Supply Chain Enabled

Supply chain decarbonisation – what is it?

Published: October 16, 2022
Author: Xavier Hubert

The world of corporate sustainability and, more specifically, climate action is currently buzzing with catchy goals and commitments such as Net Zero, Carbon Neutral, Carbon Free or even Carbon Negative. While their definitions, scope, and deadlines, as well as their authenticity and practicality, may differ and be debatable, they all share one thing: the stated intention to reduce harmful carbon emissions from the business, a.k.a. decarbonisation.

Set by the Executive board in response to the climate emergency, it is not unusual for the destination to be decided before any detailed plan has been drawn-up to determine how to actually get there. The latter is commonly referred to as decarbonisation pathways.

Given that, for most product organisations, an overwhelming majority of emissions reside in their supply chain (i.e., the infamous “Scope 3” under the GHG Protocol), should the target include Scope 3, Supply Chain Leaders find themselves – once again – in a pivotal position, with their decisions and actions highly critical to achieving corporate goals. So, how does one decarbonise its supply chain? We suggest a pragmatic approach as follows:

1 – Know your starting point

While there might have been an absence of detailed planning upon setting the target, the likelihood is that your organisation has already estimated their overall carbon footprint, which is used as the reference baseline. Request a detailed breakdown of this baseline, identify the largest sources of emissions and tackle these as a priority, as you would with any other inventory project.

At this point, it is also useful to consider the level of control and influence you may have, and whether some of these emissions categories are within your remits. For example, business travel and employee commuting—both Scope 3 emissions categories—may not be in your remit, but equally so, emissions from your fleet of trucks (reported under Scope 1) or from electricity powering your warehouses (reported under Scope 2) may be for you to address.

Not to spoil anyone’s fun, while you may feel you do not have much control over Scope 3’s Purchased Goods and Services (i.e., all the parts or products purchased as well as all the logistics services involved), these tend to be both significant and, at the very least, a co-responsibility of the supply chain organisation!

2 – Understand your destination

Most emissions targets aim for zero at some point in the future. However, while it sounds great, zero hardly ever means zero! In fact even the Net-zero target from SBTi (The Science Based Target initiative) emerging as the leading and likely future reference standard for such target assumes and allows about 10% of residual, incompressible emissions to be eventually offset by other mechanisms than direct reduction.

Because these targets typically span decades (a lot of organisations choosing to align with the Paris agreement are looking at 2050), it is also recommended and therefore not uncommon to have interim near-term targets (e.g. SBTi includes a 50% interim target by 2030). These are the pit-stops on your road to decarbonisation that you should certainly not ignore.

Decarbonising is also akin to changing the aircraft’s engine mid flight (nothing new here, I hear you say!). While there are a lot of unknown factors that may influence future emissions one way or another, keep in mind that a net zero emissions target is an absolute, not a relative target. This means that if you are lucky enough to work for a fast-growing organisation you may face a strong headwind on your way, something you need to consider in your projections (in other words: you may need to reduce emissions way beyond the level set in your baseline).

3- Define your “pathways” roadmap

Many pathways: As the title of this blog suggests, there are many pathways to decarbonisation. Just like renewable/zero carbon electricity may be generated by harvesting the power of the sun, the wind, the waves and a few other sources, there are likely a wide variety of options available to you to decarbonise your supply chain. And just like renewable energy, no single pathway alone will get you there, so be prepared to travel a few.

Not all pathways are equal: It is therefore key to identify and assess the most impactful decarbonisation initiatives, or pathways.  Start by identifying as many pathways as may be relevant to your emissions categories, estimate their potential in reducing your emissions against your priority categories, assess their cost and practicality and select the most impactful.

Expensive? : While it is not unusual for initiatives aimed at reducing emissions (e.g. higher energy efficiency solutions) to be cost-effective in the long run, there might be an initial investment involved. Some alternative pathways may just be more expensive until economies of scale are realised; some might remain so for structural reasons, other may just be – just say – last resort!

