So you want to reduce your supply chain emissions

So you want to reduce your supply chain emissions

When Walmart first decided to take a serious look at reducing supply chain emissions, head-scratching ensued. It was 2010, and many of the tools and programs now in place to encourage and advise businesses on their emissions reduction work were in their infancy.

At the time, Walmart measured the emissions created by its own operations. Powering stores, offices and owned vehicles is the brunt of what the sustainability industrial complex calls scopes 1 and 2. Scope 3 goes deeper, and measuring it means getting external players involved.

“We obviously knew what [Scope 3] meant, but it was hard to figure out the right way to galvanize action and lead suppliers toward creating more and more emissions savings,” Walmart’s Senior Director of Sustainability Zach Freeze said.

Scope 3 emissions derive from what companies purchase through the tiers of their supply chains, including the transportation resources and how products are used and disposed. Reducing scope 3 requires buy-in and action from other companies, making it a higher hurdle than scopes 1 and 2, which cover operations and energy purchasing for a company’s owned operations. Scope 3 is about influence and exerting constructive pressure into the supplier base.

“There were certain projects that we identified, but when you thought about scale, which is really the power of Walmart, we didn’t quite figure it out with that project,” Freeze said of the work in 2010.

Seven years later, Walmart launched Project Gigaton — a plan to eliminate 1 billion metric tons of supply chain greenhouse gas emissions by 2030. “Gigaton was our way to take everything we had learned in our own business and really just try to make it much easier to involve more and more suppliers,” Freeze said.

Getting a handle on the scopes Scope 1 Direct emissions including owned vehicles and owned or controlled facilities and grounds. Scope 2 Emissions stemming from purchased power including electricity, heating and cooling, steam, or any other power source. Scope 3 Indirect emissions not included in scope 2 including all procurement, direct and indirect, along with travel, waste and water.

Walmart’s journey to a robust scope 3 emissions program reveals a trend within corporate action to combat climate change. There has been a shift in the way sustainability advocates see scope 3 and the urgency with which companies address it — just in the last few years.

Possibly starting in 2016 with The Paris Agreement, consumers and investors have had “an awakening on this issue,” said Dexter Galvin, global director for corporations and supply chain at CDP. Undeterred by the pandemic, the pressure is not letting up. Perhaps in part, because the problem is becoming more pressing.

Recent research concludes that not only are natural disasters like hurricanes and wildfires more intense because of climate change — some disasters may not have happened at all without it. Climate scientists are currently debating whether efforts to stop global temperature rise at 1.5 degrees celsius are enough — and if doing so is even possible.

CDP has seen an uptick in emissions disclosures since the pandemic began, but still, only 2% of the companies that disclosed their emissions to CDP last year made the “A” list, and that’s a measure for transparency, not action.

Standard-setting, goal-setting

For its part, Walmart has pledged to reduce scope 3 emissions by 1 billion metric tons by 2030, from a 2015 baseline. But how are such goals formulated so that they are achievable and sufficient to make an impact?

Part of Walmart’s challenge 10 years ago was the company lacked a roadmap for action. Since then, emissions-focused nonprofits have joined together to create one.

The Science-based Targets initiative started in 2015 to give companies a standard for setting emissions reduction goals in all three scopes that would adequately contribute to stopping global temperature rise at 1.5 or 2 degrees Celsius (the SBTi allows goals pegged to both).

“The good thing about the Science-based Targets initiative is it gives buyers and procurement professionals a simple North star to point companies toward, ” said Galvin. “They don’t have to become experts on sustainability to say to their supplier: ‘Listen, your competitor has a science-based target. This is just increasing the best practice. You need to get one,’ ” he said.

“Build the muscle of tracking and reporting. Because once you start doing that, you start to really understand where your money’s going and where your emissions are going.”

Zach Freeze

Senior Director of Sustainability, Walmart

The prevailing thinking a year ago was that if every company reduced scopes 1 and 2, scope 3 would take care of itself, said Galvin. But as urgency increases to combat climate change, so does the pull toward scope 3 work.

The supply chain often makes up more than 90% of total emissions for any company producing a physical product. A partnership between CDP, the UN Global Compact, The World Resources Institute and the World Wildlife Fund, SBTi requires companies with more than 40% of total emissions within scope 3 to set a scope 3 target.

