Sustainable supply chains

With over 100,000 suppliers, the scale of Walmart’s supply chain is mind-boggling.

And so when the world’s largest retailer takes on a supply chain initiative, the results can have global ramifications. Moreover, it can set the pace for the entire industry.

On climate initiatives, that pace has been swift. In February, the company announced it had blown through its Project Gigaton goal of cutting 1 billion metric tons of greenhouse gas emissions from its supply chain — six years early.

Described as a “game changer” when Walmart first announced the goal — with an original deadline of 2030 — the retailer’s rapid progress is a major win for the climate. It can show just what is possible when companies within a supply chain work together toward a common good.

Walmart’s Gigaton work is instructive for the entire industry. The retailer leaned on its resources and size to provide suppliers with education, financing and various programs to help them set goals and get there.

“From our perspective, it's a long journey, and it's one we started in 2017,” Ron Voglewede, Walmart’s global director of sustainable retail, said in an interview. “It is really about building the expectation, raising the bar continuously over time and creating those on-ramps for companies to engage with us alongside and create the collective action.”

Supplier emission cuts: ‘Better for their business’

When it launched Gigaton, Walmart invited — rather than compelled — its suppliers to join the initiative and commit to reductions.

Since then, more than 5,900 suppliers have participated in the Project Gigaton effort, according to the company.

Crucial to getting suppliers on board was giving them access to tools and platforms, Voglewede said. Broadly, that includes three key incentives: education, financing and recognition.

Education can help suppliers see emission reductions can be “actually better for their business,” Voglewede said. “It makes them more efficient.”

The retailer identified key areas for reduction under the umbrella of scope 3, including energy, agriculture, waste, packaging, deforestation, and product use and design. Walmart also worked with organizations such as the World Wildlife Fund and Environmental Defense Fund to develop a toolkit for suppliers.

Walmart’s scale, sterling credit ratings and capital structure makes it easier to provide suppliers with some financial tools for meeting sustainability and scope 3 targets. That includes a sustainability-based supply chain finance program through HSBC, which can provide earlier payments for goods for those vendors that meet certain goals.

As another financial tool, Voglewede pointed to the Gigaton PPA program launched in 2020 to help Walmart’s supply base access renewable energy as instrumental and representative of how to bring major sustainability initiatives “to life.”

Through the program, a collaboration with Schneider Electric, suppliers could pool their resources and numbers to contract renewable energy purchases as well as get education on the renewable energy market and guidance on projects.

“Individually, it's hard to access renewable energy,” Voglewede said. So Walmart looked at how it “can we help bring together people within our supply chain to deliver renewable energy for them. That had a very large impact.”

As for recognizing for suppliers participating in Project Gigaton, it can give them a sense of “helping to be part of a much larger thing, and being part of a bigger thing is a big deal,” Voglewede said.

To do that, the retailer awards badges such as “Giga Guru” status for what it describes as “excellence in target setting, action and results.” Voglewede said suppliers have pulled him aside to tell him that they are proud of their listing under the program.

“It really energizes people and gives them a sense of hope, too,” he said. “And I think that's sorely needed in a discussion that sometimes gets very negative at times.”

‘A position of sustainability leadership’

Walmart has said it plans to keep Project Gigaton alive even though it hit its initial goal. The company is also “working really hard” to set a new scope 3 goal, according to Voglewede.

After announcing meeting its initial target, Walmart said it is improving its scope 3 estimates based on emerging standards and guidance while also looking at its value chain to determine the costs around various reduction opportunities. The company aims to have net-zero emissions in its own operations by 2040.

“Regardless of the external environment, it really is about better making a better more resilient supply base for all,” Voglewede said.

A retailer of Walmart’s size focused on scope 3 and other sustainability initiatives can send a signal to the entire market. Executives of brands selling to Walmart have noted the ripple effects of Walmart’s and other retailers’ scope 3 initiatives down through supply chains.

In a Feb. 8 report, analysts with Jefferies noted that a top priority for Walmart is “reducing its impact on the environment through more sustainable and efficient energy management.”

