With Environmental, Social, Governance (ESG) on all our radars as we work together to achieve Net Zero, we talk about how SMEs and large companies can do their bit. We will also discuss what we have seen happen across global business in relation to Scope 3 – supply chain emissions – and what corporations of any size can do in an effort to reduce supply chain emissions further.
The importance of SMEs
When we talk about the importance of ESG and achieving Net Zero, our thoughts naturally turn to the impact of large businesses and the need for them to “do their bit”. But perhaps surprisingly, the Big Zero Report 2022 shows close to 50% of all Greenhouse Gas Emissions (GHGs) emissions in the UK come from UK SMEs.
With this in mind, there’s never been a more important time for SMEs to take action. However, new data from UN-backed SME Climate Hub revealed that small to medium-sized businesses (SMEs) need additional resources and guidance to reduce carbon emissions.
The survey reveals that half of small businesses calculate emissions, and 60% have plans to reduce carbon impact. However, two-thirds of small business owners worried they don’t have the right skills and knowledge to tackle the climate crisis. Top reasons small businesses cite for delaying climate action include a lack of skills and knowledge (63%), funding (48%) and time (40%). Approximately 70% of SMEs need access to external funds to reduce their emissions faster or at all. However, only one-third of SMEs have been offered a financial incentive to reduce emissions.
Taking climate action leads to more resilient businesses, with the benefits (such as enhancing brand reputation, differentiating a business from competitors, and meeting customer expectations) not going unnoticed by SMEs. However, at a 96% choice rate, SMEs overwhelmingly cited “the right thing to do” as a key motivation for taking climate action.
The SME Climate Hub – the UN-backed initiative that helps small and medium-sized businesses take robust climate action and join the United Nations Race to Zero – is committed to help SMEs access the additional resources and guidance they need to reduce carbon emissions. SMEs can find information on three tools to help start their reductions today via the SME Climate Hub website.
How large businesses can do their bit
On 24th October 2022, EcoAct released its 12th Annual Corporate Climate Reporting Performance Report. Despite rapid progress in 2021 during the lead up to COP26, the 2022 report, which assesses how international businesses across the FTSE, DOW, DAX, CAC, FTSE MIB and IBEX are tackling climate-related sustainability challenges, found that less than half (48%) of FTSE 100 businesses achieved Scope 1 & 2 emissions reductions in line with the 1.5°C objective, in comparison to 72% in 2021.
It appears that commitments to Net Zero have slowed, and many businesses lack long-term emissions reduction targets which are hard wired into operations. Whereas in 2021 66% of businesses committed to Net Zero compared to 45% in 2020, that percentage only rose to 75% in 2022 – so the Net Zero target adoption rate has slowed down somewhat.
Additionally, almost all (97%) FTSE 100 businesses do not have long-term emissions reduction targets for Scopes 1 and 2 emissions, and 96% lack a long-term reduction plan for Scope 3. Just over a third (35%) of the international businesses reviewed have a validated (SBT) for Scope 1 and 2 emissions and just 8% have one for Scope 3 supply chain emissions.
In short, it appears that after the initial success of COP26, progress has stalled. Good intentions are sadly not enough: deep emissions cuts are needed across all businesses in all industries. Accelerating decarbonisation across all sectors must become an imperative for businesses.
Scope 3 Supply Chain Emissions
As Scope 3 emissions usually account for more than 70 percent of a business’ carbon footprint, it is crucial that companies tackle Scope 3 emissions to meet the aims of the Paris Agreement and limit global warming to 1.5°C.
One of the more positive findings from the EcoAct 12th Annual Corporate Climate Reporting Performance Report when viewed through a different lens was that three in four businesses are aiming to reach Net Zero, and there is notable leadership on the topic of Scope 3 emissions in some areas. Companies can take inspiration from businesses who are tackling Scope 3 supply chain emissions, such as:
– Colgate-Palmolive pledged to use 100% recyclable, reusable or compostable materials in its packaging by 2025.
– Proctor & Gamble committed to reducing use of virgin plastic by 50% by 2030.
– Schneider Electrical invested in digital tracing in supply chains to decarbonise indirect emissions (Scope 3) from industry and is also gifted digital tools and equipment to its 1,000 suppliers.
– Softcat PLC – the 1st IT-sector company in Europe to have its Net Zero targets approved by the Science Based Targets Initiative (SBTi) – aim to have established and verified a Net Zero supply chain by 2040.
– Teradata is actively developing its suite of solutions to provide hyperscale analytics that will predict improved supply chain efficiency and waste reduction through Ai.
– Telefonica aim to reduce its emissions by 90% by 2040 with the remaining 10% offset.
– Bayer has set the target to achieve Net Zero GHG emissions, including all of Scope 3 emissions, by 2050 or sooner and has formally signed the Business Ambition for 1.5°C.
There is some great work being done globally – the insights above reflect this and what is called out is a small snapshot in time. However, it’s still clear more needs to happen in procurement and supply chain to tackle supply chain emissions as part of collective efforts to deliver Net Zero and 1.5°C. One of the major concerns to come out of the EcoAct report is that just 8% of international businesses reviewed have a validated (SBT) for Scope 3 supply chain emissions, which is not enough.
As businesses, what practical steps can we take to do our bit?
