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Playbook for Engaging Suppliers in Climate Action

Playbook for Engaging Suppliers in Climate Action

June 12, 2024
A guide for manufacturers on how to engage their suppliers in meaningful climate action.

The climate crisis demands a global collaborative effort. Reducing operational emissions won't move the needle enough — manufacturers need decisive decarbonization action from suppliers, too.

Supply chain emissions are 11.4 times greater than operational emissions, accounting for over 90% of an organization's total greenhouse gas (GHG) output. As a result, manufacturers' climate risk is intrinsically linked to that of their suppliers. To mitigate these risks and build a resilient supply chain, organizations must engage with partners to collaboratively reduce emissions.

Decarbonizing the supply chain is a complex undertaking, but it is possible. Walmart — the world's largest retailer with 100,000 suppliers — reached its GHG emissions target six years early, demonstrating the impact of an effective supplier engagement strategy. Companies of all sizes and at all levels of climate program maturity can make progress. Even if it's not on the level of Walmart's one billion metric tons of avoided emissions, any progress contributes to decarbonization goals.

These steps will guide manufacturers in engaging their suppliers in meaningful climate action.

1. Set a goal

A manufacturer's size and climate program maturity will affect the goals of engagement efforts. Companies already possessing extensive vendor emissions data can set a science-based target (SBT) aligned with global climate goals. Those organizations quantifying value chain (scope 3) emissions for the first time may set a goal of collecting a certain amount of data within a specified time period. Change takes time, and every organization must start somewhere.

2. Prioritize suppliers for direct engagement

Engaging with every supply chain partner right away is impractical, if not impossible. Manufacturers must thoughtfully select which suppliers to prioritize. There are several approaches to deciding the initial targets.

      Established relationships or influence

Evaluate vendor relationships. Those with whom the organization has established connections are more likely to respond to inquiries and engage in reduction efforts.

Additionally, manufacturers can consider the level of influence they have on a supplier. If the organization accounts for a significant portion of a vendor's revenue, it likely has leverage to push for carbon reduction efforts. Manufacturers can also collaborate with other partners or industry trade organizations to increase their influence with a particular supplier.

      Emissions hot spots

Manufacturers can rank suppliers by the highest level of emissions, as these partners present the largest potential reductions. This approach typically requires primary supplier data. If they don't already have figures directly from the supplier, organizations can gather this information by reviewing public databases and ESG reports or accessing data submitted to the CDP, the Responsible Business Alliance and other industry bodies. When vendor-specific information is unavailable, manufacturers can estimate emissions using industry averages to identify likely hot spots for prioritization.

      Top suppliers by spend

Organizations without sufficient emissions data to calculate hotspots can assess targets based on spend. Suppliers that sell large quantities to a manufacturer likely contribute more to scope 3 emissions, and manufacturers may also have more influence on those with whom they’re spending more. Spend data can also help identify potentially high emitters when combined with industry average emissions.

      Emissions intensive suppliers

Emissions intensity measures a company's efficiency in terms of emissions per dollar of revenue. Calculate this by adding the suppliers' total emissions from scope 1, scope 2 and scope 3 category 1 (purchased goods and services) and dividing by its revenue. Manufacturers can multiply their spend by the vendor's emissions intensity to calculate the portion of emissions they are responsible for. This metric works well for organizations with a mature climate program and is one of the accepted methodologies for setting an SBT.

The GHG Protocol recommends ranking suppliers by potential emissions impact or largest spend and engaging directly with the top 80 percent.

3. Collect and manage supplier data

Supplier engagement strategies require data. Manufacturers should first attempt to obtain data from industry reports or databases to avoid duplicative requests and make the process as easy as possible for their vendors. If the information is unavailable, the company can directly survey the supplier.