“If the entire S&P 500 was to set SBTs, the vast majority of them would have to do scope 3 just because for the majority of companies, their supply chain accounts for the majority of their emissions,” said Steven Clarke, director for corporate clean energy leadership at Ceres. Supply chain emissions often add up to about five times that of direct operations and energy purchasing put together, Clarke said citing CDP research.

Depending on where companies are starting, it can be an immense task to set targets. Once committed to developing a target within SBTi, they have a year to submit for approval.

Roughly 200 companies have set targets in 2020, while 240 more have committed to do so within one year. That means approximately 40% of the 1,045 of companies involved with SBTi got involved within the last year.

Not every climate-conscious company has signed on. Apple pledged to reach carbon neutrality in its business, supply chain and product life cycle by 2030. The company discloses its emissions to CDP but does not have a science-based target registered with the SBTi organization.

Whether setting a science-based target or not, Freeze’s advice to other companies looking to reduce scope 3 emissions? Just start.

“Build the muscle of tracking and reporting. Because once you start doing that, you start to really understand where your money’s going and where your emissions are going. And I think by doing those two things, we can really get a better handle on how you start to tackle climate, ” he said. Deep knowledge of the supply chain and of the greatest sources of emissions volume within it is essential groundwork.

Elements of scope 3 1. Purchased goods and services 6. Business travel 11. Use of sold products 2. Capital goods 7. Employee Commuting 12. End-of-life treatment of sold products 3. Fuel and energy-related activities not included in scopes 1 and 2 8. Upstream leased assets 13. Downstream leased assets 4. Upstream transportation and distribution 9. Downstream transportation and distribution 14. Franchises 5. Waste generated in operations 10. Processing of sold products 15. Investments

SOURCE: World Resources Institute’s Greenhouse Gas Protocol

SBTi recognizes the complexity of scope 3 and allows companies leeway in how they structure a reduction goal, as long as their goal addresses at least two-thirds of the emissions produced within it. Corporate targets generally fall into four buckets:

Absolute reduction. Partial reduction. Reduction of carbon intensity per unit of output. Convert suppliers to SBTi. Walmart’s goal represents an absolute reduction. But Target’s goal is to recruit 80% of its suppliers (by spend) to set their own science-based scope 1 and scope 2 targets by 2023 (type 4). Ben & Jerry’s has a goal structured around emissions per output — pledging to reduce greenhouse gas emissions from all three scopes by 40% per pint of product sold by 2025 from a 2015 baseline.

Choosing a structure depends on what kind of visibility and control companies believe they will be most able to exert — and what they can realistically track.

“I think the variance in targets is probably quite a good thing. And … actually speaks to the achievability of the target, ” Galvin said.

Goal structures vary Absolute reduction Partial reduction Reduction of emissions per output Convert suppliers to reduce emissions Ben & Jerry’s x Best Buy x Cargill Coca-Cola x x Gap x General Mills x Kellogg x Kimberly-Clark x Levi Strauss x Mars x McCormick x Molson Coors x Mondelez x Nike x PepsiCo x Pfizer x Seventh Generation x Stonyfield x Target x x Tyson Foods x x Walmart x Whirlpool x

SOURCE: Science-based Targets Initiative Companies Taking Action

Getting suppliers on board

The type of scope 3 goal companies choose often comes down to their existing supplier base and their relationships with those suppliers, said Clarke.

If a company’s direct supplier base is particularly energy-intensive, the company may choose an intensity-based goal since changing energy sourcing may go a long way to reduce total supply chain emissions. Companies with more diffuse emissions or more tiers within their supply chain may choose to convert a number of suppliers to set targets, rather than reducing emissions by a percentage, since addressing the vast under layers would require a level of visibility they may not have.

Galvin offered the example of Walmart and Project Gigaton. In addition to reducing total emissions, the company said its top 100 would set science-based targets. Walmart’s top 100 suppliers are likely to be large companies, like L’Oreal and Unilever, which have their own goals and emissions reduction programs in place making that goal more achievable in the short term.