They went on to note, “This practice includes the management of carbon emissions not only for its own operations but also for all stakeholders, placing [Walmart] in a position of sustainability leadership across the broader retail landscape.”

In March, the Securities and Exchange Commission passed its much-debated climate disclosure rule. 

The rule mandates that public companies disclose climate-related risks in their SEC filings. The SEC notably dropped the requirement that companies include Scope 3 emissions in their disclosures.

The agency also adopted a "phased in" approach for requiring companies to disclose Scope 1 and Scope 2 emissions. 

Large accelerated filers – those with at least $700 million in shares held by public investors – must begin disclosing Scope 1 and Scope 2 emissions in fiscal year 2026. Accelerated filers, including companies with between $75 million and $700 million in publicly held shares, must begin making disclosures in FY2028. 

Companies required to make greenhouse gas disclosures will also have a phased compliance timeline for receiving assurance on those emissions.

With the SEC mandate unveiled, manufacturers and their suppliers must begin determining how to comply with the rule. 

While the current rule does not include Scope 3 emissions produced by down-tier suppliers, state laws like California's climate disclosure rule and the EU's Corporate Sustainability Reporting Directive do, which makes tracking this portion of the supply chain important. 

"Nobody's out of the woods," said Karen Davis, partner at Fox Rothschild and co-chair of the firm's ESG practice group. "The SEC did note that the Scope 3 emissions may be something that they will revisit at a later date. With or without the SEC, suppliers [and] companies are going to have to provide information on their emissions to their customers and their suppliers."

When it comes to down-tier manufacturers and suppliers that will need to report their emissions up the value chain, Davis said one of the issues with the current process is that Scope 3 data is often hard to find or is unreliable. This is often because of challenges in how these companies consolidate and manage the data. 

"It's not part of a company-wide system, or you know, certainly hasn't been integrated into their enterprise risk management system," Davis said. "The first thing they should do is an assessment of what data they already have.”

She also advised that companies implement a data collection system to consolidate and verify emissions information. 

Davis noted that bigger, public companies that fall directly under the rule are likely to build the standardized infrastructures to collect and verify emissions data. Smaller manufacturers and suppliers would then be able to take that framework and apply it to their operations. 

Contract manufacturers with multiple large clients that could be affected by the SEC rule should be aware of which geographies their up-tier supply chains touch, and therefore to what rules they must comply, said Chris McClure, partner and ESG services leader at Crowe. 

The same applies to potential clients and reviewing what information they would need during the procurement process. 

"If you're aligning with a new client, see what they're looking for. You can look on their website, do due diligence on them to understand what the potentially additional costs might be of doing business with companies that are going to be pushing on these things," McClure said. 

Manufacturers should also evaluate their own down-tier supply chains to ensure compliance. Many manufacturers still lack visibility into these early stages of the supply chain, something that could increasingly become problematic when it comes to climate disclosures.

Looking to the future, more disclosure rules are likely on the horizon. New York is considering a bill modeled after California's climate rule, as is Illinois. 

And in the private sector, companies like Walmart are requiring suppliers to disclose their emissions, yet another way the market is making standardized emissions data a regular part of business.

"If we get a few more of these big states aligned, plus the EU and everything that's happening, it's going to become fairly commonplace that reporting emissions in some manner is going to be the cost of doing business in a lot of industries [and] certainly in most manufacturing," McClure said.

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By Hanwha

As organizations keep closer tabs on their carbon footprints and receive more scrutiny from consumers, governments, and other stakeholders, addressing emissions is critically important.

Reducing emissions across supply chains drives global climate change progress towards the goals set forth in the U.N. Paris Agreement. Amidst more scrutiny from regulatory bodies, organizations must show progress — and soon.

There is no singular solution for advancing the energy transition. The key to making progress lies in a multifaceted approach that accounts for the different needs and decarbonization timelines of individual sectors.

