How scaling up collaboration and engagement can help tackle scope 3 upstream emissions

The global climate target of 1.5°C is slipping out of reach. It now calls for a 7% annual emissions reduction, more than the climate reduction impact from COVID-19, and against the current trend of a 1.5% annual increase, as highlighted in the joint World Economic Forum and BCG white paper The State of Climate Action. Now, more than ever, it is time for corporates to step up near-term emission mitigation to tackle the climate action gap, as every fraction of a degree matters.

Scope 3 upstream emissions are an emission hotspot for many companies and on average ~11.4 times greater than operational emissions. Yet, these emissions are notoriously difficult to tackle as they expand beyond a company’s direct CO2 emissions, as one company alone can have more than thousands of suppliers. To tackle scope 3 emissions, upstream collaboration with suppliers – at scale – is needed.

Across industries, supply chain decarbonization targets have seen a rapid rise in recent years (see Figure 1). However, supply chain decarbonization is challenging. In a recent survey of 230 organizations, carried out by SBTi and BCG, 50% of respondents self-reported being “off track” to deliver on their scope 3 target despite 40% of all respondents indicating that executives are directly accountable for the decarbonization work.

To follow through on the supply chain decarbonization targets, corporations must come together with suppliers and collaborate at scale, as emissions often sit upstream in their value chains.

To succeed, corporations and their procurement teams need to apply a systematic and structured approach to supplier engagement following three consecutive steps:

First, corporations must understand the emission profiles of its supplier base to identify and prioritize suppliers with the biggest impact on scope 3 upstream emissions.

In addition, supplier emissions should be analyzed at a category level, as different categories will face different decarbonization challenges and must be addressed with tailored levers. The category level analysis enables a like-for-like comparison of suppliers based on their carbon footprint.

The second step is to define the supplier engagement journey and launch the supplier ask to kick-start their decarbonization work.

Suppliers will have different sustainability maturity levels and therefore it is important to envision the supply chain decarbonization as a journey towards a “North Star” along which suppliers evolve, rather than an immediately achievable target.

Once the “North Star” is set, progress towards it must be reversed engineered and communicated to the supplier in the supplier ask.

As the final and most important step, corporates must align supplier incentives, develop support programmes and monitor progress towards the “North Star”. To facilitate true change, continuous supplier engagement and support are paramount.

Supply chain decarbonization is not straightforward and cannot be done using siloed thinking. Yet, it is feasible through a structured approach, building on supplier collaboration at scale, with successful companies reaping the benefits of significant emission reductions and closer supplier relations.

In an effort to scale collaborative action across value chains, the Alliance of CEO Climate Leaders aims to bolster scope 3 decarbonization through its scope 3 upstream action plan. Out of the total Alliance member base, member companies with a combined +0.5 Gt scope 3 upstream footprint, more than the annual emissions of Australia, have endorsed the action plan as guidance.

The action plan targets scope 3 upstream emissions through dedicated supplier engagement. It entails guidance on decarbonization actions and milestones alliance members endorsing the action plan should work towards (see Figure 2).

The Alliance of CEO Climate Leaders is currently developing an online scope 3 upstream support hub to help members and suppliers to drive value chain emission reductions. The support hub will become a one-stop shop for procurement teams and suppliers to guide supply chain decarbonization, including baselining of emissions, target-setting, levers to decarbonize and best practices.

The Alliance encourages fellow business leaders and suppliers to join the action plan to tackle scope 3 upstream emissions.