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Collaboration Key to Success for Achieving Net-Zero in the Supply Chain

The Supply Chain's Role in Achieving Net-Zero

Dec. 2, 2022
With supply chain emissions making up more than 70% of a business's carbon footprint, any progress toward net-zero must be done in tandem with its suppliers.

While making a net-zero pledge is a way to let the world know that your company is taking steps to tackle the climate issue, actually meeting those goals is more difficult.

To determine where are companies in their journey. BakerMcKenzie, surveyed 1,000 sustainability leaders and general counsel across nine global markets. The report, The Race to Net-Zero, revealed that too many companies are still attempting to go it alone — perhaps feeling there is no alternative when faced with the complexity of understanding their extended value chain.

However, the authors point out that the journey to net-zero cannot be traveled alone. Supply chain emissions (Scope 3 emissions) typically account for more than 70% of a business's carbon footprint, so any organization seeking to make progress toward net-zero must do so in tandem with its suppliers. 

But the survey found that a lot of organizations, 41%, say their organization has no view of their Scope 3 emissions and no plan in place to tackle them. And only 40% of organizations have started auditing their suppliers. 

And it's not that companies don't recognize the scale of the challenge they are facing with 62% acknowledging that building a net-zero supply chain would be the biggest transformation their organization has ever faced. A majority expect new regulation on Scope 3 emissions reductions and reporting within the next five years and accordingly, they recognize the need to start preparing for that regulation — failing to develop a net-zero transition plan may be perilous.

"There continues to be a lot of consternation about how companies look at their supply chains," says Mattias Hedwall, partner, at BakerMcKenzie, in the report. " With respect to Scope 3 emissions, there's concern about having to divulge information that is very remote from the company making the disclosure — and concern about the liability that may be associated with that." 

The report explores issues that are blocking progress and then offers some solutions to progress:

Competitor Collaboration

As the signs of climate change increase in intensity and frequency, businesses are under pressure from many directions to accelerate their emissions reduction efforts. Industry collaboration — along the supply chain and between competitors — is an important way to advance net-zero progress including by achieving systemic change before the window for net-zero transition closes.

Recognizing the power of partnership in tackling climate change, 73% of business leaders are willing to collaborate with competitors on net-zero transition.

Improvement in Target Setting

Achieving that transformation means unraveling complexity by setting out achievable and measurable short-term goals. Aspirational aims — set for future generations to deliver — are no longer sufficient. Science-based targets (SBT) provide a framework to develop a measured, measurable pathway for companies to reduce greenhouse gas emissions and 45% of organizations say they are committed to achieving SBT.

At present, however, only 18% have had their SBT validated by the Science Based Targets Initiative (SBTi) and defined a clear path to deliver them. Closing the gap between intent and action should be top of the to-do list for business leaders. Of course, reaching net-zero is not yet feasible for some organizations, in which case there is no merit in stating unattainable objectives.

To make true progress in the battle against climate change, it is imperative to set achievable targets — and meet them — with a focus on transparency, metrics, planning and concrete action. The SBTi supports private sector organizations in delivering against emissions reduction targets and has also developed sector-specific guidance for organizations.

Industry-Wide Benchmarking

It can propel net-zero efforts by facilitating meaningful data comparison across sectors, providing useful insight for businesses and also for investors, who may be seeking reliable data on sustainability-related risks and opportunities, to help them make informed financial decisions.

The survey found that 35% of respondents have recognized these benefits and reported that they now have a strong benchmarking model in place.

However, 80% of organizations are now doing some form of benchmarking — even if this is only occasionally.

Internal Coordination

To make meaningful progress toward net-zero, organizations need an integrated, holistic strategy that breaks down internal silos and builds connections across departments. Leadership teams must embed their net-zero targets within every level of their organization, encouraging a community approach and bringing discrete areas of the business together to ensure understanding and action are aligned.

Middle management must be engaged and should facilitate grassroots initiatives as well as directives driven from the top down. Sharing ownership of net-zero responsibilities can feel like a risky move, as it shifts the focus away from a singular role or discrete set of roles within a team and requires coordination across different groups. Done poorly, this can result in no one having accountability. But sharing the responsibility is a prerequisite for organizations wishing to transform at scale.