How to calculate and reduce your supply chain emissions

September 7, 2023

To calculate the full greenhouse gas emissions for your business, you'll need to engage with your supply chain.

In the past, businesses have used industry averages to estimate their supply chain emissions. But as new standards come into force, these estimates are no longer enough.

This raises a dilemma, though. How can businesses get the data they need from their value chain, without overloading their suppliers with compliance costs?

Let’s dive in!

What are supply chain emissions?

Supply chain emissions are greenhouse gas (GHG) emissions — such as carbon emissions — that are generated from activities beyond a company's direct control, but are essential for the operations of that company. This includes upstream emissions from the extraction and production of raw materials, transportation and logistics, manufacturing processes, and the downstream use and disposal of products by customers.

These GHG emissions fall under Scope 3 emissions. These are indirect emissions that occur as a result of a company's operations but are not directly owned or controlled by the company.

Scope 3 emissions represent a significant proportion of a company's carbon footprint, often exceeding both Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased electricity) combined. Learn more about the difference between Scope 1, 2, and 3 emissions.

Why is it important to calculate supply chain emissions?

There are three main reasons why you'll need to calculate your supply chain emissions.

Meet emissions reduction targets

Over the last few years, many businesses have made emissions reductions targets. Some have made net-zero targets, while an increasing number are using transparent commitments with the Science Based Targets initiative.

While it's possible to make progress on these targets with emissions produced directly by the company itself, the reality is that a significant proportion of the carbon footprint of most businesses exists in their supply chain. It's impossible to meet ambitious emissions reduction targets without first knowing — and then reducing — the total carbon footprint of your supply chain.

You may have used a spend-based method to calculate this for your supply chain so far, which would beg the question: “surely, to reduce our emissions, that means spending less?”, which is technically true, but not realistic. If you understand the actual emissions of your suppliers, you will be in a better position to meaningfully reduce your emissions over time through engagement with them or indeed selecting a different supplier with better credentials.

Meet reporting requirements

As the world transitions to a low carbon economy, we're seeing the rise of new standards and reporting requirements, such as those published by the ISSB. To meet these standards, organisations will need to source real data from their supply chain. They may also be asked by larger customers who are themselves subject to disclosure requirements.

This is also true for larger entities such as banks and insurers, who, under government-led schemes like the New Zealand’s XRB Climate-Related Disclosures (CRD) and the Partnership for Climate Accounting Financials (PCAF), need to account for their supply chain emissions and those of their customer base.

Meet consumer expectations

As climate change becomes a lived reality, customers are increasingly conscious of the environmental impact of the products they purchase. They expect companies to take responsibility for their carbon footprint and make efforts to reduce it.

By measuring and reporting supply chain emissions, companies can provide transparent and credible information to their customers, allowing customers to make more informed choices — and avoiding the risk of greenwashing accusations.

Now that we're across why this is important, let's dive into how to calculate your supply chain emissions.

How to calculate supply chain emissions

1. Decide on your approach

Before you contact any of your suppliers, you need to figure out two main challenges. How you address these challenges will determine how expensive and painful it will be to figure out your supply chain footprint.

First, how are your suppliers going to calculate their emissions? Most businesses haven't confronted this problem before, so you're going to want to have a solution ready for them to use. Ideally, you want a solution that gets you the most accurate data possible.

Second, how are they going to send you this data in a format you can use? It's one thing to ask them to calculate their emissions; it's quite another to wrangle hundreds of spreadsheets in multiple exotic data formats.

With CarbonTrail, you can solve both of these problems with one tool. CarbonTrail's carbon accounting tool has been designed and engineered for small and medium-sized businesses.

All your suppliers need to do is plug in their financial accounting app, and CarbonTrail gives an accurate carbon footprint in minutes.

Screenshot 2023-04-25 at 4.22.37 PM

CarbonTrail provides an estimate using the spend-based method, then uses AI to scan financial data to provide more accurate activity-based data. This data is available to the business in real-time. They can set emissions targets, report to stakeholders, and show off their progress.

Once your supply chain has connected their accounting app, you can request access to their emissions data using CarbonTrail’s built-in supply chain engagement tools. This data will then be provided in real-time to your own supply chain dashboard, where you will be able to see GHG emissions across all participating suppliers, integrated with your Scope 1 + 2 measurements automatically.

Once you've decided on your approach, you're ready to take the next step!

2. Identify which suppliers are in scope

Next, perform an assessment to determine significant activities or processes where supplier data would be beneficial. This might include a major raw material or finished product suppliers. A starting point could be to rank your suppliers by how much you spend with them, or how crucial they are to your operation

You can then build out a supplier list. You'll want to include Name, Address, Procurement Contact, Supplier Type (production or non-production related), and your Annual spend with them.

