The snowball effect of supplier engagement: cutting emissions through science-based targets

Scope 3 emissions, those outside an organization’s direct control, are proving the most stubborn to reduce. Key to success is more companies working with their suppliers to adopt science-based targets throughout the whole value chain

ClimateGlobal

Shanghai Port, China, the world's busiest port. An estimated 30% of global supply chains originate in China. ©iStock

This year alone, we’ve experienced four of the hottest months on record and seen extreme weather events decimate local communities and economies. From floods in Greece that have caused billions of dollars in damage to Canada’s worst wildfire season, everyone is feeling the Earth’s final warning: cut emissions now before it’s too late.

The Intergovernmental Panel on Climate Change (IPCC) established 1.5°C of global warming as the limit that our planet can tolerate before the effects of the climate crisis become irreversible. The pathway to prevent overshoot is clear: halve emissions by 2030 and reach net zero by 2050. Failure to do so could shave 11% to 14% off global economic output by mid-century. That amounts to as much as USD 23 trillion – around the size of the entire US economy – in reduced annual global economic output worldwide. To remain within the 1.5°C temperature boundary while mitigating the human and economic cost of the climate crisis, we need ambitious action from the private sector.

That’s what science-based targets are for: to enable businesses to set ambitious emissions-reduction targets in line with the latest climate science. The Science Based Targets initiative (SBTi) publishes criteria and guidance to help businesses understand how quickly and by how much they need to cut emissions to align with the IPCC’s 1.5°C threshold.

But not all industries are the same. That’s why the SBTi’s sector-specific guidance ensures that businesses consider the unique context of their industry when developing targets. Recent guidance for the steel sector, heavily reliant on coal, acknowledged that the rate at which the sector can decarbonize may differ from the overall rate of decarbonization possible by industry as a whole. Likewise, the International Energy Agency calls on sectors like maritime shipping – a major part of the global economy’s scope 3 emissions – to decarbonize at a faster pace due to their impact on and interconnectedness to other sectors. The SBTi’s maritime guidance takes that into account to enable shipping companies to align with net zero by 2040, rather than by 2050 as for most other sectors.

The scope 3 challenge

Setting and progressing against emissions-reduction targets for scope 1 (greenhouse gas emissions from sources an organization controls directly) and scope 2 (those it causes indirectly) is quickly becoming a reality for businesses across all sectors and regions. Yet scope 3 emissions (those outside of an organization’s direct control, like those from its supply chain) remain a real challenge. 

According to CDP, scope 3 emissions are 11.4 times larger on average than direct emissions. From data limitations to influencing suppliers, businesses have cited scope 3 as one of the biggest hurdles to setting and achieving science-based targets. Yet, as companies increasingly set those targets, they must account for their scope 3 emissions. 

The first movement of businesses setting targets through the SBTi was concentrated in Europe, where market saturation of science-based targets remains high to this day. But the same companies quickly realized that addressing scope 3 emissions meant putting pressure on suppliers to cut carbon emissions, creating a snowball effect with global implications.

A supplier snowball effect

Consider the device you are using to read this. It had an origin story: it started its life in lots of little pieces, spread across different factories that potentially spanned countries and continents, sourced from ingredients gathered all over the world. Most likely assembled in China or somewhere in the region, the device was shipped to you wherever you happen to be. It’s the origin story of most devices: a vast proportion of products originate in some shape or form in Asia. Indeed, an estimated 30% of supply chains originate in China alone. 

Until COVID-related disruptions, the fast-paced globalization that defined trade flows had a singular focus on cost. Although change was already afoot, the focus on costs for global supply chains is now giving way to an emphasis on resilience and sustainability.

Pressure on suppliers up and down value chains is already having a demonstrable impact, shown by the growth of science-based targets from the world’s biggest supplying nations. In 2022, Japan had the highest number of companies setting targets, while China saw the steepest growth (194%) in the number of businesses with validated targets.

Tackling scope 3 through supplier engagement targets

That’s why, in 2023, the SBTi launched its Supplier Engagement Guidance for working with suppliers to tackle scope 3 emissions. Welcomed wholeheartedly by end users and raw material purchasers alike, the guidance identifies key steps, including getting buy-in, identifying and assigning roles and responsibilities, and tracking progress.

The guidance is designed for companies that are considering, or have already set, supplier engagement targets. These targets commit a company to sourcing a certain percentage of goods and services from companies that have also set science-based targets with the SBTi. 

By focusing on engagement with a defined set of suppliers in the near term, supplier engagement targets enable businesses to deliver on scope 3 ambition, even when granular emissions data is challenging to track or unavailable. Working through the guidance, businesses can evaluate, develop, and set supplier engagement targets, implement engagement programs, and fully understand what it takes to achieve these goals. 

The benefits of such targets extend beyond emissions reduction – they can also result in higher-quality supplier relationships, which will enhance efficiency, transparency, and resiliency. This, in turn, can build credibility with investors, customers, and employees, who increasingly expect companies to take broader responsibility for impacts across their value chain.

Companies have also found supplier engagement targets easier to track, as they only need to take stock of which suppliers have set targets aligned to SBTi criteria.

Supplier engagement champions

AstraZeneca and H&M Group, two seemingly unrelated companies, have something deeply meaningful in common: both implemented supplier engagement programs to help rapidly cut scope 3 emissions around the world.

AstraZeneca’s target states that 95% of its suppliers (by spend) covering purchased goods and services and capital goods, and 50% of its suppliers (by spend) covering upstream transportation and distribution and business travel will set science-based targets by 2025. By developing and executing its Sustainability Champions Network engagement program, AstraZeneca has been able to clearly communicate expectations for suppliers while also creating dedicated resources for supporting suppliers to set their own targets.

Securing top-down, internal buy-in was key to AstraZeneca implementing clear and prescriptive standards for suppliers. It has enabled the business to develop a host of resources for its supply chain. Organizing an annual supplier conference, offering internal webinars and training, and sharing clear reporting expectations has already prompted an 18% bump in the number of AstraZeneca’s suppliers reporting emissions to CDP. This is especially significant given the low growth of science-based targets in the biotech, healthcare, and pharma sector.

H&M, meanwhile, has committed to reduce absolute scope 3 emissions by 56% by 2030, and is also using its own supplier engagement program to achieve absolute reductions. Suppliers submit emissions-reduction roadmaps to the company’s sustainability team, including detailed achievement plans. This enables H&M to provide the support necessary for its supply chain to set science-based targets and start rapidly decarbonizing.

Meeting individually with suppliers each year, H&M can effectively communicate requirements for suppliers and in return provides consultations and audits to identify the biggest opportunities and challenges. To enable reductions from its suppliers, the company supports suppliers with sourcing renewable electricity and explores how to make it more readily available to them. In its advocacy work, H&M works with governments in its production markets to raise awareness that access to renewable electricity will become a fundamental competitive advantage over the next few years, and urges them to take the necessary steps for reforming the energy markets.

From snowball to avalanche

The need for more ambitious climate action from the private sector is growing by the day. The supply chain can seem intimidating when it comes to sustainability – but it might also be where a company’s biggest impact can be made.

We may be witnessing highly promising developments on scope 3, but now is not the time to slow down. We must accelerate, magnify, and multiply the snowball effect and drive exponential change, so that this flurry of activity becomes an avalanche.

The SBTi now calls on all companies and leaders: it’s up to you to kickstart the avalanche of corporate climate action by engaging with your suppliers to set their own science-based targets, and for those suppliers to then engage their own value chain. Together, we must reach a critical mass of exponential decarbonization to avoid the worst effects of climate change.

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