as usual processes. Sumday is here to help you provide that education, support, and tools to your suppliers.

Challenge #2, 5, 6: If you don’t ask your suppliers, you won’t have the data to understand where your suppliers are at and what support they need. Supplier engagement isn’t just about collecting emissions data for your reporting. It’s about identifying what the roadblocks are, and what are the opportunities to incentivise the right behaviour, provide supply chain finance programs, or other solutions that invest in your supply chain. 

Learn more with Scope 3 Engagement with Sumday or book a chat to learn more with us here.

For Investors, your role is to engage your portfolio companies

Investors must demand transparency on Scope 3 so that an accurate and fair assessment of risk-reward can be determined. Doing so reinforce the actions driven by corporates (purchasers or supply chain authorities) to manage scope 3 upstream emissions and cascade down their supply chains across regions. - Pg 29

Investors, you play a crucial role in guiding your portfolio companies towards net zero. The process is the same as how companies would engage with their suppliers - Good engagement involves upskilling investment managers to have that conversation with portfolio companies and supporting portfolio companies to embed carbon accounting in their processes.

Carbon numbers, climate-related risks and impacts are becoming increasingly important factors to consider in investment strategies, and in some jurisdiction’s legislative requirements, funds are required to report on the emissions associated with their portfolio. Learn more on how this works with our Accounting for Financed Emissions course.