Reflections from GreenBiz 23: what works to decarbonize suppliers?Jenny Ahlen, Managing Director, Net Zero, We Mean Business Coalition
At GreenBiz 23 in Arizona last month, I shared a platform with experts working across public procurement and business to discuss carrots, sticks and tech – all tried-and-tested approaches to decarbonizing supply chains.
This is a popular topic. For most companies, the largest proportion of their greenhouse gas emissions come from their value chains: the products and services purchased from suppliers, and the use and disposal phase of their products. Given this, companies are under increasing pressure to better understand and reduce these emissions.
Yet addressing Scope 3 emissions can be really challenging for companies. In a poll of the nearly 200 attendees at the event, many roadblocks were identified to decarbonizing the supply chain – with data as a major preoccupation.
But are we too bogged down in trying to get the data perfect?
Good baseline data helps identify emissions hotspots. Transparent reporting is vital to build credibility and accountability – the fourth ‘A’ of The 4 A’s of Climate Leadership. So too is ensuring that all companies in the supply chain – whatever their size – roll up their sleeves and get on with the work of cutting emissions.
Large corporates could follow the example of the US Government, the world’s largest purchaser of goods and services, and start by requiring suppliers to set targets aligned with science-based decarbonization – and then go from there.
Session moderator Betty Cremmins, Director for Sustainable Supply Chains at the White House Council on Environmental Quality, led on a proposed US government rule requiring all major federal contractors set science-based targets through the Science-Based Targets Initiative and disclose emissions reductions via CDP. This is a potentially transformative step – and not just for meeting climate targets. As the rule’s authors recognize, disclosing climate risks and taking action to cut emissions will also improve resilience.
But don’t confine action to the largest suppliers. Companies would do well to look beyond these companies to the 1,000s – if not millions – of SMEs (small and medium-sized enterprises) within corporate supply chains. Though individually their emissions don’t compare to the major players, cumulatively they will play a critical role in collective efforts to decarbonize and adapt our economies to climate-related impacts.
The audience was struck by statistics I shared showing that in some cases up to 80% of companies’ Scope 3 emissions come from companies with under 500 employees. SMEs make up around 90% of the world’s businesses and employ 70% of the workforce. They are at the heart of corporate supply chains and communities around the world – but they’ve lacked the tools, resources and incentives to decarbonize.
That’s why the We Mean Business Coalition founded the SME Climate Hub together with an ecosystem of partners including Exponential Roadmap Initiative. The Hub now has over 5,500 committed SMEs, who are empowered to take climate action and build their resilience.
Directing SME suppliers to the Hub is one of the best ways for corporates to address their Scope 3 emissions. SMEs are provided with tools including a carbon calculator to help understand baseline emissions, an annual reporting tool and an educational course on climate action called Climate Fit. To access the full suite of resources, SMEs are encouraged to make the SME Climate Commitment and commit to halve emissions by 2030, publicly disclose their efforts on a yearly basis, and achieve net zero by 2050.
That covers the tech and sticks, but what about the carrots?
We know from our recent survey of SMEs that about 60% of the surveyed businesses denoted needing additional funding, skills and knowledge in order to take more robust climate action. SMEs have 101 competing demands, and at the end of the day, though they’re motivated to build a business that prioritizes the planet, they will prioritize keeping their doors open first.
Alongside providing the tools to help decarbonize the supply chain, corporations must create business benefits for taking action so that it becomes a no-brainer.
For instance, my fellow panelist Jeffrey Hogue described an initiative at his company, Levi Strauss & Co, to expand access to working capital at a lower interest rate to suppliers who demonstrate progress in reducing greenhouse gas emissions.
Other companies are designing programs specifically for SME suppliers. For example, Gucci supports SMEs in its supply chain to access loans at favorable terms and conditions if the supplier improves the sustainability of its operations. IKEA offers SMEs in its supply chain support to convert to 100% renewable energy through financing on-site investments and enabling the purchase of renewable electricity.
While supply chain engagement is a challenging area for companies, we are building up a better picture of the tactics that work. With that in mind, and returning to questions posed at GreenBiz 23, my takeaways for companies are as follows. Don’t get too hung up on the data. Start with requiring targets and go from there. Get the SMEs in your supply chain on board via the SME Climate Hub. Don’t forget the power of policy advocacy to create an enabling environment for businesses of all size. And look across sectors for examples of how to incentivize supplier action.
Jenny Ahlen is Net Zero Director at We Mean Business Coalition.