3 ways companies can reduce their indirect emissions throughout value chains

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Kyra Whitten, Vice President, Sustainability, Flex, President, Flex Foundation

Delivering on the commitment to reach net zero by 2050 will require companies to reduce not only Scope 1 and 2 emissions, which relate to what they produce directly. They also need to tackle Scope 3 emissions, which are those released throughout the value chain.

Scope 3 emissions can be challenging to capture and measure since they include emissions made during the transportation and distribution of products, the use of sold products, and many other areas.

Tackling scope 3 emissions is especially complicated in the manufacturing sector. It requires both the expert knowledge, measurement tools, and resources within an organization and the ability to collaborate across the value chain in scalable ways that bring others – like suppliers, customers and employees – along on the journey. A few common challenges within the manufacturing industry when addressing Scope 3 include:

• Driving alignment with a multitude of suppliers around a common, shared goal while recognizing that each may be at a different point in their sustainability journey.
• Ensuring value chain partners are empowered, know how to start reporting their emissions, and feel supported throughout the process.
• Standardizing the disclosure framework to collect and report data and guiding supplier goal-setting. These can be time- and resource-intensive endeavours.

Successfully addressing Scope 3 emissions require companies to incorporate the following three steps into their work with value chain partners:

1. Securing stakeholder buy-in

Accelerating sustainability across the value chain requires suppliers and customers to commit to their own emissions targets. This may not always be easy. For instance, depending on their maturity, suppliers may have different levels of know-how and access to the tools required to measure their operational emissions data baseline and set targets.

Even if they are relatively new to sustainability, the most important thing is to ensure that value chain partners share the same values and environmental commitments and view addressing Scope 3 emissions as a shared responsibility rather than an imposition.

At Flex, our preferred suppliers include both companies that are mature in their sustainability journeys and those that are relatively unfamiliar with setting emissions reduction targets. To get on the same page with our preferred suppliers and ease any concerns, we focused on meeting them where they were through personalized communication and training.

2. Creating true partnership across the value chain

Once stakeholders are on board with shared emissions reduction targets, companies must be ready to act as a guide through the process, particularly for those suppliers that are smaller or short on resources. The fastest way to empower suppliers to join you in tackling value chain emissions is through education and ongoing partnership.

It is crucial to meet with suppliers regularly to offer support, ensure accountability, and proactively share research to inform goal-setting over the near, mid-and long-term. Sustainability and a positive environmental impact must be a shared goal – a true partnership – and a company’s role with suppliers is one of facilitator and guide, not as the sole owner of the suppliers’ goals. Companies should provide suppliers with the guidance and support that they need to set emissions reduction targets and celebrate with them as they make progress towards their goals.

At Flex, we invite our preferred suppliers to disclose their emission data through a CDP (a non-profit environmental impact framework) questionnaire. From there, we introduce more educational tools and resources such as webinars, workshops, literature and one-on-one level-setting meetings to help suppliers become more familiar with the process and answer their questions. By empowering suppliers to set their own environmental targets based on a deep understanding, we ultimately invest in our own Scope 3 emissions reductions.

3. Standardization with disclosure organizations

Measurement is the backbone of any meaningful, impactful sustainability initiative. Setting achievable goals and making progress without a firm understanding of a starting point or baseline is impossible. If suppliers and customers are in the early days of their sustainability journey, asking them to measure Scope 3 emissions can cause anxiety.

Companies can make this exercise more manageable and less daunting by sharing lessons learned from measuring Scope 1 and 2 emissions. The methodologies, frameworks, and disclosure tools that have been successfully deployed for other emissions reduction targets can help suppliers when it comes to Scope 3 emissions reporting.

For example, at Flex, we do not leave our preferred suppliers to research different frameworks without any guidance or input. We advise our suppliers, and many choose to report using CDP’s system because it is cost-effective and appropriate for mitigating value chain emissions. Consult well-respected frameworks for standards compliance and sector-specific metrics to determine which works best for you and your value chain partners and your sustainability reporting purposes.

There are also many systems and tools on the market to help collect part of your organization’s Scope 3 emissions. I recommend analyzing and understanding your needs, the governance structure (i.e. who is responsible for inputting and managing the data), and your internal processes before choosing the appropriate tool for you. The greatest tool won’t be much help if you don’t have a solid strategy and strong internal alignment across your organization.

Discover

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

In 2021, Flex set sustainability goals, including the commitment that a portion of our customers and suppliers share responsibility for reducing Scope 3 emissions. Within the first year, 29% of our preferred suppliers had their own emissions reduction targets, while 48% of specified customers had science-based targets. This promising early success can be attributed to a collaborative approach that emphasizes partnership, shared goals, and education. We are proud of our solid foundation for addressing greenhouse gas emissions and will continue our journey towards net zero.

Though it can often be referred to as the race to net zero, none of us is in competition. Reaching net zero by 2050 requires unprecedented global collaboration and partnerships across ecosystems and value chains. For companies, successfully reducing Scope 3 emissions will demand deeper partnerships with suppliers and customers as we take decisive action to protect and preserve our world for future generations.