To effectively reduce indirect carbon footprints and drive supply chain sustainability, companies must begin by establishing a baseline for their Scope 3 emissions. These indirect emissions, which occur within a company’s supply chain, often represent 70-90% of a total carbon footprint. Scope 3 emissions stem from activities involving assets that, while not owned or controlled by the reporting company, are indirectly influenced by it within its supply chain, consisting of both its upstream and downstream activities.
According to the Greenhouse Gas (GHG) Protocol, Scope 3 emissions are categorized into 15 areas, comprising both upstream and downstream activities. It is important to note that not all categories may apply to a certain industry. Upstream activities include purchased goods and services, capital goods, fuel- and energy-related activities not in Scope 1 or 2, upstream transportation and distribution, waste generated in operations, business travel, employee commuting, and upstream leased assets. Downstream activities include downstream transportation and distribution, processing of sold products, use of sold products, end-of-life treatment of sold products, downstream leased assets, franchises, and investments.
To fully meet GHG Protocol standards, a company must report emissions from all relevant Scope 3 categories. More companies are reaching into their value chains to understand the full GHG impact of their operations. In addition, because Scope 3 sources may represent most of an organization’s GHG emissions, they often offer emissions reduction opportunities. Although these emissions are not under the company’s control, the company could impact the activities that result in the emissions. It may also be able to influence its suppliers or choose which vendors to contract with based on their practices.
Accurate Scope 3 reporting enables targeted emissions reduction, strengthens stakeholder trust, and improves operational efficiency. Precise data identifies emissions hotspots, allowing for focused decarbonization strategies and realistic target setting. This transparency builds credibility with investors and customers, mitigates regulatory risks, and drives cost savings through optimized supply chains. Ultimately, it demonstrates genuine environmental responsibility. There are a few key challenges to reporting on Scope 3 emissions including:
- Control: These emissions are not directly managed by a company, making them difficult to regulate
- Assessment: Gathering accurate data on these emissions is challenging due to their indirect nature
- Accountability: Multiple companies may contribute to the same emissions, leading to confusion over who should reduce them
Engaging Suppliers in Scope 3 Emissions Reporting
It is essential to engage suppliers in Scope 3 emissions reporting as these emissions typically represent most of a company’s carbon footprint, and suppliers hold crucial data for accurate measurement. Collaborating with suppliers in Scope 3 emissions reporting is crucial as they hold the primary data on their own operations, enabling accurate measurement. Joint efforts are essential for identifying emissions hotspots and developing effective reduction strategies throughout the supply chain. This collaboration also strengthens supply chain resilience and meets increasing stakeholder demands for transparency and sustainability. Key steps for engagement include:
- Establish a clear baseline and prioritize: Companies need to begin by identifying which of the 15 Scope 3 categories are most relevant, which involves assessing the size, influence, and risk associated with each category. It is important to focus on “hotspots” where the most significant emissions occur. Next, establish a baseline by quantifying current Scope 3 emissions to create a benchmark for future progress, providing a foundation for setting targets and tracking reductions.
- Initiate open and collaborative communication: It is important for companies to move beyond transactional relationships to develop collaborative partnerships with suppliers. Open dialogue is essential for companies to understand supplier challenges and find mutually beneficial solutions. Companies need to clearly communicate sustainability goals and expectations regarding emissions reporting, along with the benefits of participation in the process.
- Provide support and resources: Companies should provide suppliers with the tools, resources, and training they need to accurately measure and report their emissions. This may include workshops, webinars, and access to relevant software or platforms. By sharing experiences and best practices in emissions reduction, this can promote collective progress.
- Set realistic targets and track progress: Companies should align emissions reduction targets with scientific recommendations, such as those provided by the Science Based Targets initiative (SBTi), ensuring that efforts contribute to global climate goals. It is important to regularly monitor supplier emissions data and track progress toward established targets.
- Incentivize and recognize performance: By integrating sustainability criteria into supplier selection and evaluation processes, companies are able to prioritize suppliers with strong climate performance. Companies may also acknowledge and reward suppliers who demonstrate exceptional commitment to emissions reduction by public recognition, preferential contract terms, or financial incentives.
Supplier Engagement Metrics
By following these steps, companies can effectively engage their suppliers in Scope 3 emissions reporting and drive meaningful reductions in their overall environmental footprint. Once a company has engaged suppliers, it is important to have a concise measurement of supplier engagement success in Scope 3 emissions reporting. Companies should focus on:
- Supplier participation rate: Percentage of key suppliers actively reporting emissions data
- Scope 3 emissions reduction: Measured decrease in overall Scope 3 emissions over time
- Data quality and accuracy: Reliability and completeness of supplier-provided emissions data
- Percentage of suppliers with set emissions reduction targets: How many suppliers in the chain are also taking action
- Progress toward Science-Based Targets (SBTs): Alignment of Scope 3 reductions with established SBTs
Supplier engagement is vital for sustainability because it extends a company’s reach into its supply chain, where most of the environmental impact resides. This enables collaborative efforts to implement sustainable practices, fosters innovation, and builds trust, all crucial for achieving meaningful sustainability goals. If your company is looking for help measuring a Scope 3 GHG footprint or designing an effective and efficient supplier engagement strategy, please contact Canopy Edge to schedule a consultation with our supplier engagement experts.
