Materials that have lower emissions intensity than their conventional equivalents, such as green steel, are already in short supply. And on top of this they are likely to get even harder to find too. This may be panic-inducing news for organisations that have ramped up their climate commitments and promised to reduce Scope 3 carbon emissions.
For clarity, Scope 3 emissions are emissions connected with an organisation but they are not directly generated by that organisation. In other words, those emissions produced in the supply chain.
In fact, Scope 3 emissions account for 80 to 90 percent of the emissions connected with a great deal of end products. Arguably, this makes Scope 3 emissions the most important emissions to address.
Whilst some organisations have locked in supplies of low emission materials, others have not. And those that have not will be forced into a dilemma:
To pay sky-high premiums ensuring they meet emissions targets, and keep relationships with key stakeholders (investors, consumers and employees) intact.
To forsake climate promises.
This blog lists both long- and short-term initiatives to help you navigate the complex maze of sustainable sourcing.
These are initiatives that – at least in the early stages of execution – are proving to be successful for some of the world’s largest organisations.
In other words, they’re proven to work.
Let’s start with the long-term initiatives.
Collate insights to better navigate uncertainties in the market
As market conditions change, so too will the supply, demand and pricing of materials.
Organisations that have been successful in their quest to lock in supplies of low emissions resources, like green steel, have found it beneficial to model these factors over time.
Specifically, modelling tools organisations use often include emissions intensity, supply and demand scenarios, pricing scenarios, and projections for suppliers’ capacity buildouts.
To ensure they are up to date with the active market, organisations usually pledge to update them every six to 12 months.
For example, the demand for green steel is set to rise exponentially.
This is no surprise given it is one of the most carbon-intensive industries on earth.
In fact, the sector accounts for 10 percent of the global total of carbon dioxide emissions.
And according to the International Energy Association, “to meet global energy and climate goals, emissions from the steel industry must fall by at least 50 percent by 2050, with continuing declines towards zero emissions thereafter.”
As well as global pressures, steel’s largest consumers – automotive manufacturers such as Mercedes and BMW, for example – are increasingly seeking green materials in their mission to reduce their own Scope 3 emissions.
This only contributes to the demand and subsequent shortfall of green steel.
Smart organisations will have long accounted for this.
Which brings us on to our next point.
Take a strategic, long-term approach to sourcing decisions
Many organisations have drawn up long-term strategies for reducing Scope 3 carbon emissions.
And although the race to secure low-emission resources is still in its infancy, efforts appear to be focused in three areas:
First, organisations are helping partners in their supply chain switch to 100% clean energy.
Not only will this help to decarbonise their energy use. But it will also help improve their own credentials with a commitment to the purest energy source.
Second, the mix of materials used to make a product is being modified.
For example, using cleaner materials or developing products that can be recovered easily for recycling or reuse. Some product alterations can happen quite quickly. Whereas others may take years of preparation and manufacturing.
Finally, organisations are collaborating with suppliers to develop production capacity for green materials. And, to implement low-emissions processes.
Organisations that establish green-sourcing partnerships now can expect them to yield benefits starting in three to seven years.
Build new capabilities beyond supply chain management.
Supply chain management is just one piece of the Scope 3 emission jigsaw.
To reduce Scope 3 emissions, the majority of organisations will need to invest in a number of capabilities to upgrade equipment processes.
For example, analytical and strategy-setting, product or packaging design, and engineering.
Now, it is no secret that remodelling a business in this way will take time.
However, organisations cannot afford to delay action when it comes to reducing Scope 3 carbon emissions.
Which brings us onto our next three points which are near-term initiatives that can be actioned now.
Measure insights on emissions, supply, demand, and pricing for every material.
It is beneficial for organisations to develop their understanding of the emissions produced in the manufacturing of every material.
Plus, the exposure to supply, demand and price volatility of every material acquired.
It is worth noting that Scope 3 emissions and risk exposures can differ hugely among organisations.
Which is also the case for the goods obtained by an organisation.
Plan a sourcing strategy to slash emissions over numerous timeframes
It is important to pair a decarbonisation strategy with developments such as the commercialisation of low-carbon materials and hard to abate materials.
That’s because whilst the production of some low carbon supplies are being ramped-up, other supplies such as inert-anode aluminium will take more to make it to market.
Therefore, it is beneficial for organisations to work out when and how they will be able to secure their share of green materials that are not yet available to the market.
Track and trace emissions throughout the supply chain
It would be no exaggeration to say that few have mastered the skill of tracking and tracing emissions.
And fewer still have mapped their supply chain emissions using primary data.
In fact, research presented at the World Economic Forum by Carbon Intelligence identified that a lack of high-quality data is the most common challenge in managing Scope 3 emissions.
Without accurate data from within the supply chain, decision makers are often left relying on guesstimates.
However, some organisations have already acknowledged how important data is to the decarbonisation of their supply chain.
Large organisations across a number of sectors are using digital tools to collate, store and report.
Not only did this prove to be helpful during the Covid-19 pandemic, when lockdown restrictions made in-person checks very difficult.
But digital tools that provide up-to-date and valid information helps organisations to avoid greenwashing accusations.
As more and more organisations have upped the ante to source materials that have lower emissions intensity than their conventional equivalents.
For example, green steel, recycled aluminium, and recycled plastic.
The output of green materials has not kept pace with the increase in demand.
However, what’s certain is that those organisations that act now and plan for the future will make significant progress on their mission to reduce Scope 3 emissions.