Opinion: Simple Solutions Will Catalyse Action For Supply Chain Emissions

Opinion: Simple Solutions Will Catalyse Action For Supply Chain Emissions - Carbon Herald
Diana Dimitrova, BCG Managing Director and Partner. Source: BCG

by Diana Dimitrova, BCG Managing Director and Partner based in London

Whilst many corporates are now ramping up their action on net-zero, Scope 3 supply chain emissions, are often overlooked. This is a critical problem, with emissions in supply chains accounting for around 26 times the level of emissions from companies’ direct operations, according to Boston Consulting Group’s (BCG) recent research with the Carbon Disclosure Project (CDP). 

Inaction on supply chain emissions is therefore a significant risk for businesses and must be addressed. 

As key actors in our economy, corporates and investors bear the onus of accountability and need to set the pace. This is especially true for some sectors whose impact is far greater than the rest. For example, upstream emissions from the manufacturing, retail, and materials sectors in 2023 alone imply a carbon liability of over $335 billion.

BCG and CDP’s report ‘Big Challenges, Simple Remedies’, found that just 15% of corporates have upstream Scope 3 targets. At the same time, they are twice as likely to measure their operational emissions as they are to measure their Scope 3 emissions.

Strengthening the board’s climate competence, ramping up supplier engagement, and adopting Internal Carbon Pricing (ICP) are three simple unlocks to accelerate action on Scope 3 emissions. 

Relevant: Opinion: Should Carbon Credits Be Used Against Scope 3 Targets?

The board’s fiduciary responsibility to act on climate-related risks sets the tone for climate-positive actions across the entire organisation. Notably, corporates with a climate-responsible board are 5 times more likely to set upstream Scope 3 targets. With just 1 in 3 corporates disclosing through CDP having such a board, it is therefore imperative to strengthen climate competence in boardrooms.

Engaging suppliers in climate initiatives is equally important. Corporates that actively engage with their suppliers on climate initiatives are 7 times more likely to have a Scope 3 target and a 1.5oC-aligned transition plan. Unfortunately, only 4 in 10 corporates engage their suppliers on climate issues, and a mere 9% collaborate closely with them. 

Furthermore, setting an internal carbon price surfaces the true cost of emissions. Companies that implement ICP are 4 times more likely to have a 1.5oC-aligned transition plan. Despite its effectiveness, only 14% of companies disclosing through CDP currently use ICP. Boards must mandate a fair internal price for carbon to incentivise low-carbon decisions and embed climate considerations into core financial and strategic decisions. 

Relevant: BCG Report Highlights Crucial Role Of Government Policies To Scale Carbon Removal

As climate-related risks, including transition risks, become more pronounced, corporates that fail to address their full emissions footprint will face increasing scrutiny from regulators, investors, and consumers. They risk being left behind in a market that is rapidly shifting towards sustainability. Conversely, those that take proactive steps to manage their supply chain emissions will not only contribute to global climate goals but also enhance their resilience and competitiveness in a low-carbon economy.

Depending on the sector, it may take up to three to five years to see meaningful reductions in upstream emissions. This means that corporates just beginning to report and engage with suppliers are at least 2-3 years away from setting Scope 3 targets and likely only realising reductions by 2028.

The evidence is clear: Scope 3 emissions far exceed operational emissions, and the majority of corporates are not adequately addressing them. The window is also closing. However, the unlocks are simple and corporates must now act swiftly and decisively to catalyse action for upstream emissions and reduce their footprint as a result.

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