For most companies, supply chain emissions are a significant proportion of their total carbon footprint (‘scope 1, 2 and 3’ emissions), even as much as 99% in the construction industry.
Reducing these emissions is challenging, not least because you have no direct influence over them (they come from another organisation after all) but importantly, because it typically takes a minimum of three years (and most likely several more) to show any reduction in emissions. Why? Because when you start measuring supply chain emissions you use what is known as the spend-based method of carbon accounting.
The spend-based method
This method of carbon accounting, which is recognised by the GHG Protocol, is the simplest and quickest way to measure supply chain emissions in your first year. It simply applies industry-specific carbon emission factors to supply chain spend. In practice this means running a report from your finance system to capture everything you’ve spent, grouping these (e.g. stationery, IT software, etc.) and then multiplying these values by emission factors from credible, scientific sources (e.g. CEDA by Watershed). The major benefit of this approach is that it allows companies to readily identify their emission hot spots without relying on suppliers to have measured their own emissions.
The problem with using this approach in the longer term is that you can only reduce emissions by either: a) reducing supply chain spend, which is a challenge for all companies that are growing; or b) changing the category of supply chain spend, which is possible in some cases (e.g. switching from plastic packaging to cardboard packaging) but impossible in many. A data centre can only ever be a data centre after all.
There is also a more accurate variation of the spend-based method, which is to apply a different set of industry emission factors to product weight/volume rather than spend, but this still poses the same challenges – you have to reduce the weight/volume purchased or change the item purchased to show any emission reductions.
In both these methods, real life carbon efficiencies by suppliers are not reflected in the numbers, i.e. a widget produced in a factory which is solely powered by renewable energy will show as having the same carbon emissions as those produced in a factory run by a diesel generator. This is frustrating for everyone – if you can’t report the reductions associated with real life carbon savings it’s frustrating for your business and disincentivises your supply chain to do any more to combat climate change.
Thus, the only practical way to be able to report lower emissions is to switch the measurement method to supplier-specific emissions, which means reporting emissions that are specific to your own supply chain. In this way, when they reduce their emissions, you reduce your emissions.
Supplier-specific emissions
There are two approaches to calculating supplier-specific emissions:
1. Apportioning supplier emissions by spend, i.e. if your spend with a supplier is 10% of their total revenue, you are responsible for 10% of their total (scope 1, 2 and 3) emissions. This method is best for service-related suppliers or product suppliers that are at the early stages of their carbon journey.
2. Using product-specific emissions as calculated by specialists through a ‘life cycle assessment’ (LCA) process, which is also known as an ‘Environmental Product Declaration’ (EPD) if it is formally externally published. Your supplier emissions then become the product’s emissions multiplied by the number of products you have purchased.
Whilst undoubtedly using supplier-specific emissions is the best way to evidence emission reductions in your reported figures, it brings it’s own challenges, notably time. It takes time for suppliers to measure their full emissions at a company and/or product level (most likely a few years if they haven’t started any measurement), and it takes time for you to compile these – if you have 100 suppliers with potentially significant GHG emissions that’s a minimum of 100 data points to collect and calculations to conduct, possibly a lot more if you buy multiple products from each supplier.
Additional context
There are four important things to note about this journey to supplier-specific emissions:
1. You can’t benefit from emission reductions related to changes in emission measurement methods. If you change from the spend-based method to supplier-specific emissions and your footprint goes down by say 15%, you can’t take any credit for this (i.e. claim to have reduced your emissions or met a target). Instead, if the change is significant (typically defined as a cumulative change of 5%) you need to restate your previously reported emissions so that your baseline emissions and subsequent years of data all follow the same methodology.
2. Suppliers can only show emission reductions if they have a minimum of two years of data. Because you can’t realise emission reductions through methodology changes you need a minimum of two years’ worth of supplier-specific data to show a reduction – one year to establish a baseline, and one year to show a reduction (if they have in fact reduced their emissions of course!).
3. You can only transition to supplier-specific emissions if your suppliers have measured their GHG emissions data, which most haven’t. Whilst larger UK companies are starting to report full scope 1, 2 and 3 emissions data, and production of EPDs is building momentum, we find data availability is patchy at best, particularly in relation to smaller businesses. In fact from our experience of measuring supplier-specific emissions we find that even when focussing on companies more likely to have the data (i.e. UK based large organisations), less than a third have adequate data for use.
4. You can only report supplier emission reductions if suppliers actually reduce their emissions. We’ve focussed on data issues so far but of course, once the data collection method is in place, suppliers have to actually take steps to reduce their emissions – develop plans and implement them – which all takes more time. To illustrate this, if a supplier introduces an initiative to reduce scope 1 and 2 emissions by say 12%, but it’s only implemented a month before the year end, you will only be able to report a 1% reduction in that suppliers’ emissions that year, and will need to wait until the following year to be able to show the 12% reduction.
Implications
In light of the above, it’s clear that achieving supply chain emission reductions will take a minimum of three years and most likely, several more. Unfortunately we don’t have a lot of time if we want to get to Net Zero by 2050 and so we need to take action straight away. The practical things we think all companies should do NOW are:
1. Start encouraging your suppliers to measure their emissions, regardless of where you’re at on your data journey. Prioritise those suppliers for which you have high spend (or even better, high emissions, if you know that from a spend-based analysis) and for which you envisage a long-term relationship.
2. Set medium-term scope 3 reduction targets over longer timeframes (i.e. ten years not five) if you’re going to be reliant on supply chain emission reductions to achieve them. Otherwise, you may find it virtually impossible to meet them.
For further information or advice on GHG emissions measurement and reduction plans, contact Rawstone Consulting here.
Authored by Caroline Johnstone.