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Decarbonize your downstream value chain

Decreasing your Scope 3 downstream emissions will require engagement with business customers, consumers, and investees/partners as applicable, as well as various internal stakeholders, as illustrated previously in Figure 9.

Customer-driven emissions: Scope 3 categories 9 and 10

Downstream customers, primarily businesses, drive Scope 3 downstream (9) transportation and distribution and (10) processing of sold products emissions. These categories may also be influenced to some extent by suppliers, as raw/precursor materials from them would impact your company’s products/services, and ultimately how they are handled and used downstream.

Internal action

For both categories of emissions, the design of products (or services) will be very influential. For example, selling lighter products or reducing packaging can help cut transportation emissions, and products that need or use less energy when processed (e.g., pre-dyed fabric, semi-polished metal, pre-treated wood) to make the final product will result in fewer emissions.

It is likely that the respective business units for the products and the sales and marketing teams will need to play a central role in engaging with external business customers to reduce emissions. For instance, they can streamline your company’s products to best fit the needs of your business customers, and work with them to optimize the logistics of delivering the products in a timely, yet sustainable way. But other internal teams can also support in the following ways:

  • Research & Development: Develop product and packaging formulations to enable emissions reductions downstream during transportation (e.g., light-weighting) or processing (e.g., product redesigning)

  • Procurement: Assist business units and R&D, working with suppliers to deliver the appropriate raw materials needed for the designed product/service

  • Operations: Reduce commercial packaging, total cargo, or design more efficient logistics models

External action

Your operations team can collaborate with your product distributors to support efforts to implement more efficient and climate-friendly transportation methods, reducing (9) transportation and distribution emissions.

If your company sells intermediate products, as mentioned earlier, your business customers can become partners in helping to design and package your products in ways that reduce emissions in category 9 and 10 (which could be counted as their Scopes 1-2 emissions as well).

Additionally, for emissions from (10) processing of sold products, your business units and R&D teams can work directly with your business customers to create and supply products that minimize emissions during processing. Further, having your sales team interact with downstream businesses can help them understand how to best use your product in the manufacturing process to minimize emissions. These interactions with downstream business are especially relevant in the chemical inputs industry, for example, where technical know-how can be helpful to decarbonize downstream processes.

User-driven emissions: categories 11 and 12

Users, including business customers and end consumers, primarily drive emissions in (11) use of sold product and (12) end-of-life treatment of sold product, assuming these are not intermediate products. These emissions may also be influenced to some extent by your suppliers, as the raw/precursor materials they supply will ultimately influence products’ emissions during their use and at the end of their lives (e.g., whether the plastics in the packaging are truly recyclable).

Internal action

To address these emissions, adjustments to product/service design will be central, as will customer engagement and education to encourage proper (sustainable) use.

Once again, your company’s business units and sales and marketing teams will likely play central roles. The business units can work to create products that require less energy during use (e.g., cold-wash laundry detergent, energy-efficient electronic devices, electric vehicles instead of gasoline vehicles), products that are durable to enable less waste, and minimal, recyclable packaging. You can greatly reduce emissions while growing the business by designing products that are both sustainable and desirable for your consumers, as they meet their core needs.

Sales and marketing teams can complement these efforts by ensuring that consumers are aware of how to best use and not misuse the product to extract the maximum sustainability benefit (e.g., creating campaigns to stress that cold water is sufficient for effective cleaning). These benefits may also help give your products a competitive advantage in the marketplace.

Encouraging longer use of products by avoiding premature discarding, or using second-hand markets, is another approach to maximize the full value and potential embedded in a product.

When products reach the end of their lives, your company can also help ensure they are either repurposed or recycled. This may begin with smart product design in the first place to enable recyclability, but it can also include implementing incentives and easing customer journeys that encourage recycling at the end of the products’ lives. For example, your marketing teams can provide awareness of recycling options for your product and packaging, or your business units can implement regional collection and buy-back programs.

Other internal teams can also support in the following ways:

  • Research & Development: Develop product and packaging formulations to contribute to minimal emissions downstream during use, and/or make the products easily recyclable

  • Procurement: Assist business units and R&D to work with suppliers to deliver the appropriate raw materials needed for the designed product/service

  • Operations: Assist business units in implementing take-back programs

External action

Ultimately, changing consumer behaviors is key to reducing emissions from categories 11 and 12. Encouraging behavior change, though, presents challenges to companies due to the limited influence, ingrained habits, and even cultural acceptance.

By understanding the core needs of consumers and designing easy pathways for customer action, companies can significantly increase sustainable outcomes. Sometimes this will mean innovating to remove real barriers, and sometimes it will mean using communication to address perceived barriers. Research shows three imperatives for urging uptake of sustainable products and lifestyles among end-consumers: making claims relevant to local contexts; broadening the dialogue to discuss product sustainability along with core needs being met; and breaking the tradeoffs either by innovating new products or addressing misconceptions about existing products (1).

