Explained byBCG

Decarbonize your upstream value chain

How to address emissions across your supply chain

Supplier-driven emissions: Scope 3 categories 1, 2, 3, 4, 5, and 8

Suppliers principally drive upstream Scope 3 emissions via (1) purchased goods and services, (2) capital goods, (3) fuel and energy related activities, (4) transportation and distribution, (5) waste generated in operations, and (8) leased assets. As they are a large driver of Scope 3 emissions in many industries, it is essential to actively engage suppliers to reduce these emissions. Furthermore, given that 90% of the world’s businesses are small and medium enterprises (SMEs), corporate climate action that engages smaller suppliers will play a vital role in corporate decarbonization.

It is also worth noting that decarbonization approaches for suppliers are similar to the approaches for your own company, as described previously in decarbonize your own operations. In this context, how your suppliers would ultimately decarbonize can be informed by examining how they make, power, move and grow things, and what abatement levers are at their disposal.

Internal action

Internally, your procurement team will be central to addressing supplier-driven emissions by engaging suppliers. As an illustration, to enable effective engagement with suppliers, your organization can do the following:

  • Design value chain/sourcing strategy for sustainability.

  • Revisit product design choices and optimize for sustainability.

  • Use emissions metrics in procurement standards, tracking performance.

  • Develop internal enablers to support your company’s overall sustainability transformation, such as ensuring data availability, incorporating internal KPIs and incentives, and creating paths for upskilling your workforce (more on this in Step 4). Transparency is key in this process, as it allows companies to reliably measure and monitor upstream emissions. Tools that can help your company accomplish this include those offered by the Partnership for Climate Transparency (PACT).

However, this exercise should not simply fall to procurement – it should involve breaking down silos to bring employees across your organization into the fold. This will assist your company in thinking holistically about decarbonization options, including value chain redesign and overhauling sourcing strategies, with an aim to create upside value from your sustainability transformation. For example, other internal teams may support in the following ways:

  • Business units: Set decarbonization targets; identify products/services that may be ripe candidates to decarbonize

  • Research & Development: Identify raw materials or production processes that can be decarbonized; reformulate/redesign products with a focus on sustainability

  • Engineering: Ensure production equipment is reconfigured for new products; make production chains more efficient

  • Operations: Ensure products are transported sustainably to customers

  • Finance: Assess and/or approve changes to suppliers; approve any incentives provided to suppliers

  • Sales & Marketing: Communicate any sustainability benefits of products/service to help generate upside

  • Executive team: Oversee and approve major decisions; help set up any external alliances to accelerate decarbonization efforts

External action

Supplier decarbonization will require sustained and purposeful collaboration. Modest adjustments to your procurement process will not result in the necessary deep decarbonization.

Engaging your supplier base, however, will be challenging, given a fragmented supplier landscape, data challenges, and limited influence.

To maximize success, here are some recommended ways to engage with suppliers:

  • Share or help develop a comprehensive emissions baseline for suppliers.

  • Set ambitious reduction targets against suppliers’ emissions baselines and share publicly.

  • Work jointly with suppliers to require sustainability efforts, and support and incentivize them by educating them on decarbonization levers; providing technical expertise; helping them upskill their workforce; providing financial assistance or co-investing to upgrade their technologies and processes; offering premiums or long-term commitments to incentivize decarbonization; recognizing them for their leadership; and holding them accountable when necessary. These and other actions are summarized in Figure 10 below, and categorized into four strategies: building capabilities, rewarding progress, leveraging procurement, and enforcing performance.

Figure 10: Strategies for incentivizing suppliers. Source: WBCSD.

Collaborate with peers to establish and align sector targets that are reasonable and feasible, maximize impact, and level the playing field (e.g., best practices, certification).

Increase scale by driving up demand to lower the cost of green solutions. Additionally, offtake commitments and agreements with suppliers can effectively make green solutions more economical.

Examples of leading corporate initiatives for engaging and working with suppliers to decarbonize their supply chain are in the Learn more section.

Employee-driven emissions: Scope 3 categories 6 and 7

Scope 3 upstream emissions in (6) business travel and (7) employee commuting are generally created by employees. Actions to decarbonize are mostly driven internally, but some vendors may be engaged.

To reduce (6) business travel emissions, your organization could consider different approaches to reduce its travel footprint. Reducing business travel in favor of virtual meetings has become commonplace nowadays, as has limiting business class travel in favor of economy when air travel is necessary. When employees do need to travel, business units or sales and marketing teams can encourage them to use train travel where possible or explore options to lower their carbon footprint (e.g., electric vehicle rentals). For example, Microsoft began charging an internal price of $100 /tCO2e on all business flights to discourage air travel, placing the money into a fund for green initiatives (1).

To reduce emissions from (7) employee commuting, your organization can consider changes to your ways of working. Especially since the pandemic, companies have increasingly altered their structures to enable more remote working. By continuing to offer such options, you can help reduce emissions from commuting. Additionally, you could incentivize biking, public transport, car-pooling, or green vehicles among workers, such as by having your human resources or finance department provide stipends for public transportation, and/or having your operations teams install charging stations at company buildings. For example, Adobe’s Commute Alternatives Program provides employees in their San Francisco office with $150/month for public transit, or a $20/month subsidy for biking (2). Additionally, business units can take initiative to encourage and incentivize green commuting options among their own members.