L’Oreal has committed to reducing absolute scope 3 emissions by 25% by 2030 from a 2016 baseline. And Unilever has pledged to reduce emissions from its products, taking into account their entire life cycle, by 50% by 2030 from a 2010 baseline.

“And the good thing about the Science-based Targets initiative is it gives buyers and procurement professionals a simple North star to point companies toward.”

Dexter Galvin

Global director for corporations and supply chain, CDP

“If you look out into your supply chain, of course, there will be a huge amount of your suppliers that are still at the quick win phase or haven’t even started on their journey, so they’ll have a huge amount of opportunity to reduce their emissions, ” Galvin said.

A few best practices have emerged with several heavy hitters like Walmart a few years into scope 3 reduction work. Freeze credits Walmart’s success in recruiting more than 2,000 suppliers to join Project Gigaton to the tools and resources Walmart provides to make accounting for reducing emissions easier for suppliers without an internal sustainability apparatus.

Walmart has built a dashboard of digital tools where suppliers can game out the emissions impact of operational adjustments. The retailer has also partnered with HSBC and Schneider electric to offer more favorable loans terms and a smoother path to energy transition for suppliers within the program.

Walmart’s Project Gigaton offers suppliers digital tools to track their emissions and run hypothetical reduction scenarios.

Courtesy of Wlalmart

Freeze and his team developed a framework built around energy, waste, packaging, agriculture, deforestation, and product use and design. Suppliers are encouraged to pick the segment most likely to make a dent in total emissions and start there with a basic goal.

“We created a really easy platform for suppliers to track progress so they can list the activities that they’ve done based on the volume of the product that they’re making. And that easily converts to greenhouse gas, ” he explained. Digital calculators allow suppliers to easily run hypotheticals to see where the biggest emissions bang for their change management buck is.

“Minimizing resources, minimizing energy, working to reduce packaging a little bit at a time — these are things that can just incrementally be done, but when you add it up, over our volume that we purchase … it’s a big deal, ” Freeze said.

Offering tools to make getting started a lighter lift is one way to get suppliers on board, but buyers like Walmart have plenty of power to wield through the supply chain to encourage conversion too. Telegraphing the importance of emissions tracking and reduction can go a long way. Unilever’s recent upgrade of its scope 3 goal stipulates that it will favor and seek out suppliers with their own emissions reduction programs — sending a signal to existing suppliers to get on board.

Making the business case

Transportation tends to be one of the largest contributors to scope 3 emissions, according to Anand Gopal, program officer at the William and Flora Hewlett Foundation. It’s also a place where the business case for emissions reduction is easy to see, he said, depending on the mode.

“For marine and aviation, you’re only left with just a few levers, ” said Gopal — namely to optimize the amount of payload per mile or nautical mile traveled by batching shipments and ensuring container space is fully utilized. Reducing transportation emissions will almost inevitably involve reducing airfreight usage — the mode with the highest emissions per freight-ton kilometer.

For rail and road, Gopal said there are more levers to pull in terms of routing and vehicles. Shippers can book with fleets that have some degree of electrification — an easier task in Europe compared to the U.S.

“I think that combination of leadership, plus experience, has really empowered them to really take this to the next level, and really put solutions in place that can help them go faster than many of us thought was even possible even two or three years ago. “

Steven Clarke

Director for corporate clean energy leadership, Ceres

In any transport mode, how shippers pack their goods can make a difference. Home Depot, which has not set a scope 3 target, removed pallets from trucks to maximize space usage, allowing the retailer to save emissions and costs through more efficient trucking.

Walmart had similar intentions at the start.

“Gigaton was really centered on actions that are good for business and actions that are good for the planet and if you can do both, that really makes clear sense, ” Freeze said.

Emissions reduction beyond scopes 1 and 2 somewhat comes down to leadership making climate change mitigation a priority and acquiring fluency with concepts over time, Clarke said. Walmart’s Freeze has been in various environmentally-focused roles at Walmart for 10 years.

“They become increasingly confident over time as to how they can deploy these solutions at scale, ” Clarke said of executives who commit to scope 3 emissions work. “I think that combination of leadership, plus experience, has really empowered them to really take this to the next level, and really put solutions in place that can help them go faster than many of us thought was even possible even two or three years ago. “

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