Increasing use of blockchain in supply chains
Forbes has discussed how banks can use blockchain to improve ESG efforts. In the world of finance, blockchain is a powerful tool banks can use to improve ESG solutions. Although cryptocurrencies have been and continue to be perhaps the better-known applications of blockchain, the technology has other uses that leave a far smaller energy footprint and are more directly useful in meeting current challenges.
However, blockchains’ use in improving ESG spans far beyond just the banking sector. Blockchain is a decentralised and continuously updated flow of data which brings a level of accuracy and transparency that allows for the complex functioning of environmentally vital sectors like supply chain management to be monitored and examined. Blockchain provides all parties within a respective supply chain with access to the same information, potentially reducing communication or transfer data errors. Less time can be spent validating data and more can be spent on delivering goods and services in an ever-more sustainable way. In terms of ESG, blockchain can help with waste reduction/elimination and reduction of unnecessary movements of goods.
When it comes to supply chains, increasing the use of Blockchain tech from companies like iov42 and VeChain + OrionOne can drastically improve the transparency, connectivity and security of supply chains whilst identifying circulatory opportunities that can amplify user benefit as much as they can deliver direct and indirect emissions reduction.
Nike, for example, has fast-tracked the use of RFID tracking for material flowing through 3rd parties. Together with predictive analytics, this is planned to achieve optimal stock that means waste and leakage is minimised.
What more can procurement and supply chain do to increase efforts?
What more can organisations do in terms of addressing the GHGs emissions in their supply chains? From mapping your supply chain and knowing the chain of impacts, to working with supply partners for a more sustainable ecosystem, here are some practical steps your company can take:
– Map your supply chain, compute your carbon footprint, and divert spend through to more sustainable sources
– Work cross-functionally to reduce the number / frequency of goods movements
– Incentivise and reward suppliers for reducing their GHG emissions and improving their sustainable practices
– Jointly develop carbon reduction plans that mean client and supplier have objectives which are interlinked and complimentary in an ESG sense
– Develop a sharing forum/platform for GHG emissions reduction innovation
Coca Cola’s approach to sustainable supply chain finance is an inspiring real world example.
Over 90% of Coca-Cola Europacific Partners (CCEP)’s emissions are attributed to its supply chain, and CCEP had already asked its suppliers to take actions to make impactful carbon reductions in their businesses.
However, CCEP has now implemented a new sustainability-linked supply chain finance programme, structured and operated by specialist food and agri bank Rabobank. Rabobank will provide funding to the programme with other banks expected to participate and grow the facility over time. The programme, one of the first of its kind in the global beverage industry, incentivises and rewards suppliers to make sustainability improvements in their businesses. It will provide competitive financing that is linked to a number of sustainability-driven KPIs for suppliers that, when met, unlock incremental discounts against the initial funding rate, and align with CCEP’s own action to reduce emissions across its entire value chain and reach net zero by 2040.
What can procurement and supply chain do to increase efforts
What more can organisations do in terms of addressing the GHGs emissions in their supply chains? From mapping your supply chain and knowing the chain of impacts, to working with supply partners for a more sustainable ecosystem, here are some practical steps your company can take:
– Map your supply chain with an analytics plug-in to generate enriched data that reveals clear pathways for improvement.
– Compute your carbon footprint and divert spend through to more sustainable sources.
– Work cross-functionally to reduce the number / frequency of goods movements.
– Incentivise and reward suppliers for reducing their GHG emissions and improving their sustainable practices.
– Jointly develop carbon reduction plans that mean client and supplier have objectives which are interlinked and complimentary in an ESG sense.
– Develop a sharing forum/platform for GHG emissions reduction innovation and embed joint targets with strategic partners.
Coca Cola’s approach to sustainable supply chain finance is an inspiring real world example.
Over 90% of Coca-Cola Europacific Partners (CCEP)’s emissions are attributed to its supply chain, and CCEP had already asked its suppliers to take actions to make impactful carbon reductions in their businesses.
However, CCEP has now implemented a new sustainability-linked supply chain finance programme, structured, and operated by specialist food and agri bank Rabobank. Rabobank will provide funding to the programme with other banks expected to participate and grow the facility over time. The programme, one of the first of its kind in the global beverage industry, incentivises and rewards suppliers to make sustainability improvements in their businesses. It will provide competitive financing that is linked to a number of sustainability-driven KPIs for suppliers that, when met, unlock incremental discounts against the initial funding rate, and align with CCEP’s own action to reduce emissions across its entire value chain and reach Net Zero by 2040.
How is Accelerate Procurement doing our bit?
At Accelerate Procurement, ESG is high on our list of priorities and we strive to take positive, meaningful steps. As we move through this as a growing, service-based consultancy we have:
– Mapped, calculated, and externally validated our Scope 1, 2 and 3 emissions baseline year of 2022.
– Developed a new CSR Principles Statement and embedded our commitments to proactively improving our own approach to GHG emissions reduction.
– Committed to UN Sustainable Development Goals (specifically Goals 3,5 and 13)
– Signed off on our commitment statement and applied to the UN to become a member organisation of the Global Compact.
– Committed to transparently reporting out on the status of our plans and initiatives in line with UN requirements.
– Established our v2.0 Carbon Reduction Plan.
– Invested in credible carbon removal projects as part of our plan.
We are committed to delivering our plan and to finding ways to reduce our impacts beyond this. If you have an interest in hearing more about what we are doing and how we might help you then please get in touch.
Senior Consultant at Accelerate Procurement