Net Zero is an oft-heard term today and rightfully so. As the world moves towards a more sustainable future, large global enterprises see Net Zero as an opportunity for market competitiveness and leadership. That opportunity brings with it the need for accountability and transparency.
As companies come under increasing pressure from investors, customers, and regulators to reduce their environmental impact, achieving Net Zero goals will need a major effort. They will need to find every possible avenue to improve if they are to get to the final goal.
A critical place to start this journey is by looking at the supply chain involved in a company’s product life cycle. Supply chains have a significant impact on a company's emissions. In fact, according to the World Economic Forum, supply chains account for an estimated 80% of a company's total environmental impact. This is because in many cases the supply chains are responsible for the extraction, processing, transportation, and disposal of raw materials and products. A significant share thus, is indirectly controlled by only a few large companies.
The environmental impact of supply chains can be divided into three categories:
● Scope 1 emissions: These are direct emissions from owned or controlled sources, such as emissions from company-owned manufacturing units, power plants, distribution centres, retail outlets, campuses and development centres and vehicles
● Scope 2 emissions: These are indirect emissions from purchased or acquired electricity, steam, heat, or cooling
● Scope 3 emissions: These are all other indirect emissions that occur in the value chain of the company, such as emissions from suppliers, transportation, waste disposal, and upstream and downstream activities
Scope 3 emissions are the largest contributor to a company's environmental impact, accounting for an estimated 80% of total emissions. This is because Scope 3 emissions include emissions from all stages of the supply chain, from the purchase and extraction of raw materials to the disposal of waste. It makes tracking and monitoring them critical.
Supply chains also impact the community that the larger enterprises operate in, both directly and indirectly. So, to fully commit to their ESG goals, enterprises today need to initiate a large-scale transformation from the inside out, across the entire value chain. This means more focus on responsible sourcing.
Understanding Supply Chain Complexities
The most direct challenge to achieving sustainability in the supply chain is that small and medium-sized (SMB) suppliers find it difficult to manage their emissions. Currently, there are no mandatory regulations for smaller enterprises to do so and the actions are largely driven by the needs of their large enterprise clients.
Even when initiating a supply chain-wide compliance initiative, large enterprises have the humongous task of dealing with the several layers of the supply chain - the regulatory norms involved, multi-party inventories, logistical movement of products, various interlinked markets and more. This is particularly true for enterprises in manufacturing or processing-oriented industries like textiles, consumer packaged goods and agriculture, among others.
There are a number of major challenges faced by companies aiming to go Net Zero when it comes to their supply chain. These include:
● Data fragmentation: As stated supply chains are complex and involve many different parties. This can make it difficult to collect and aggregate data on emissions
● Data quality: The quality of data on emissions can vary widely from supplier to supplier and country to country. This can make it difficult to accurately track and monitor emissions
● Lack of transparency: Many companies are either reluctant to share data on emissions or to monitor it at all. This can make it difficult to get a complete picture of a company's environmental impact
● Cost consideration: Tracking and monitoring emissions are considered to be overhead and assumed to be expensive
● Time commitment: Tracking and monitoring emissions can be time-consuming. This can be a challenge for businesses that are already bandwidth constrained
● Lack of subject matter expertise: Many companies lack the domain expertise and resources to track and monitor their emissions
● SMB capacity: SMBs often have limited resources and may not be able to afford the upfront costs of investing in sustainability measures
Despite these challenges, there are a number of things that companies can do to go Net Zero. These include:
● Set ambitious goals: Companies should set ambitious goals for reducing their supply chain emissions
● Work with suppliers: Companies should work with their suppliers to reduce emissions throughout the supply chain
● Invest in technology: Companies should invest in technology that can help them track and monitor their emissions
● Educate employees: Companies should educate their employees about sustainability and the importance of reducing emissions
● Communicate with stakeholders: Companies should communicate with their stakeholders about their sustainability goals and progress.
The Need of the Hour: A Collaborative Bottom-Up Transformation
Facilitating traceability across all levels of suppliers is fundamental to achieving the end goals of responsible sourcing. This calls for a bottom-up initiative, where suppliers from the last mile to preferred partners, adopt the best practices. Furthermore, the data from suppliers can add value to engagements with stakeholders such as investors, customers and employees.
Supply chains have a significant impact on a company's emissions. By implementing comprehensive tracking and monitoring of supply chain emissions, companies can identify opportunities to reduce their environmental impact, reduce their risk, increase their efficiency, and enhance their reputation. Technology can play a significant role in this task by providing a number of solutions to tackle the challenges of tracking and monitoring supply chain emissions, making them a great option for companies looking to improve their environmental performance.
Treeni’s resustain™ SMB can be pivotal to facilitating this transformation. This cloud-based SaaS platform streamlines ESG reporting for small and medium-sized businesses. With templatized reporting, quick deployment and a zero-touch, zero-code, zero-deployment fee model, this platform accelerates supply chain transformation and promotes traceability by making ESG reporting efficient and affordable for SMBs. It can help enterprises in supplier screening and assessment, data collection and supplier performance.