Organisations all over the world are increasing environmental efforts through setting Science Based Targets (SBTi) for emissions reductions, that are consistent with the latest climate science. The SBTi framework enables companies to set targets and draws focus on their (Scope 3) supplier emissions. For most companies, upstream supply chain emissions represent 11.4x their operational impacts and highlights the fundamental need for organisations to engage with their suppliers, in order to transition in a just and sustainable manner.
With the aim of reducing supplier emissions, organisations have two fundamental choices. First, to replace existing suppliers with others that are already taking steps towards emissions reduction, such as setting SBTs, that can in-turn help reduce their own emissions. Second, to promote a ‘just transition’ through engaging and encouraging their existing suppliers to set SBTs so taking them along with the organisation’s own climate transition.
For the latter, a 6 step process can be considered, of which (importantly) Step 4 (Performance Management) details ‘Encouraging changes from existing suppliers’. As organisations advance in their climate journey, they must start engaging with their suppliers beyond collecting data on their sustainability performance, and towards influencing and promoting better performance.
Organisations can foster an environment that motivates and supports suppliers in setting and achieving emissions reduction targets by taking four key steps:
- Leading by example;
- Communicating expectations and providing sufficient time for suppliers to act;
- Sharing resources, technical knowledge, and benefits; and
- Setting goals and monitoring progress for both parties.
While integrating carbon management requirements within procurement contracts is a good place to start, there are numerous ways in which a company may be able to encourage its suppliers towards achieving their decarbonisation goals. For example:
- Providing upskilling & climate training materials;
- Incentivising through peer benchmarking;
- Beneficial payment terms for target achievement, etc.
While there are a multitude of benefits of engaging with suppliers, some key ones include:
- Building Supply Chain Resilience: Joining forces with suppliers to reduce emissions and improve sustainability practices can collectively mitigate risks related to regulatory changes, resource scarcity, and climate-related disruptions.
- Improved Data Management: Collaborative emissions reduction efforts like sharing data and insights can improve data management practices, leading to more accurate emissions reporting and enhanced decision-making.
- Regulatory Compliance: As environmental regulations become more stringent, suppliers that proactively address emissions reduction are better positioned to meet evolving compliance requirements, and engaging with them helps ensure that they remain compliant.
- Long-Term Partnership: Collectively contributing to sustainability initiatives fosters a sense of partnership and shared goals that can strengthen an organisation’s relationships with its suppliers, leading to more stable and mutually beneficial long-term partnerships.
- Innovation: Collective ‘ideation’ around sustainability initiatives could lead to the adoption of new technologies, processes and practices that enhance efficiency and environmental performance.
- Cost Savings: Suppliers that implement energy-efficient practices and reduce emissions often experience cost savings through lower energy consumption and waste reduction. These savings can translate into more competitive pricing for their products and services, benefiting both parties.