Are you losing sleep, worrying you’re going to miss your upstream Scope 3 target?
If you are, you’re not alone.
We speak to hundreds of executives every year who are responsible for achieving Scope 3 reductions and I can count on the fingers of one hand those that are confident of making them.
That’s pretty serious for the corporations concerned. Just listen to investors like Black Rock and you soon realise these targets are increasingly important for ESG ratings, share price and access to capital. And of course, it’s very serious for the battle against climate change.
So why is confidence so low?
Scope 3 encompasses an enormous area of your value chain outside your operations. Some of it is still largely within your control, such as materials specifications and product design. After all, how you design a product, and the materials you specify, directly influence your suppliers’ foot-print and how your customers use, recycle or dispose of it.
But there are some areas where your influence will seem much weaker.
Upstream of a company’s operations there are probably hundreds or thousands of different suppliers, many of whom are not exclusive to any one customer. If you were to map the operations from the largest companies within any given sector, you would find an unstable web of overlapping value chains, particularly as you drop below the tiers.
This unstable web makes accurate and complete Scope 3 emissions data notoriously hard to collect and then there is the even bigger challenge of encouraging the suppliers to change and improve. Within this context, a particularly difficult area to influence and improve is your suppliers’ own operations. Suppliers may be a little cynical after years of being squeezed on price; perhaps they lack the necessary ‘know-how’ or access to capital; or it’s just not a priority because getting quality product out the door, on time is hard enough already.
Top 3 tips for hitting upstream Scope 3 targets:
Whatever the specific reasons, here are 3 best practices that can help you boost your influence with your suppliers and encourage them to improve the carbon efficiency of their operations. This will in turn significantly increase the certainty of hitting your supply chain targets:
1. Focus on your hotspots:
The first may be obvious but that doesn’t make it less important. Effective Scope 3 reduction programs start with a focus on suppliers with high emissions, or, if this information isn’t available, on suppliers comprising a significant portion of the company’s spend. Our client Honda (USA), for instance, focuses its efforts on 60% of its tier 1 suppliers. The products bought-in from these suppliers together comprise 90%+ of Honda’s up-stream emissions.
2. Look forward not backwards:
Many companies make huge efforts to collect historical data on the operational emissions of their suppliers, usually at an enterprise-level but sometimes from site utility bills. But it doesn’t really help suppliers to improve. Historical data is necessary, but not sufficient. Relying solely on it, is like driving a car using the rear-view mirror. What you need, to know whether your suppliers are going in the right direction and fast enough, is forecast data. In our experience the most useful forecast data for driving improvement comes in the form of planned and completed site-level carbon reduction projects. This data can be used to give you two things:
- In combination with actual, historical data it can give you an estimate of supplier progress along the glide path to your target. Are suppliers doing or planning to do enough to hit your target? What is the gap likely to look like next year and in 5 years’ time? From this data you can see clearly which suppliers are really falling behind and will need help.
- Over time, this data shows what kinds of interventions really make the difference and in what circumstances. What is driving the success of your top performing suppliers? What best practice play book would get the best results for a specific segment of your supply base? Using this data will enable you to engage suppliers in a proven and informed program of improvement and really help them to accelerate towards your target.
3. Do it together:
Asda’s and Coop’s supply chains both use our software, the Bee, as a common platform to collect data (both historical and forecast) and drive improvement. It has taught us the power of customers coordinating engagement across a shared supply base. That has also been the experience of CDP.
They report that when two customers request data from a mutual supplier there is a 68% probability that the supplier will respond, but if three companies send a response request, the likelihood jumps to 76% .. In short, the more data requests a supplier receives and the more support to improve they receive, from different customers, the more likely they are to take action and help you to hit your supply chain goals.
The results: visibility, improvement and certainty
Hitting your upstream operational targets on time will probably always be one of the most difficult parts of achieving your company’s public Scope 3 commitments on carbon reduction. But these 3 best practices can help to give you much greater forward visibility of supplier progress towards your target, accelerate improvements and give you much greater certainty that you are going to make them.
And that may help you sleep better at night.
About the author: Martin Chilcott is the co-founder and CEO of Manufacture 2030, whose cloud-based software platform the Bee helps corporations like Honda, Asda, Stanley Black and Decker and Interface drive improvements and accelerate CO2e emissions reductions across their manufacturing operations and supply chains in order to achieve their public commitments.