Decarbonizing The Supply Chain : Challenges and Solutions

27 July, 2023

We are in the midst of the drastic effects of Climate change, which has called for all nations to accelerate their efforts to reduce GHG emissions.

As per PWC’s Net Zero Economy Index 2022 Report:

  • We currently require an average year-on-year global decarbonization rate of 15.2% to achieve the 1.5°C target - up from last year’s rate of 12.9%.

  • The pace of change needed is 11 times quicker than the global average achieved over the past 20 years

  • The effective reduction in carbon intensity required by 2030 is 77%.

To gain some clarity, let’s take a closer look at what needs to be done to achieve these ambitious targets.

A closer look at Decarbonization: What is it and why do we need it?
‘The process of stopping or reducing carbon gases, especially carbon dioxide, being released into the atmosphere as the result of a process, for example, the burning of fossil fuels, is called decarbonization.

Enterprise supply chains account for around 60% of global carbon emissions. Therefore, to achieve net zero, large global enterprises need to look beyond scope 1 and scope 2 emissions and work with their suppliers to reduce scope 3 emissions and achieve net zero from supplier activities, also leading to other benefits such as:

  • Enhanced value to stakeholders

  • Improved productivity across the supply chain

  • Better cost efficiency

The road to decarbonization and achieving net zero emissions may be challenging, but it helps if enterprises break down large goals into smaller milestones. Decarbonizing the supply chain is a crucial milestone, but it comes with challenges.

General Challenges in Decarbonizing
Businesses, big or small, typically have two key concerns that prevent them from actively making efforts to decarbonize their operations. These include:

The tug of war between decarbonization and competitive advantages
The perception is that decarbonizing business activities and the supply chain require a major overhaul of existing processes. This kind of change can be daunting for enterprises of all sizes and can often result in a temporary state of flux. Companies fear that this transition will impact their competitiveness.

However, decarbonization and competitive advantages are not mutually exclusive. On the contrary, successfully cutting emissions from the supply chain will create market differentiation and enhance competitive advantage. The pace of adoption can be calibrated, and existing investments in process, technology, and people can be leveraged for decarbonization.

The uncertainty in ROI
Pursuing net zero targets requires investing in technology and emissions management systems. While clarity on the return on such investments and the payback period might be difficult to quantify, the initial investment does not have to be significant. However, this should not be a major concern as technologies are available, easy to adopt, and affordable.

The payback period for some decarbonization technologies is even as low as 3 to 5 years, making it easy for enterprises to reap the benefits of their green investments over the short term itself.

For example, with energy paybacks of 1 to 4 years and assumed life expectancies of 30 years, 87% to 97% of the energy that PV systems generate won’t be plagued by pollution, greenhouse gases, or depletion of resources. For LED retrofits, it is also between 1 and 4 years. For a Biogas plant, it takes 2 to 3 years. For SmartGreen buildings, it's 5 to 8 years.

Challenges in decarbonizing the organisational supply chain
Supply chains that typically involve SMBs (small and medium-sized businesses) come with their own set of specific challenges, such as:

Shifting the responsibility of decarbonization
For large enterprises to meet their net-zero targets and limit Scope 3 emissions, every supplier and vendor across the procurement chain must make efforts to reduce emissions and eventually achieve net zero. Often, SMB Suppliers wonder why they should sign up for these goals given the time and cost factors. Large global enterprises need to invest in engaging with their suppliers and making a strong case for ‘why, what, and how’, eventually finding the right balance in the partnerships and a shared commitment and investment in achieving goals.

Major upfront investments
Leveraging existing procurement investments to achieve the desired supply chain ESG outcomes involves investments in people, processes, and technology. In alignment with their customers' efforts, SMBs often hesitate to make the required investments and view them as an overhead on their business. Enterprises need to discuss the long-term benefits with their SMB Suppliers and, where possible, share in the investments and seek compliance-related Government subsidies if available.

Lack of awareness and expertise
Even if an enterprise is willing to make the necessary investments and take responsibility for decarbonization efforts, a lack of awareness can be a major roadblock. Many SMB Suppliers do not have the subject matter expertise and do not understand how to proceed. There is a need for expert guidance for them to sign up and execute to achieve medium and long-term goals.

Overcome these challenges with Treeni
More and more corporate organizations are setting Science-based Targets, which set the path to achieving net zero goals. However, there is a long list of companies that still haven't signed up, as pointed out in the economic survey from SBTi. And there lies the scope for large global enterprises and their suppliers to engage and make a difference.

On the buyer's side, Treeni helps enterprises define clear decarbonization goals. For example, a 30% reduction in scope 3 emissions in 3 years and achieving net zero from the supply chain by 2040. It also becomes easier for companies to find answers to crucial scope 3 questions like:

  • Which Scope 3 categories apply to the enterprise?

  • How much of the supplier’s emissions are allocated to the buyer’s business? Thus, the enterprise can define not only its emissions but also the percentage of emissions from each Supplier

  • How do you quantify the emissions from upstream and downstream activities?

On the supplier side, many large global enterprises have established mandatory reporting standards for their suppliers, such as CDP and Ecovadis. Suppliers should anticipate that going forward, performance improvements will lead to being rewarded with more business or penalised with loss of revenues or poor payment terms for poor performance. Many of these suppliers struggle to comply; as outlined earlier, the ‘why, what, and how’ might be unclear. Treeni helps them get started on this journey and eventually be compliant, improve ESG performance, and achieve goals.

Treeni can be a crucial partner at this juncture, with comprehensive ESG reporting solutions and managed services that can help suppliers get started with data management and reporting to different standards such as CDP and Ecovadis.

Accelerate supply chain decarbonization and improve transparency across the supply chain with our easy-to-manage ESG reporting platforms—resustainTM Enterprise and resustainTM SMB—augmented by accompanying managed services and solutions.

The two platforms we offer include:

●   resustain™ Enterprise: ESG data management, dashboards and insights, performance management, and reporting platform for large global enterprises
● resustain™ SMB: Addresses the unmet need of SMB (Small and medium-sized businesses) Suppliers of large global enterprises, for ESG data and performance management, including customer demands for CDP, Ecovadis reporting

resustain™ was built in India and Treeni's consulting and implementation teams can deploy to clients anywhere in the world. This unique ability and access to a large pool of domain and technology skills allow us to promise client's the lowest total costs of ownership (TCO).

Ask for a resustain™ SMB demo