How to reduce the carbon footprint

We all understand the need to reduce emissions globally to combat global warming. Companies are under increasing pressure to do this, in particular from investors, consumers, regulators and employees. And just to give a bit of background, when you look at emissions, they fall into 3 categories, or scopes – Scopes 1, 2 and 3:

• Scope 1 refers to direct emissions from a company’s own production, such as manufacturing or processing of materials
• Scope 2 refers to indirect emissions related to the use of purchased energy, so if you get your energy from a coal powered source or a renewable source, that will directly impact your Scope 2 emissions
• Scope 3 refers to all other indirect emissions, of which a large part is from goods and services bought from suppliers and that occur throughout the value chain

The ratio of emissions between the 3 scopes will vary based on industry, but Scope 3 can be as much as 70-90% of a company’s total emissions in industries that manufacture end-product goods, industries such as in electronics, automotive, food and FMCG.

So when you combine the fact that Scope 3 covers predominantly goods and services that are bought into a company, plus the fact that Scope 3 is often the biggest emissions areas, then the role of Procurement becomes extremely important. The ability of the Procurement function to engage suppliers and drive down emissions will directly impact whether a company is able to hit its carbon reduction targets.

Because Scope 3 emissions come from suppliers, there’s already fundamental challenge, which is that you have limited control over what your suppliers do. However, when we look more specifically at client challenges we help with, there are three key ones we see most often:

Firstly, and most common with our clients, is the lack of data and transparency. Many companies simply don’t collect data on emissions, so they don’t know the scale of the problem or where to start – even those that do collect some data may be using third-party databases and benchmarks which will be less accurate than getting it directly from suppliers

Secondly, cost: the costs and investment involved with decarbonizing can be very high. This directly conflicts with procurement’s traditional role of trying to reduce costs. I’ve spoken to many procurement teams who ask how they should balance cost against carbon in sourcing decisions for example. Other companies simply don’t have money to invest in sustainability due to recent inflationary challenges

Finally, we see a gap in expertise and knowledge around decarbonization – there’s a lot of new technology and research underway, different business models being developed and companies are trying things that have never been done before. For example: we have clients in the food sector who are trying to understand how they get farmers to switch to regenerative agriculture methods, or how to procure seaweed in bulk to use as fertiliser

And on top of these three reasons, you also have: regulatory uncertainty, a challenging macro-economic environment, technological barriers, the political landscape, limited infrastructure, resistance to change and many more – so there’s definitely a lot to take into account when making decisions and knowing where to prioritise.

Our main proposition approaches the challenge from 5 key areas:

• SOA: Firstly we start with the assessment phase – our Sustainability Opportunity Assessment or SOA. This is the key starting point to help build a baseline, understand your ESG procurement maturity and define key abatement levers to understand where to focus. We often do this alongside a typical cost assessment to find cost savings to fund the carbon journey – helping mitigate the challenge of investment

• Then we move into design and implementation where we look at 3 main levers: (i) reducing emissions from suppliers, (ii) reducing emissions from the supply chain, and (iii) reducing emissions from products

• Suppliers: When we talk about suppliers, we look at how to actively influence suppliers through incentives and disincentives, plus how you adapt sourcing processes to select new suppliers that have lower emissions. We also recommend looking more across the value chain and at the broader ecosystem – for example how can you work with your supplier’s suppliers more? Or form alliances with competitors to drive industry change?

• Supply Chain: Regarding the supply chain, we start off by looking at where you should source from in the world based on emissions – so rather than re-shoring or nearshoring, we look at green-shoring. For a manufacturing client, we looked at the impact of the new CBAM regulations to advise whether they should source steel more from China or Europe. We also look at our clients’ logistics footprint to see how to reduce it, e.g. Switching from air freight to sea freight, or moving from diesel vans to Evs

• Product Design: The final lever is around product design, which includes how to build sustainability into your design processes, how to conduct value engineering to redesign products and product lifecycle management

• Op Model: The final fifth area we support on is Operating Model: The priority areas for clients are getting data, upskilling their teams and refining procurement processes to factor sustainability more into decision making

Using these 5 elements, we support clients on their end-to-end decarbonization journey to help them reach their carbon goals.