Understanding the full impact of climate on your business extends well beyond tracking the emissions directly produced by your activities. Investors, regulators, and other stakeholders are increasingly demanding information regarding the carbon footprints of your suppliers and this important part of the lifecycle of the products you purchase or sell. To remain competitive as a business in this landscape, it’s essential to actively manage your upstream scope 3 emissions, which means engaging with your supply chain.
This guide will walk you through the drivers and methods for effectively engaging suppliers to manage these emissions.
What is Supplier Engagement?
In the context of carbon accounting, supplier engagement refers to the process of actively involving and collaborating with suppliers to collect, manage, and improve data related to greenhouse gas (GHG) emissions. This involves working closely with suppliers to gather information on their carbon footprint, energy consumption, and other relevant emissions data. This collaborative approach is crucial for comprehensive carbon accounting, particularly when considering scope 3 emissions.
Understanding Scope 3 Emissions
Scope 3 emissions are indirect emissions that occur in a company’s value chain, including both upstream and downstream activities. These are often the largest source of an organisation’s carbon footprint, yet they are also the hardest to quantify, verify, and manage. Unlike scope 1 (direct emissions from owned or controlled sources) and scope 2 (indirect emissions from the generation of purchased energy), scope 3 includes the indirect emissions associated with corporate activities — from the production of purchased goods and services to the end-of-life treatment of sold products. Upstream scope 3 emissions come from your supply chain, and can be a significant source of carbon.
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Calculation Methods for Scope 3 Supply Chain Emissions
Calculating your upstream scope 3 emissions can be daunting, but there are several methods to guide your measurements, especially in the category of Purchased Goods and Services.
These include:
- Spend-Based Method: This estimates emissions based on the financial value of goods and services purchased by an organisation. This method is often the easiest, but it is often the least accurate; it assumes that any one good or service produces the same emissions, regardless of the manufacturer or provider.
- Average Data Method: This approach applies industry-average emission factors to the quantity of a purchased material (e.g., kilograms of aluminum). It is often more accurate than spend-based calculations, but still generalizes emissions.
- Supplier-Specific Method: With the supplier-specific method, companies use data directly from suppliers. This approach offers the highest level of accuracy but also requires the most effort and cooperation.
The Importance of Primary Data
Primary emissions data, or data collected directly from your suppliers about their specific operations, is crucial for higher data quality. For instance, if a company is purchasing aluminum, knowing the specific energy sources and efficiency measures its supplier uses will vastly improve the quality of emissions estimates and ensure they’re representative. Primary data like this allows companies to pinpoint emissions hotspots within their supply chains — leading to more efficient and effective reductions.
Challenges Measuring and Disclosing Scope 3 Emissions
There are a number of significant challenges posed by scope 3 measurement and disclosure. These include:
- Limited Transparency: Often, due to competition concerns or a lack of resources, suppliers may not have the data you need, or they may be reluctant to share it.
- Data Quality: Even when data is available, it may be of poor quality or lack the granularity necessary for accurate calculations.
- Lack of Proper Tools: Many companies do not have the automated and scalable tools needed for efficient data extraction and management.
An organisation looking to report on the emissions associated with its office supplies, for instance, may find that the manufacturers of these products have never calculated their emissions, let alone tailored the data to specific products.
While these challenges are considerable, there are a number of solutions available to help you overcome them.
Data Exchange as a Solution
One solution is an emissions data exchange. This system can facilitate the sharing of emissions data between suppliers and purchasers, easing the burden of data collection. For example, a data exchange might allow a food producer to more easily obtain the scope 1 and 2 emissions data of the farms that supply its ingredients, rather than spending time hunting for this information.
The benefit of data exchange is threefold: it builds trust between supplier and purchaser, it simplifies the process for companies looking to collect supplier emissions data, and it incentivizes suppliers to measure and report their emissions if they know their customers are demanding this information.
The Path to Comprehensive Scope 3 Emissions Calculation
Despite the challenges, achieving robust scope 3 emissions calculations from your supply chain is becoming more feasible, especially with advancements in technology that facilitate data requests and sharing. For instance, with Persefoni’s Scope 3 Data Exchange, you gain access to a platform functionality that helps manage this complex data landscape, providing clear insights into your supply chain emissions. With this tool, you can more readily identify supplier hot spots and reduce emissions efficiently.
To tackle scope 3 calculations, businesses can adopt a "crawl, walk, run" approach:
- Crawl: Start with what you have, even if it means using spend-based calculations or industry averages. This establishes a baseline and begins the journey of supplier engagement.
