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Where do the products you use come from? How are they made and transported? Who supplies your products? Do they use sustainable methods and materials? Are their carbon emissions high? Do you have a baseline with a heat map of scope 3 emissions in your company? If you’re looking to go net-zero, finding answers to these questions is crucial but not as hard as you might think.
The world has reached a crucial point in the effort to address the climate crisis. Scientists and environment experts are calling for immediate actions to combat climate change. They say that limiting average global temperature increases to below 1.5 degrees C – as envisioned through the Paris Agreement – requires a reduction in emissions by around 45% in the next ten years. According to the Intergovernmental Panel on Climate Change (IPCC), this would put the world on a trajectory to reach net-zero emissions by 2050.
Additionally, the dramatic predictions the UN Intergovernmental Panel on Climate Change made earlier in 2021 have highlighted the consequences of continued carbon emissions and led corporations worldwide to reconsider their policies around carbon emissions.
As more and more manufacturers embark on the journey to net-zero, procurement has become one of the biggest factors in meeting ambitious carbon reduction targets. There's a good reason for this, as, in many sectors, emissions from suppliers have the highest impact on a company's carbon footprint.
As a company's supply chain emissions look meager compared to the greenhouse gas (GHG) emissions coming from its direct operations, few companies have even begun to address it.
What is Sustainable Procurement
Sustainable procurement means buying goods, services, and utilities in a way that accords value for money by benefiting the organization, society, and economy while minimizing damage to the environment.
To make economically, socially, and environmentally responsible purchases, one must understand the consequences. This requires information on the production and transportation of goods, as well as insight into social and environmental conditions at the manufacturer.
Why Procurement has a Vital Role to Play in Carbon Reduction
A carbon-neutral supply chain doesn’t just happen — procurement is where it starts. Companies are actively playing a role in this transition. As of the time of writing this blog, 942 companies have committed to set emissions reduction targets aligned with climate science through the science-based targets initiative.
But, for many companies, especially those that have already taken decarbonization actions, most of their climate impact falls outside of their direct control in Scope 3 emissions.
What is Scope 3 Emission
Scope 1 is a company's direct emissions. Scope 2 is emissions associated with a company's purchased energy, such as electricity. Many organizations stop their decarbonization efforts there, but Scope 3 is everything else. These are the emissions associated with all the goods and services companies buy.
As per the GHG Protocol, scope 3 emissions are all the indirect emissions occurring in a company's value chain, including both upstream and downstream.
Many organizations say 80% of their emissions fall under the auspices of Scope 3 and, for some, they account for as much as 97% of their overall emissions.
Why Sustainable Procurement is Important for You
Sustainable procurement unites three related areas of concern—social, environmental and economic issues. With sustainable procurement, managing supplier relationships relies on balancing the different and sometimes competing priorities that occur across these three dimensions. And so, during a procurement, you may emphasize certain sustainability aspects over others, depending on the nature of the good/service and market conditions.
Whatever your environmental, social, and governance procurement priorities are, sustainable practices can prove beneficial to your company and society as a whole in many ways.
- 15-30% increase in brand value
- 9-16% reduction in cost
- Revenue uplift of 5-20%
- Significant company risk reduction
- Improved customer health, local welfare and labor standards (wages, working conditions)
- Carbon gas reduction of 13-22% on overall footprint
The escalating climate crisis facing all of us demands immediate action. This urgency is based on scientific predictions that suggest the world has roughly eight years before the effects of global warming become irreversible.
Manufacturers recognize that they must play a role in global efforts to respond to the climate emergency. As per a recent survey by Capgemini, 62 percent of manufacturers cited reducing their carbon footprint as an environmental priority, and 91 percent aimed to eliminate their use of fossil fuels entirely by 2040.
However, failing to use a sustainable approach will make these sustainability goals impossible to reach. This procurement will have to get an end-to-end picture of materials they source by working closely with suppliers to understand their commitments to sustainability.
How to Get Ahead With Your Sustainability Journey
The first step towards reducing Scope 3 (Indirect, Supply Chain) emissions will be to understand the sources of these emissions and what data is available. This will involve emission tracking and the production of a plan outlining how to develop the reporting for this area.
Data and analytics, combined with mindful visualization techniques, are valuable tools that make it easier for you to track your supply chain emissions, report them, and identify sustainable opportunities.
Best Practices for Transitioning to Green Procurement
- Focus on the business value of Scope 3 emissions measurement when communicating with your company
- Create high-level ESG transparency to plan and ascertain what information is already available, and how easily additional data can be obtained.
- Embrace a collaborative mindset: Engage with companies to obtain primary data or collaborate in person at an appropriate level of detail and scope to build out an understanding of the vital areas to focus on, and to bring those plans to fruition.
- Identify several of your most important products and the categories in which they fall. Then study each category to identify where sustainable improvements can be made.
- Make sure your suppliers feel that they're part of the value chain to improve the efficiency of products and to meet end-consumer needs.
- Aspire towards continuous improvement.
- Help your decision-makers see the big picture by showing them how their decisions can impact the journey to net-zero, not just their part of it. Reward early adopters and breakthrough ideas.
4 Steps to Kickstart Your Sustainable Procurement Journey
Procurement leaders can transform their organizations by taking the following four steps:
Step 1 - Create high-level ESG transparency: At Ignite, we use third-party enrichments and supplier self-assessment tool to get automatic greenhouse gas emission estimates across our spend, quantity, or product-level data. This helps us create baselines and identify carbon emission hotspots.
Step 2 - Analyze the data: Next you have to use the GHG emission or assessment data you have gathered individually or together to gain a deeper understanding of your environmental impact. Ignite’s customizable dashboards lets you go granular and analyze results the way you prefer to gain insight into a subject of interest.
Step 3 - Collaborate: Use the data transparency and analysis to work with your colleagues and suppliers on emission reduction measures, negotiations, sustainability reporting, and setting annual carbon reduction targets.
Step 4 - Track, continuously analyze and monitor: It’s important to continuously analyze your spend and emissions and use that information to track development and monitor the success of your carbon reduction measures in real-time. With Ignite Spend Analysis and Initiative and Task Management features, you can analyze your spend, identify whether your carbon reduction plan is on track with your overall decarbonization goals, check if different reduction measures are working as expected.
How to Set Off on the Right Foot With Ethical and Sustainable Procurement
Managing the environmental impact of a business while also balancing social and governance issues is not an easy task. But it's something that procurement departments can take steps to improve.
It’s important for procurement professionals to embed ESG practices in the company. This means learning how to evaluate and compare the ESG credentials of potential and existing suppliers and how to use carbon emission accounting principles to consider the impact of different supply options.
Since procurement is at the forefront of the shift to a sustainable business model, ambitious CPOs need to see this change through and be ready with new tools, technology, and data sources to facilitate the identification of suppliers with favorable ESG footprints and achieve the sustainability goals.