Carbon Neutrality

Carbon Neutrality And Supply Chain Decarbonisation

We all remember the great feeling of hope that came after the Paris agreement in 2015 when world leaders committed to take action to fight climate change. Although a lot of work has been done since, the reality is that over the last few years global gas emissions kept rising and with some countries choosing not to commit or deciding to withdraw, one could not help but wonder what impact the agreement would have in the future. COP26 in 2021 brought back the need for action to the forefront of the agenda. There was still some push back, notably on topics such as reliance on fossil fuels but there was further commitment to fight climate change and a consensus was found to limit the increase in temperature to 1.5 degrees Celsius.

Governments have not been the only ones committing to saving the planet, several organisations in the UK have pledged to be carbon neutral by 2050. Just over half of the FTSE100 and a number of smaller companies have become signatories of the “Race to Zero” campaign led by the UN. More widely, firms are keen to do their part to fight climate change which has meant efforts in reducing their CO2 emissions.

Companies have mainly focused on what is called Scope 1 and 2 emissions to start their decarbonisation journey. Scope 1 covers Green House Gas that a firm generates directly by using a boiler or through a fleet of vehicles. Scope 2 covers indirect emissions generated through the purchase of energy such as electricity or heating. For these 2 emission sources, companies will have reliable data they can use to find ways to reduce their carbon footprint. It might be turning to renewable energy sources or buying electric vehicles. Scope 3 is more challenging but it is also where the most impact will come from.

Scope 3 relates to all the emissions generated along the value chain which the company is indirectly responsible for. It includes suppliers and it comes all the way down to the consumer and how the product is used. Scope 3 is about decarbonising the supply chain and there is no quick fix for this step. The lack of carbon tracking standards and regulations makes it difficult to calculate the impact of a company’s activity. As we progress through this transition it is likely that more accurate and transparent data will be needed by leadership teams to make decisions and take action.

How can companies tackle Scope 3 emissions? Firms will need to work more closely with their suppliers to understand how they work; which emissions are associated with each step of the manufacturing process, from sourcing and transporting raw materials to the transformation process and the delivery of the final product.

For most companies, understanding the extent of the problem is complex and can be daunting. Committing to long-term partnerships and undertaking projects with third party suppliers are all steps in the right direction. Establishing common goals and fostering a transparent exchange of information will contribute to an improvement of the quality of data available and ultimately a reduction of CO2 emissions.

Re assessing the product offering could help identify what can be done differently to make it more sustainable. Can the materials used be more planet friendly? Could we source them through different channels to boost the decarbonisation of the supply chain? Can we produce closer to the market where products will be sold? Are the products recyclable? Many levers can be actioned to make a difference.

Firms cannot manage what they cannot measure, so setting your own standards and finding ways to track performance could help making lasting changes. This could include procurement standards but also the use of technology to create dashboards and track progress. Decarbonising the supply chain will also mean internal changes. Introducing clear goals linked to incentives for the different departments of the organisation will help develop mindsets and trigger change. Sustainability must be at the forefront of everybody’s mind and establishing appropriate governance will bring companies a step closer to reaching net zero.

Achieving a carbon neutral target will be challenging for any organisation and implementing the changes necessary will involve the support of the Board and the senior leadership team. The costs associated with the transition will likely take some time to be recouped by the benefits firms will see from it. With transformation comes the need for a clear internal message and robust communication to ensure the work force understands what is being done and why. Investing in upskilling employees and including them in the process will create engagement. Tangible results will be felt in the medium to long term. It will be important for the leadership team to keep the staff involved and celebrate successes along the way, hence the need for a strategy to track performance.

Apart from the ethical dimension of making such a commitment, there is a business argument for doing it too. Well trained employees will be in a better position to communicate the company’s low-carbon policies and its impact therefore creating more customer engagement with the brand and an increase in consumer demand. Firms will also ensure an improved retention and attraction of climate conscious talents. At Partner Executive we believe that engaged employees can really make a difference to the success of a company. They will contribute to building new business models that could just give those organisations a competitive edge in a business world increasingly affected by the consequences of climate change.

February 23, 2022