Robin Lancaster finds out how large companies are helping suppliers to manage GHG emissions
A lot of companies around the world have become adept at measuring, reporting and reducing greenhouse-gas (GHG) emissions, be it for corporate social responsibility reasons or because they are covered by mandatory carbon pricing mechanisms. For most, this involves assessing direct emissions from sources that they own or control - so-called scope one emissions.
However, increasingly enterprises are looking at their wider carbon footprint to also incorporate indirect sources of GHG emissions. Scope two emissions come from the consumption of purchased electricity, heat or steam, while scope three covers all other indirect sources of emissions, particularly those from the supply chain.
Challenging environment
Tackling supply chain emissions, which for some companies form the bulk of their carbon footprint, poses big challenges given the numerous sources of supply, drawn from different geographies and various industry sectors. "Quantifying GHG emissions in the supply chain is considered one of the most resource-intense, time-consuming and uncertain part of a GHG inventory," says Tiffany Day, director of sustainability at US-based FirstCarbon Solutions (FCS), which provides consultancy, data management and software solutions for companies looking to deal with their environmental risks.
"[We] find that many organisations struggle with coordinating the information-gathering across their supply chain, verifying the accuracy of the data, collating it with their own and continually managing it in one place."
According to Day, companies can estimate supply chain emissions by analysing the data found in their financial general ledger or they can request that information directly from the firms in their supply chains. "These can be tier one suppliers, which directly provide goods and services; tier two suppliers, which provide goods and services to the tier one suppliers; and companies even further down the supply chain."
Although Day says tracking supply chain emissions data beyond tier two can be daunting, it has not stopped companies addressing the issue. Some firms, such as beverages company Diageo, have even set reduction targets for supply chain emissions.
The UK based company has focused on its scope one and two emissions for more than 10 years. In July, it embarked on plans to cut its supply chain emissions by 30% from their fiscal 2015 levels, seeking to meet this target by 2020. Diageo's two main sources of emissions in the supply chain are upstream processes, such as packaging and bottle manufacture, which account for about 35%; and logistics and transport, which constitute a further 25%.
Michael Alexander, the company's head of water, environment, agriculture and sustainability, says: "The difficulty is that our operating model is decentralised across 21 markets, which are all autonomous business units that make their own decisions. We have to work with them from the global centre ... [as] decentralised small local teams are limited in driving global perspectives."
The company also prioritises the sectors in which it thinks most impact can be made. "We can't engage with every supplier," says Alexander. "A big part of our footprint is agriculture, but that might mean dealing with hundreds of smallholders in Africa. We are not going to be able to visit hundreds of smallholders, but we can go to a glass manufacturer. It is easier to start with companies that have the bigger impact."
A programme of support
Diageo is a long-standing member of the non-profit organisation CDP (formerly the Carbon Disclosure Project), which has been working for more than 10 years on improving companies' disclosure of their environmental impacts. CDP has also become the fulcrum of many firms' efforts to deal with supply chain emissions through its supply chain programme.
The programme, which currently has 66 members, aims to help member companies and organisations engage with their suppliers and try to ensure that they are effectively managing the risks posed by climate change as well as water shortages. It has just completed its third year and is headed by Dexter Galvin.
"My team are basically account managers and relationship managers," says Galvin. "Member companies select suppliers themselves and we support them on best practice. The vast majority are looking at a spend proxy covering about 80% of their spend. They don't want to cover all bases, just the most critical."
One way in which CDP has helped to improve suppliers' engagement with supply chain emissions management has been its collaborative approach. Instead of responding to requests for information from 30 or 40 companies, each asking different questions and using varying methodologies, suppliers can follow a single, standardised procedure. "It is a collaborative approach that drives a more effective response," says Galvin. "Direct engagement with suppliers is vital ... [because it] effects actual change. The process of getting a company to disclose makes it more likely to report, reduce or set an emissions target."
There are still challenges, however, particularly when dealing with small and medium-sized enterprises in the supply chain. "Large corporations, particularly listed ones, have a lot of reporting requirements beyond the environment. So they are used to reporting data to customer and have a regulatory team in place," explains Galvin.
"For smaller organisations, this is not the case. It is a bit more of a challenge. But it is also an opportunity because many have not thought of [GHG emissions] as a business issue ... to create a strategy to identify millions of dollars of savings."
Data gathering
Although suppliers may struggle to find the resources to deal with a request about their carbon footprint, they may be reluctant to respond for other reasons. "One of the biggest is that they don't know where to find the data, much less how to best collect and analyse it," says Day at FCS.
Information solutions provider RELX Group has set up what it calls a "supplier academy" to help companies in its supply chain to measure GHG emissions and also find energy efficiency opportunities. "Our suppliers have different levels of maturity in managing carbon emissions," says Márcia Balisciano, director of corporate responsibility at the company. "For those in industries with historically low environmental impact, where carbon management has not traditionally been a priority, we provide guidance through our supplier academy."