Spreadsheets are ineffective for managing the quantity of carbon accounting data required to build a sustainable supply chain. Manufacturers should invest in data collection and storage tools, whether by creating a proprietary solution, adopting GHG management software or working with an existing GHG reporting/disclosure program. The management system should integrate seamlessly with the data collection platform to capture updated metrics for easier analysis. Manufacturers must establish standardized formats to ensure data quality and comparability across years and companies. This standardization helps with obligatory reporting as well as progress tracking.

4. Educate suppliers

Educating suppliers is a core component of an engagement program. Vendors are at varying levels of climate program maturity. Some may be making significant progress toward an ambitious SBT, while others have never done an emissions inventory. Suppliers need to understand the business impact of sustainability before they can participate more meaningfully in engagement activities.

For low-maturity climate programs, training content should include:

      Why GHG accounting and reductions are important as a supplier and on a global level.

      An explanation of scope 1 and 2 emissions.

      Guidance on finding emissions source data.

      How to calculate emissions and create an inventory.

The next level of education should cover:

      An explanation of scope 3 emissions.

      Where to find scope 3 data.

      How to set an SBT.

      How to build a decarbonization strategy.

Manufacturers should make ongoing support available for all suppliers.

5. Collaboration

Once suppliers have established their climate programs, manufacturers should work with them to reduce emissions. Approaches might include:

      Providing resources for carbon accounting.

      Subsidizing renewable energy.

      Optimizing transportation or energy use.

      Developing a recycling program.

For example, Hewlett Packard Enterprise (HPE) equipped its top 80% of suppliers (by spend) with carbon accounting software, allowing the vendors to measure and track their own emissions data. This support empowers suppliers to set and work toward SBTs.

Collaboration can also happen among industries, such as sharing best practices or developing standardized methods for collecting emissions data.

6. Provide incentives

Incentivizing sustainable practices and emissions reductions appeals to suppliers' business instincts and encourages participation. For ideal results, manufacturers should offer both positive and negative incentives, such as:

      Better terms: Reward program participants with preferential terms, like faster payouts and longer contracts.

      Recognition: This might be a web page badge, an award or a publicity campaign, but recognition demonstrates that the company values the supplier's efforts.

      Scorecards and benchmarking: This approach gives suppliers insight into their standings and can create healthy competition.

      Contract requirements: Include language that mandates program participation as part of the business relationship. 

      Increased pressure: Work with other industry players to create expectations around climate initiatives, positioning it as a requirement for business.

7. Track supplier progress

Manufacturers must maintain emissions data, track performance and share metrics with suppliers. Monitoring emissions progress is especially critical for organizations with an SBT, which requires an annual report.

As the engagement program matures, manufacturers gain a deeper understanding of performance to develop benchmarks and set achievable goals. Creating a scorecard helps manufacturers compare suppliers' engagement, responsiveness and progress.

Performance metrics also indicate the success of supplier engagement. Based on results, manufacturers can determine what is or is not working, strategize new approaches and enhance the program. Organizations should also attempt to grow their outreach each year. Engaging with the top 80% of suppliers is a fine goal, but manufacturers should strive to reach 100%.

Supplier engagement as a lever for change

Supplier engagement programs are not value statements or publicity stunts — they are an imperative, proactive approach to building sustainability. Scope 3 reporting regulations support emissions reduction efforts, but companies will be the ultimate drivers of meaningful change.

Engagement initiatives will create a ripple effect throughout the supply chain. Requirements and expectations from manufacturing partners compel vendors to measure and reduce their emissions to remain competitive. Eventually, this attitude will permeate every supplier tier.

Beginning an engagement program is an incremental process. Reaching the target of engaging with 80% of top emitters might take years, but every relationship counts. A small reduction today will add up over time.

No single entity can tackle this global challenge alone; it demands a unified, collaborative approach. Supplier engagement programs establish collective goals with mutual benefits, eventually leading to meaningful progress. 

 

About the Author

Ty Colman

Ty Colman is the CRO and co-founder of Optera. He has spent nearly two decades supporting the sustainability programs of Fortune 500 companies in nearly every major industry. Prior to Optera, Ty worked for Domani Consulting.