3. Announce your disclosure programme

Before you ask for data, let your suppliers know you want to gather emissions data from them, why, and how you intend to do so. Highlight that the process is confidential and that support is available. It always helps for this message to come from a leader within the organisation, if possible, to give the message some additional sway.

As you communicate your intentions, be clear about consequences for non-participation.

Make it clear that you are expecting a collaboration as part of this process and that there may be negative consequences if a supplier is non-responsive or obstructive.

4. Understand the data you’ll be gathering

The Greenhouse Gas Protocol suggests gathering at least the following information:

  • Boundary details (what’s in scope)
  • Reporting period (the financial year usually)
  • Activity data and GHG emissions in CO2e
  • Details of emission factors and data sources
  • Discussion of uncertainties
  • Any changes in calculation methods

5. Start gathering data

Now, the exciting part. Gather the data from the suppliers you have identified.
Make sure you regularly check on suppliers’ progress. A digital reporting system like CarbonTrail can streamline this. Your persistence emphasises the importance of their response.

You can also consider providing regular training sessions and opportunities for reporting companies to learn more about their own emissions — and how they can reduce them.

6. Say thanks!

Once data is received, assess its quality, clarify doubts, and thank suppliers for their participation. This not only ensures data accuracy but also fosters a strong, lasting relationship.

7. Integrate the data into your reporting process

Now, you need to integrate the data into your reporting process. A good way to do this is to keep track of the data per financial year and include this in your Scope 3 reporting.

8. Make improvements

How did the process work this year? What learnings can you take away from it? Hold a retrospective, and make sure you build these learnings into your plan for next time.

Tips for calculating — and reducing — your supply chain emissions

Calculating supply chain emissions can be a complex task, but with the right approach and tools, it becomes more manageable. Here are some tips to help you overcome the challenges associated with calculating supply chain emissions.

Use technology partners

Leveraging technology is crucial for accurate and efficient emission calculations. Tools like CarbonTrail can automate the process of gathering and reporting on your supply chain emissions data.

By using technology, companies can automate data collection, apply emission factors, and generate comprehensive reports. This not only saves time and resources but also improves the accuracy and reliability of emission calculations.

Are you part of a large organisation, or in-scope under XRB or PCAF legislation? We also provide tools that are perfect for large supply chains. Contact us to find out more.

Make it easy on your suppliers

Your suppliers are busy, so it’s critical that you focus on simplifying the data collection process. This will help with supplier participation and ensure data accuracy.

Companies should provide clear guidelines and templates for data submission, making it easy for suppliers to provide the necessary information. This may involve developing standardised data request forms, conducting training sessions for suppliers, and establishing regular communication channels to address any questions or concerns.

Get internal buy-in

Calculating and reporting supply chain emissions requires collaboration and support from various departments within a company. It is essential to obtain buy-in from senior management, finance, procurement, and sustainability teams to ensure alignment and resource allocation.

By involving key stakeholders from the beginning and demonstrating the value of supply chain emissions calculations, companies can foster a culture of environmental responsibility and promote the integration of sustainability into their core business practices.

Educate your suppliers

Engaging and educating suppliers about the importance of supply chain emissions is crucial for accurate data collection. Companies should provide clear guidance on the data required, explain the purpose of emission calculations, and highlight the benefits of reducing emissions within the supply chain.

Educating suppliers about best practices for emissions reduction and sustainability can also help foster a collaborative approach to address environmental challenges collectively. Sharing success stories and providing resources, such as guidelines and case studies, can empower suppliers to take action and contribute to a more sustainable supply chain.

Treat your suppliers as partners

Building strong relationships with suppliers is essential for effective emissions reduction efforts. Rather than viewing suppliers as separate entities, companies should treat them as partners in their sustainability journey. This involves open and transparent communication, collaboration on emissions reduction initiatives, and sharing best practices.

By working together with suppliers, companies can identify opportunities for joint emissions reduction projects, such as energy efficiency improvements, waste reduction strategies, or the adoption of renewable energy sources. These collaborative efforts not only lead to emissions reductions but also foster innovation and create shared value for all parties involved.

Offer procurement incentives

Companies can incentivise their suppliers to adopt environmentally friendly practices by incorporating sustainability criteria into their procurement processes. This can include evaluating suppliers based on their emissions reduction targets, environmental certifications, or sustainable sourcing practices.

By prioritising suppliers with strong sustainability credentials, companies can create market demand for greener products and services. This, in turn, encourages suppliers to invest in emissions reduction measures and adopt more sustainable practices throughout their operations.

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