Your company may have started on the path to net zero carbon emissions. To reach your target, your organization has to negate 100% of its scope 1, 2 and 3 emissions globally. Scope 3—emissions from your value chain outside of your organization—is often the largest area of emissions, sometimes stretching across continents, and can be the most difficult to quantify and address.
The scope 3 challenge is quickly becoming a top priority for corporations and their suppliers as each looks to make meaningful progress towards 2030 and 2050 targets. There are several key levers to help address scope 3 emissions, and renewable energy (RE) purchasing is one of the more accessible and impactful options.
In most industries, a thoughtful, global net zero strategy prioritizes renewable energy in direct operations and supply chains. Whether you’re a corporation or a supplier, you’re no doubt looking for ways to do so efficiently, in concert with your entire cast of working partners. Fortunately, a strong symbiotic relationship is possible. Corporates and suppliers can help each other create a strategy that enables meaningful action and meaningful progress.
Suppliers Look to Corporate Customers for a Clear Action Plan
Suppliers of all sizes and industries are looking for a few things from their corporate customers, to help them achieve net zero targets:
Clear Direction and Incentive
Supplying companies often have several customers and can receive mixed or unclear direction from each of them on sustainability initiatives. When corporations clearly define how net zero and renewable energy progress factor into sourcing decisions, sustainability or account managers can use these requirements to leverage action within their own companies. If a large customer requires a supplier to procure, say, 50% renewable energy by 2030, leaders of that supplier are much more likely to mobilize towards that goal to stay in alignment with an important client.
Suppliers benefit most from (and are more likely to meet) requirements that factor in situational differences. Corporates should try to tailor their shared emissions reduction target based on location, load size, or product / service category to increase buy-in from suppliers. Guidance on what’s acceptable within the industry (e.g., carbon accounting standards) and what’s recommended within a particular supply chain (e.g., requiring additionality) is also very helpful.
Even with these directions, suppliers still need the autonomy to determine the best course of action to achieve climate goals. This independence naturally encourages buy-in in the supplying organization and ensures compliance fits with their own business model.
Collaborative Environment
Given the sometimes competitive nature of supply chains, it is important for corporates to structure their renewable energy programs with clear benefits of collaboration. By sharing knowledge within and across supplier categories, organizations can get to impact faster. For example, solutions that work for one beef supplier are likely applicable to another. The ambitious targets and supporting practices set by one packaging manufacturer could be adopted by others.
Collaboration doesn’t necessarily mean sharing competitive information. But many organizations find it helpful to funnel the sharing of best practices through an outside advisor or a common corporate customer to remain anonymous and protect sensitive information.
Tangible Support
A two-pronged approach of education and implementation can help meet suppliers where they’re at in their net zero journey.
Figure 1: Two-way approach to inform, and support action
When it comes to renewable energy and other emissions reduction strategies, organizations are often just getting started and are keen to learn what solutions are out there, key pros and cons, how to compare options and costs, how to build an implementation strategy, and ways to mitigate risks. Suppliers benefit from tailored content conveyed during group and individual education sessions where questions are welcome. The combination fosters information sharing across the supply chain and ensures renewable energy is understood within each company’s context. Connecting suppliers to an experienced advisor to conduct this education brings credibility to the content and provides a dedicated resource without straining the corporate’s own renewable energy or sustainability team.
Suppliers already on the RE train, or just graduating from the “exploration” phase, may look to corporate customers (often more experienced in RE procurement) for implementation guidance and support. This could come in the form of procurement best practices, vetted advisors, or direct collaboration (e.g., buyer aggregation). Even during the implementation phase, education will be an ongoing practice as involved team members evolve to include additional functions, new solutions emerge, and the policy landscape shifts.
While advisory support is helpful to provide expertise throughout the process, suppliers are more likely to create internal buy-in if this cost is subsidized or covered by their corporate buyer(s). Having support from an experienced advisor can improve solution selection and negotiations. If the RE solution(s) available are cost-additive, suppliers also look to their corporate customers to offset some of the additional spend.
Suppliers also benefit from the ability to collaborate within the value chain ecosystem. Sharing ideas promotes creative solutions and efficient action. There’s even opportunity to access some RE solutions collectively. In an aggregation setting, suppliers can benefit from their customer’s or peers’ experience, brand, and sometimes credit when collaborating, which can unlock large scale cost-effective solutions.