RELX uses what it calls "comprehensive environmental data archive emission factors", which are applied to "procurement spend categories to approximate total supply chain emissions and to identify significant sources", says Balisciano. "We also conduct an annual survey to garner additional information, including whether suppliers set carbon reduction targets and engage in public reporting on their environmental performance." The company also requires information on GHG emissions when seeking new suppliers. "We embed environmental questions into our e-sourcing tool in order to select suppliers that are most effectively managing their environmental impact," Balisciano says. "We are finding that our requests for information are mirrored by other supplier customers, helping to advance awareness and responsiveness."
Demand driven
Customer pressure on suppliers to take action on climate change is a growing feature of corporate social responsibility (CSR).
Unilever expects all its third-party manufacturers and suppliers to report emissions and energy data for its products to the CDP, says John Maguire, group manufacturing sustainability director at fast moving consumer goods company.
It is a similar story at French cosmetics business L'Oréal, which since 2014 has compelled strategic suppliers to take part in the CDP supply chain programme. "We actively involve our suppliers in our CSR commitments," says Miguel Castellanos, global environment, health & safety director at L'Oréal. "We evaluate their CSR performance and offer tools and guidance to help them improve in that area."
L'Oréal has piloted what it describes as a "wall-to-wall" component supply model at its Rambouillet plant in France, where the company's shampoo bottle supplier, Alpla, has integrated its production with L'Oréal's shampoo and conditioner manufacture. "Bottles are now produced and filled onsite, which allows us to reduce carbon dioxide emissions, waste and costs related to transport, as well as to significantly limit the stocking of bottles in the plant," says Castellanos.
"In addition to eliminating deliveries by truck and related fuel consumption, the in-house production of bottles also eliminates the use of corrugated transport packaging and wooden pallets." L'Oréal has extended the model to facilities in Belgium, Italy and the US.
The company also performs lifecycle analysis of its products, which has shown that 58% come from the use of its range by consumers. "An important focus of our work is to inform and encourage consumers in regard of more sustainable lifestyles," says Castellanos. "We are working now on a product assessment tool that will make it possible to evaluate and improve products. It will be able to empower consumers to make more informed choices by giving them the [environmental] information they need." The tool is expected to be available in 2018 at the latest.
Other companies' carbon footprints are dominated by supply chain emissions. These include Imperial Tobacco Group. The process of curing tobacco accounts for more GHG emissions than the company's combined scope one and two emissions. In addition, there are also scope three emissions from tobacco growing, and from paper, filter acetate and packaging production.
The company has set up a programme focusing on emissions from tobacco curing. "We incentivise farmers to use fuel-efficient curing barns and plant trees to become self-sufficient for fuel wood in Africa," says Chris Wickenden, group occupational health, safety and environment manager at Imperial Tobacco. "Farmers reduce input costs and improve yield, making this a win-win, with payments linked to the survival and growth of the trees," he says.
The company also works with CDP to identify suppliers that could benefit most from emissions reduction opportunities. "Suppliers can sign up for free, and they get a two-page analysis of their emissions and suggestions for making reductions they could implement that have a short payback period," says Wickenden. "We can also put them in touch with organisations that can deliver the projects for them."
Driving forward
CDP also offers Action Exchange, which aims to provide responding companies with access to technology, intelligence and solutions that will help them reduce GHG emissions within "good" payback periods. "There are massive opportunities ... that often have payback periods of less than a year," says Galvin. "For example, changing to LED light bulbs offers a significant return on investment."
Companies looking to improve the assessment of supply chain emissions need to acquire the right systems, according Day: "By putting the processes, technologies and information management systems in place, companies will begin to automate the process as much as possible, determine areas of operational efficiencies in the overall management of the data, and identify the trends and best practices by benchmarking internally and externally."
Further collaboration between companies, as well as industry sectors, will also be required. "Greater collaboration across industry sectors would help raise standards and ensure wider availability of data," says Balisciano. "We have seen the benefit first hand, as a founding member of the publishers' database for Responsible Environmental Paper Sourcing. Alongside peers, we have gained a better understanding of the sustainability of the papers we buy."
Having more companies requesting information about supply chain emissions will also prompt more action from suppliers, according to commentators. "If a supplier is asked by one company, there is a 30% chance a response; if two companies ask the same supplier, there is a 60% chance of a response; but if three ask, it shoots up to 90%," says Gary Hanifan, supply chain lead at Accenture Global Sustainability, which helps CDP with its supply chain programme.
For Wickenden at Imperial Tobacco, the price of carbon will be an important factor in improving how supply chain emissions are dealt with in the future.
We need sustainable supplies of input materials at the right price, but there is a danger that short-term commercial realities might work against us," he says. "There is still a low price for carbon. Business and governments need to work out a fair mechanism to factor in the external cost of carbon emissions."
