ESG, Decarbonisation and Scope 3 in Supply Chains

ESG, Decarbonisation and Scope 3 in Supply Chains

by Dr Raymon Krishnan President The Logistics and Supply Chain Management

Sustainability is a global movement that is gaining momentum across industries and sectors. Climate change, biodiversity loss, and pollution are just a few of the pressing issues driving this shift. Simultaneously, increased awareness and concerns about resource scarcity, social activism and consumer preferences along with investor influence and regulatory challenges are amplifying the call for businesses to prioritize sustainability in their operations.

Technological advancements in how to improve, track, manage and report on this coupled to the growing recognition of corporate responsibility and regulatory pressure are some of the factors converging to elevate sustainability as a crucial consideration for individuals, businesses, and governments worldwide.

Understanding Sustainability for Supply Chain

At its core, sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their own needs. Similar to retirement planning, the more serious we are about this today, the easier it will be for us to achieve the sustainable targets governments, customers and we set for ourselves. But also similar to retirement planning, it appears to be something most of us are willing to put off until tomorrow.

Sustainability encompasses economic, environmental, and social dimensions, each crucial for creating a balanced and thriving society.

ESG: A Framework for Assessment in Supply Chains

With sustainability serving as the broader overarching concept, Environmental, Social, and Governance or ESG, is a subset of sustainability with a specific focus on a company’s performance in environmental impact, social responsibility, and governance structures.

It is applied as a framework for investors and stakeholders to evaluate an organisation’s business practices and performance across sustainability and ethical dimensions and is criteria that more and more investors and customers pay attention to when assessing a company.

ESG and Sustainability are not interchangeable terms. Rather, sustainability, as in environmental sustainability, is part of the pillars of ESG.

Decarbonisation: A Strategy for Environmental Sustainability for Supply Chains

Decarbonisation is a critical and perhaps the most obvious strategy within the environmental aspect of sustainability for supply chains to hone in on.  By focusing on reducing carbon emissions to mitigate climate change by transitioning to renewable energy sources, improving energy efficiency, and electrifying sectors traditionally reliant on fossil fuels the level of greenhouse gas emissions produced by a multitude of sources can help mitigate climate change and minimise environmental impact.

Technologies already exist to support decarbonisation efforts, offering opportunities for companies to become more energy resilient and achieve net-zero emission in even the short to medium term.

Some examples would be:

  • Transitioning to renewable energy sources like solar or wind power to power warehouses
  • Replacing fossil fuels with clean fuels or electricity in traditionally fossil fuel-dependent transportation modes
  • Improving energy efficiency in transportation to reduce overall energy demand and associated emissions

Technologies already exist to make companies energy resilient and net zero

One briefing I attended recently suggested that 70% of CO2 emissions can be removed using existing technologies with savings coming from digitalisation, energy and process efficiency and circularity amongst others. Combined with electrification and decarbonised supply the potential or possibility of doing this is very much a real opportunity.

It is important to note that the potential for removing CO2 emissions using existing technologies depends on various factors such as the specific technologies deployed, the scale of implementation, cost-effectiveness, and societal and political considerations.

While there are certainly existing technologies capable of capturing and storing CO2 emissions, such as carbon capture and storage (CCS) systems, their widespread adoption and efficacy at reducing emissions on a large scale may still face challenges. Additionally, other approaches such as afforestation, reforestation, and improved agricultural practices can also contribute to carbon removal.

Efforts to mitigate climate change often require a combination of technological innovation, policy support, and behavioral changes. While existing technologies can play a significant role, achieving substantial reductions in CO2 emissions typically requires a comprehensive approach that encompasses multiple strategies and sectors of the economy. Therefore, while existing technologies offer promise, achieving a 70% reduction in CO2 emissions solely through their implementation would likely require concerted efforts across various fronts.

Scope 3 Emissions: Understanding the Impact for Supply Chains

Scope 3 emissions refer to indirect emissions generated throughout a company’s value chain, including both upstream and downstream activities. Scope 1 and scope 2 emissions of our company and those of our suppliers and partners therefore end up being our scope 3 emissions.

These emissions have been categorised into 15 defined categories as part of the GHG Protocol Corporate Standard, including purchased goods, transportation, waste, and employee commuting. Addressing Scope 3 emissions is crucial for companies aiming to achieve comprehensive carbon reduction targets and improve their overall sustainability performance.

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Trends and Challenges in Scope 3 Decarbonisation

Several trends are shaping the landscape of Scope 3 decarbonisation, including aggressive target setting, increased scrutiny from stakeholders, and collaborative efforts to accelerate impact. In conversations we have had with some members responsible for sustainability, we are being told that they are now spending so much time on compliance, stakeholder management and reporting that they have little or no time to actually work on sustainability initiatives!

Companies on this crucial and evolving journey face significant challenges, including complex supply chains, poor data governance, reluctance from upstream stakeholders, and weak internal and external strategies. Overcoming these obstacles requires robust data management systems, enhanced collaboration, and a clear commitment to sustainability from all supply chain partners and management.

Supply Chain Decarbonisation: A Supply Chain Imperative

As sustainability becomes increasingly intertwined with business success, supply chain decarbonisation is emerging as a critical priority for companies worldwide. More organizations are setting Science-Based Targets (SBTs) to guide their decarbonisation efforts, but challenges such as data availability, expertise gaps, and internal resistance persist. Increased collaboration and external pressures are helping to drive urgency and action in this area, highlighting the need for continued support and expertise to navigate the complex journey towards sustainable supply chains.

Demystifying ESG, decarbonisation, and Scope 3 emissions is essential for supply chain professionals looking to embrace sustainability and thrive in an increasingly conscious and interconnected world. By understanding these concepts and addressing the associated challenges head-on, companies can not only reduce their environmental impact but also build resilience, foster innovation, and create long-term value for society and future generations.

To make meaningful progress, professionals must first ensure they have a solid grasp of these key concepts and the ways in which they interconnect within their specific operational contexts. It involves moving beyond theoretical understanding to practical application, identifying specific areas within their supply chains where emissions can be measured, managed, and ultimately reduced. It is imperative for supply chain professionals to do their part and the time to start is now!

About the Author

Dr Raymon Krishnan President The Logistics and Supply Chain Management Society

Raymon has over thirty years of experience in the Logistics industry as an end user and service provider. This includes senior management, government linked and academic positions in a variety of international companies and institutions based in Asia, the US, Europe and Australia.

His experience covers the full Logistics spectrum, from raw material procurement to physical distribution and eventually Customer Service and care, with a strong grounding in Quality and Six Sigma.

Raymon is currently the President of the Logistics & Supply Chain Management Society and Editor-At-Large for LogiSYM magazine.

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