Sales and marketing can complement efforts via smart choice architecture and awareness building. By making sustainable choices more visible or attractive, you can lead customers to reduce their footprints as well as that of your company’s downstream emissions.

To promote the sustainable use of products among business customers, you can first work collaboratively to create products that can reduce overall lifecycle emissions, including those of your customers. Additionally, your sales and marketing team can focus on purposefully describing how your products can help meet their sustainability needs, and dispelling any misconceptions.

Encouragingly, the use of sustainable products and lifestyles is growing at a faster rate than for the average product (2). However, there is wide variation by sector and region, and greater, targeted effort is needed to further accelerate uptake.

You may recall that Chapter 1: Prepare discussed the opportunities of climate action. This section, in part, closes that loop. Identifying customer needs and meeting them in sustainable ways opens a vast, largely untapped market that your company can capitalize on and create significant upside value.

Example: BlueTriton Brands, which owns Poland Spring and other beverage companies, offers a delivery and return program for water cooler bottles, returning a deposited sum to the customer for each bottle returned, dependent on their home state policy (3). This enables and incentivizes customers to be a part of the circular value chain, reducing production and waste.

Investee- and partner-driven emissions: categories 13, 14, and 15

Investees and partners contribute to Scope 3 downstream emissions via (13) leased assets, (14) franchises, and (15) investments. This can occur through two primary pathways: (i) subsidiaries, associate companies, and joint ventures in which your company has some stake, which may include debt or project finance, and (ii) financial service-related emissions from managed investments and client services such as wealth and asset management.

For companies in many industries, as illustrated in Figure 7, emissions from these categories are minimal. Financial institutions do, however, have significant emissions in these categories, as might companies with significant stakes in other entities.

Internal action

There are two approaches your company can take to address these emissions: reducing investments in GHG-reliant areas and promoting sustainable businesses.

Within your company, your finance and operations teams may be the logical leads internally to manage these investments and partnerships, although this may vary quite widely by company and industry. Engineering, and sales and marketing teams may also be involved.

These teams can start by assessing how your investments and partners are geared toward decarbonization. They may be structurally constrained (e.g., a fossil-fuel-based company with many oil refining assets) or have options to transform their operations over time to lower their carbon footprint.

You can adopt a scenario-based approach for your sustainable portfolio plan. You can then create transparent systems to understand the emissions of your portfolio businesses and partners, helping them when they have potential for decarbonization.

External action

These emissions can also be addressed by working with and influencing external stakeholders in the following ways:

  • (13) Leased assets: Your finance, engineering, and operations teams can collaborate with and compel your lessees and operators of leased assets to implement sustainability solutions

  • (14) Franchises: Your operations team can assist franchise owners by setting sustainability standards and helping them operate accordingly; your finance team can provide appropriate incentives

  • (15) Investments: If your investment assets have the potential for decarbonization, your company can help them develop decarbonization plans, and your finance team can support them via green co-investments. Divestment or closure are options for investments that do not have a viable decarbonization strategy. In these cases, ensuring a "just transition” is essential. Simply transitioning the asset to another holder or shutting it down and allowing it to deteriorate may lead to unintended outcomes (e.g., fossil-fuel-reliant assets may continue being operated by private holders outside of public scrutiny after being divested). Rather, your company should ensure that, if divested, the new owner has plans to improve efficiency, incorporate green technologies, or otherwise decrease the impact of the asset. If shuttered, your company should assume responsibility for ensuring that the workforce and affected communities have reasonable economic prospects going forward, and that the environment is properly remediated

Example: Promoting sustainable businesses: L’Oréal’s Nature Regeneration Fund, an impact investment fund launched by the beauty company in 2020 and endowed with $50 million, invested in NetZero, a French company dedicated to trapping atmospheric carbon in tropical areas by planting crops that regenerate degraded soils, among other major investments in nature-based solutions efforts in 2023 (4).

Deep dive – Financial Institutions:

Financial institutions can have outsized influence in decarbonization by enabling and implementing investments in green assets/operations, and reducing investments in emissions-heavy assets, projects, etc.

They can, for instance, accelerate the deployment of sustainable finance for their corporate, institutional, or high net-worth clients’ assets, or at their investment holdings. Sustainability investments made in this way can have significant upside and help decarbonize that financial institution’s Scope 3 downstream emissions. For instance, the Swedish financial service provider Swedbank is offering their customers sustainable funds, as well as advisory and research services focused on sustainable financial investments (5).

They can also reduce investments in GHG-intensive assets and businesses. For example, they can reduce their own exposure to carbon-intensive industries by avoiding loans, project financing, and investment in high-carbon projects, phasing out coal and other fossil fuels. Further, banks and asset managers can restrict the investment scope of their clients by excluding certain industries. For example, as of 2022, LGT Group has banned thermal coal production and coal-dependent utilities from all its managed portfolios managed, as well as portfolios whose management has been delegated to third parties (6). (Simply shedding currently held investments in emissions-intensive assets can have unintended and undesirable consequences, as noted earlier.)

For more information, see: Climate Action 100.