- Walk: As you gather more information and develop relationships with suppliers, move towards more specific calculation methods. This might involve educating suppliers about the importance of providing specific data for the goods or services you purchase or investing in technologies to better collect and manage data.
- Run: Once you've established solid channels of data exchange and suppliers are more routinely providing primary data, you can reach the running stage. Here, you are not just measuring but actively working with suppliers to reduce emissions.
Persefoni’s Scope 3 Data Exchange
Persefoni’s Scope 3 Data Exchange acts as a catalyst in this journey. This tool enables businesses to request and manage emissions data from their supply chains. It offers a structured and scalable way to communicate and directly engage with suppliers, facilitating more efficient carbon reductions.
Consider a company that sources components from multiple suppliers. Using Persefoni’s data exchange, it can send out standardised requests for emissions data to these different suppliers, track their responses, and integrate this information into its overall carbon calculations. Suppliers, on their end, can use the platform to report their data in a format that is easy for their customers to process.
Getting Started with Supplier Engagement
For quality upstream scope 3 carbon accounting, businesses need to engage with suppliers effectively. The Greenhouse Gas Protocol (GHGP) provides a roadmap for supplier engagement, which starts with identifying the internal departments responsible for data collection, selecting the suppliers and information needed, engaging procurement staff, and, finally, developing a method for managing data. Companies should focus on these key steps:
- Identification: Initiating supplier engagement for scope 3 emissions starts with the crucial task of identifying which companies to engage with. This involves a comprehensive review of your supply chain to pinpoint where the most significant emissions impacts are likely to be. A food processing company, for instance, might examine its supply chain and discover that dairy providers are a top priority due to methane emissions from cattle. A thorough understanding of business operations, the volume of trade, and the emissions intensity of different sectors is necessary. Depending on the complexity of the supply chain, the number of suppliers may vary. Companies will need to determine whether to engage with all of the suppliers related to a product or activity, or only a subset of suppliers.
According to the GHGP, the preferred approach is to rank suppliers according to their expected emissions contributions. This process is not about scrutinizing every minor player but about recognizing those suppliers whose engagement will make a meaningful difference in your scope 3 footprint.
- Communication: The next step is to communicate your intentions and requirements effectively. The GHGP recommends that procurement teams send letters to suppliers outlining their carbon management programs and how data will be collected and used. Teams should communicate the confidentiality of data, the consequences of not responding, and any resources available to support suppliers. Drafting a clear, compelling message that conveys the urgency of climate action and the benefits of partnership in emissions management is key. This communication must be consistent and ongoing, fostering an environment where trust, transparency, and collaboration are seen as mutually beneficial.
- Education: Once communication is underway, education becomes paramount. Suppliers often vary in their capacity to track and manage emissions data, and it's important to provide them with the knowledge and tools to do so. Imagine a technology firm that relies on numerous small electronic component manufacturers; this firm might hold webinars or workshops to guide suppliers through the process of calculating and reporting emissions. The GHGP advises that businesses schedule one or more trainings, with the goal of arming suppliers with the information they need to start reporting their data. Suppliers will vary widely in their level of carbon accounting knowledge; companies should provide ongoing assistance, including a “help desk” for questions they might have. By educating suppliers, companies help ensure that the data they receive is robust and comprehensive, facilitating better scope 3 reporting and management.
- Integration: With the groundwork laid through identification, communication, and education, the next pivotal step is to integrate supplier data into your emissions management system. This is where a platform like Persefoni's Scope 3 Data Exchange becomes invaluable. A construction company, for example, could use the platform to systematically collect, analyze, and integrate emissions information from its cement, steel, and equipment suppliers. This integration must be done in a way that is not only efficient but also aligns with the company's broader sustainability goals and reporting requirements.
- Collaboration: For robust management of supply chain emissions, you need to move beyond mere data exchange to collaboration with suppliers. Companies and suppliers can work together to find innovative solutions to reduce carbon. This could be as simple as a logistics company coordinating with a fuel supplier to transition to biofuels, or as complex as a multinational retailer working with hundreds of suppliers globally to rework manufacturing processes for greater energy efficiency. In this stage, the relationship evolves into a partnership where both parties are invested in the sustainability journey — leading to more meaningful reductions in scope 3 emissions.
Managing scope 3 emissions is a complex but essential part of a company's sustainability journey, and technology can help. Persefoni’s Scope 3 Data Exchange clears the path toward robust and representative upstream emissions calculations through continuous data quality enhancement and effective supplier engagement.
Remember the "crawl, walk, run" approach — and recognize that each step forward is a stride toward a more sustainable future. Engage with your suppliers, leverage technology, and make use of the tools at your disposal to turn the complex challenge of scope 3 emissions into a manageable and rewarding endeavor.
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