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For sustainability uplift, look to the supply chain

A majority of global emissions are generated in supply chains

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A majority of global emissions are generated in supply chains

With the vast majority of carbon emissions bound up in the supply chain, is it time to integrate ESG activity into supply chain modelling and forecasting?

Organisations seeking to enhance their sustainability credentials would be well advised to start with their supply chain. According to the CDP, the not-for-profit that runs the global disclosure system for managing environmental impact, supply chain emissions are, on average, 11.4 times higher than operational emissions. This means that more than 90% of an organisation's total GHG emissions are bound up in its supply chain.

Stanton Thomas, Senior Vice President of Sustainability at o9 Solutions, sets out the challenge in more detail.

"Large industrial supply chains are the source of the majority of the environmental and social impact globally. When we think about supply chain, I'm thinking all the way from extraction, production and then the use of the product and, end of life of the product. It's the full spectrum. If you want to solve the problem, you need to look at it from a supply chain perspective."

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Stanton Thomas, o9 Solutions

When it comes to carbon reporting, supply chains translate directly into Scope 3 GHG emissions, and it's relatively easy to measure and report on Scope 1 and 2 emissions. Quantifying Scope 3 emissions is more complex. There are 15 categories of Scope 3 emission and eight of them relate to upstream emissions such as those related to the purchase of goods and services, fuel and energy use and upstream transport and distribution. The remainder can be categorised as downstream, including end-use of sold goods and services and waste disposal and treatment of products.

The nature of modern supply chains makes getting a handle on their emissions decidedly tricky. Even smaller organisations often constitute part of a far-reaching supplier and partner ecosystem, stretching across multiple countries and continents. The sheer complexity of supply chains is partly why, at the time of writing, in the UK the only Scope 3 categories that must be reported are fuel and energy use, business travel and employee commuting - and again this only applies to large unquoted businesses and LLPs. All other Scope 3 reporting is, presently, voluntary.

However, there's a lot of legislation and regulation coming down the tracks. The era of continually deferring the actions needed to stabilise the increase in global temperatures in order to avoid having to make the difficult, expensive and inconvenient decisions that this entails is ending.

In the United States, the Securities and Exchange Commission (SEC) proposed earlier this year that Scope 3 emissions should be reported if material, or if the registrant has set a GHG target which includes Scope 3 emissions.

Extended Producer Responsibility regulations are being rolled out globally, and from next year, UK producers must take a much greater level of responsibility for what happens to any packaging that they manage or produce.

The EU is in the process of implementing the Digital Product Passport (DPP) part of the Sustainable Product Regulations proposal adopted earlier this year. Organisations who wish to sell into the EU will at some point have to provide data about the full supply chain of their product and share it across the whole value chain.

These initiatives aim to widen the understanding of materials impact and hasten the transition from linear economies based on buying stuff and throwing it away, to a more circular economy. In addition, by trying to quantify embodied carbon, proponents of these legislative frameworks hope to reduce the amounts of GHGs, particularly CO2, being pumped into the atmosphere.

The challenge faced by most organisations, according to Thomas, is that supply chains and ESG are, traditionally, completely different disciplines.

"Commonly, there was a supply chain operations group responsible for managing global operations, and there was a sustainability group that was responsible for diagnosing the sustainable performance of the organisation. Also, many solutions are segmented according to given domains like carbon management, or traceability and transparency, ESG risk management or sustainable procurement."

Thomas advocates viewing supply chain and sustainability as integral components of a common process.

"The platform that you use for managing your supply chain is the logical platform from which you need to also manage the sustainability of that supply chain. Not only your own operations, but also those operations that exist outside of your organisation's boundaries."

He explains further:

"If I have set objectives relative to the sustainable characteristics of my supply base, relative to not only environmental characteristics, but also social and governance characteristics, I should be able to acquire that information in my model of my supply base, and when I'm doing sourcing and planning logic I should be able to incorporate not only cost, delivery lead time, etc. I should be able to look at the sustainability profile of those suppliers and make allocation of my material purchases and my capacity to those suppliers that meet some balance of money, including sustainability. I should be able to track that forward against the objectives that I've set for my company, relative to sustainability ESG performance."

The notion that sustainability can - and should - be transformed from a diagnostic exercise performed via a metaphorical rear-view mirror into a forward-facing process at the heart of business operations is persuasive. Retaining ESG monitoring and reporting as separate functions makes no sense when viewed against the unfolding legislative backdrop. Just as all businesses have become digital business, so there is now a strong case for putting sustainability metrics at their core.

For sustainability uplift, look to the supply chain

With the vast majority of carbon emissions bound up in the supply chain, is it time to integrate ESG activity into supply chain modelling and forecasting?

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