4 – Don’t travel alone, pay attention to milestones, and regularly adjust your itinerary

Engage: By definition, supply chain emissions lie within your supply chain.  This means within your suppliers, your logistics and channel partners, and your customers. Engaging with them on more carbon-effective options for you and their own decarbonisation journey will be key.  Begin by determining which stakeholder is responsible for the majority of your emissions through voluntary disclosure (or, in the absence of better data, use spend data and best judgment) and, just as you have been managing value-for-money with a combination of carrots and sticks, a similar approach to getting value-for-(less)-carbon may be effective.

Implement:  As for all change management processes, quick wins help keep momentum going, and in this case, momentum will probably need to last decades. Starting with the largest emissions and largest emitters should greatly help, but implementing some of the lowest hanging fruits, such as the cost-positive or fastest return on carbon investment initiatives, should not be overlooked.

Monitor: The long timeline, as well as the transparency (voluntary but soon to be a legal requirement for most with CSRD) of progress against target, are two factors that warrant close monitoring of the performance of your decarbonisation planWith internal factors (e.g. new products or activities) and external factors (e.g. new technology or alternatives) potentially having a significant impact, a periodic review of pathways is highly recommended.

5 – Go with the currents (but make sure to keep rowing!)

Some of the pathways that may help you reduce your emissions may require systemic change and significant infrastructure investments that are larger than any single company.  This may, for example, be the case for EV charging infrastructure.  Such a pathway may be widely out of your control and in the hands of national, international, and industry-wide organisations. Given most countries have set or are setting themselves their own targets under the Paris Agreement, you will have some company on your journey.  Large corporations and their stakeholders are also exercising some significant influence on sectoral organisations to decarbonise, and that pressure is now leading to action (or at least planning!).  Below is a snapshot of various commitments by the international freight sector, but as you can see , perhaps it is best not to rely too heavily on others to achieve your targets:

Air Freight

Earlier this month, the International Civil Aviation Organisation (ICAO) agreed to a long-awaited net-zero long-term aspiration goal by 2050, covering domestic flights, international flights, and airport operations.  Representing over 180 nations, the UN-backed organisation has no regulatory power of its own but will rely on the member’s own commitments and contribution to that target. This agreement comes just a year after the International Air Transport Association (IATA) – the trade association for the world’s airlines, representing some 290 airlines, or 83% of total air traffic – agreed to a similar target. The key pathways identified by the latter are primarily reliant on sustainable aviation fuels (SAF), and some technological advancements in the near term will be supported by minor operational efficiencies and supplemented by about 20% of offsets.

Sea Freight

The International Maritime Organisation (IMO), the UN-backed maritime equivalent to the ICAO above mentioned, has been more cautious to date. Its commitment is to reduce industry emissions by at least 50% by 2050. Alternative fuels (especially Ammonia and LNG) are here also expected to play a significant role in the industry’s decarbonisation, with design, technical and operational measures completing the picture. The International Chamber of Shipping (ICS) – the global trade association representing shipowners operating more than 80% of the world merchant fleet as well as the “Getting to Zero coalition” backed by the Global Maritime Forum and the World Economic Forum show more ambition, advocating that Net Zero shipping by 2050 is achievable assuming the right investment, incentives, and market conditions.

Road Freight

As an industry, Road freight is a lot more fragmented than Air, Sea or even Rail. Here the pressure is coming from the legislators with the likes of the EU, UK or California having all given a sell-by date to internal combustion engine vehicles within the next 10 to 15 years. Electric vehicles are the most likely pathway for last mile and short haul, with hydrogen fuel cells potentially playing a role in long-haul freight. The level of decarbonisation for both being heavily dependent on charging/refueling infrastructure but also the decarbonisation of electricity generation (also required to produce hydrogen).

As for all journeys, if you need help planning your trip, figuring out where you are, or simply breakdown on the way, look for assistance!

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