Succinct, Understandable Reporting Requirements
In addition to the minimum requirements for action, suppliers also need clear direction on how progress will be reported and evaluated going forward. Topics of interest often include minimum action, best practices, reporting format, and evaluation criteria (separated by supplier category if necessary).
Coordinating procurement reporting with other public efforts such as CDP or the CSRD allows information to be repurposed and offers all your suppliers a uniform approach to disclosure.
Case Study: McDonald’s and Logistics Suppliers
With support from Coho, McDonald’s has provided many of its suppliers the direction, education, and implementation support described above. McDonald’s reached a major milestone in its supplier engagement when it signed a VPPA with five logistics suppliers in North America for a total of 189 MW of solar electricity. With this one transaction, 100 percent of McDonald’s logistics supply chain for all its U.S. restaurants will be powered by renewable energy. It is important to note that McDonald’s did not buy energy for its suppliers. It merely included its suppliers in its renewable energy procurement strategy, to everyone’s benefit.
What You Can Do as a Leading Corporate
Being clear and specific about your climate initiatives with your value chain partners isn’t the same as implementing climate initiatives on their behalf (such as purchasing RE to count for your suppliers). Suppliers must always maintain their own agency when tackling climate targets. Still, companies and suppliers tend to do best when they create and execute meaningful support programs reaching for the same goal.
If you’re an organization looking to support supplier action, you can start by:
- Understanding your own footprint and how large scope 3 emissions are by creating an emissions baseline.
- Prioritizing the largest emitters by identifying key supplier categories and countries, both for level of emissions and ability to address them.
- Highlighting key levers for reducing emissions (e.g., efficient equipment, electrification, renewable energy) by category and country.
- Helping suppliers to set implementation targets based on realistic but ambitious changes related to your own goals.
- Codifying scope 2 organizational knowledge and plan for disseminating learnings through the supply chain.
- Structuring reporting infrastructure and cadence based on industry standards and organizational priorities.
- Considering what level of support you’re able to provide (e.g., vetted advisors, subsidized solution costs, buyer aggregation, credit backing, etc.).
- Creating an internal program with leadership buy-in, funding, and dedicated staffing to incorporate sustainability into sourcing for the future.
From there, you can communicate clear requirements and related support to your suppliers including:
- Comparing notes with key suppliers to understand gaps in knowledge and desired support.
- Creating and socializing requirements and related support, based on what your net zero ambitions require of suppliers.*
- Providing tailored support so suppliers can make progress on their own towards quantifying their emissions baseline, setting a target, and implementing emissions reduction solutions.
- Encouraging supplier-led progress with vetted advisors and subsidized fees.
- Fostering an environment of respect and collaboration within and across categories.
- Over time, elevating success stories across suppliers and using positive incentives or gamification.
*In Europe, under the CSRD reporting requirements, listed companies with over 500 employees will need to report on science-based targets and progress for FY2024 data (report publication in 2025). European suppliers should begin complying with upcoming CSRD regulations by reporting science-based targets and progress data starting in FY2024 to be ready for 2025 deadlines.
Once your supplier requirements and support are in place, check back regularly on progress and to receive feedback on the program. Informal sessions can tailor the program as it progresses, and also allow some straggler suppliers to still sign up.
When it’s time for suppliers to formally report on progress, give plenty of advanced warning and guidance on the structure. Make yourself available to answer questions, especially in the first year of mandatory reporting. It’s a great way to support suppliers as they manage your requirements, other customer requests, CDP, CSRD, etc.
Remember, no one entity can reach net zero on its own.
What’s Next?
Action is a two-way street between corporates and their suppliers as the business world works towards net zero. If you’re an organization prioritizing a resilient supply chain, you should quickly work to quantify your scope 3 emissions and supply chain risks, creating a support program accordingly. If you’re a supplier to big brands looking for clear direction on their sustainability priorities, connect with them about what programs they may have in place—or help to shape them.
If you have questions about how to structure and rollout a supply chain climate strategy—whether you’re a corporation or a supplier to one—Coho can help.