Without Clean Supply, there is No Clean Supply Chain

From manufacturing goods to shipping them across the ocean, supply chain emissions have an impact on virtually every business’ Scope 3 emissions (the emissions in your value chain that are indirectly generated).

But without clean energy sources fueling supply chains, they — and as a result, the full value chain — won’t be clean.

That’s why it’s critical to address emissions at the source, using cleaner power to fuel manufacturing and transportation processes that keep supply chains healthy and operational while minimizing the risk and cost associated with the transition.

Innovation Advances Supply Chain Decarbonization

While there is no one-size-fits-all approach to decarbonizing supply chains, innovation across various industries provides a strong foundation for future decarbonization efforts.

AI, for example, is currently being used to predict supply and demand to help stabilize power grids, though some early adopters are already looking ahead. Qcells, part of Hanwha Group and a global leader in complete clean energy solutions, is currently combining AI with proprietary solar solutions to serve a wide range of commercial and utility-scale projects. But Qcells isn’t just using AI in its solar solutions — the company is harnessing the power of this technology to bolster the development and deployment of innovations in its U.S. supply chain.

Integrating artificial intelligence directly into the production process allows for data about essential metrics like ingot quality and crystallinity purity to be generated, collected, and analyzed in one location, simplifying problem-solving and product optimization. Output can then be fed back into the system to create better results, accelerating the innovation process. The rapid development and expeditious deployment of new solar technologies will be key to meeting the IEA’s goal of tripling renewable energy capacity by 2030.

In the shipping sector, alternative fuels like hydrogen, biofuels and ammonia are becoming more viable. While hydrogen and biofuel-powered ships are currently being explored, stakeholders have been presented with scalability and supply issues. While a single alternative fuel can’t support a full industry transition on its own, innovative solutions leveraging ammonia are increasing in interest.

“Development of low-speed engines is not yet fully complete,” says Hyoung-Seog Kim, CTO of Hanwha Ocean, a leader in green energy shipping solutions. “But we’ve been hearing news lately that major companies in Europe and Japan have signed orders for new ammonia-powered vessels. In addition, the dual-fuel LPG/ammonia carriers that recently saw a boom in new orders are reportedly planning to be converted to ammonia propulsion once the development of an appropriate engine is complete.”

These new technologies, among others, will play a key role in long-term strategies for supply chain decarbonization. Today’s stakeholders, however, also need viable options for reducing emissions in the short-term without putting supply chain operations in jeopardy.

Incremental Change is a Promising Path Forward

While drastic transformations may be risky for supply chains, small modifications can help companies move cautiously yet confidently toward new technology and energy transition.

A complete overhaul of existing assets isn’t necessarily the best solution for transitioning supply chains to more sustainable fuel sources. In fact, stakeholders across supply chains may benefit from an incremental approach, which can relieve the high costs and risk of a full-scale transition while still reducing emissions at the appropriate pace.

Retrofitting standard gas turbines to run on a mix of gas and hydrogen is a good illustration of the energy-transition improvements that are possible without disruptive and costly rip-and-replace investments. Such modification not only extends the return on investment for the original equipment but also eliminates the cost and effort of disposing of the gas turbine entirely.

Groundbreaking hydrogen co-firing technologies can help plants boost power output, create an energy transition foundation for future needs, and ensure operational flexibility.

Hanwha Power Systems, together with its subsidiaries PSM and Thomassen, recently became the first to successfully test a 60% hydrogen blend in a retrofitted 80 MW gas turbine, which resulted in a 22% reduction of CO2 emissions compared to natural gas alone. The turbine used a mix of natural gas, hydrogen, and hydrogen-containing gas from the facility, with a proprietary blending system providing fuel delivery.

Even though these emerging technologies don’t yet utilize 100% renewable energy sources, retrofitting existing assets enables equipment owners to take steps towards cleaner power generation now.

Laying a Foundation for the Future

Reducing emissions across the value chain starts with taking stock of what is fueling critical supply chain processes. Continued innovation, paired with incremental change, can lay the foundation for the development and adoption of solutions that will drive a much-needed reduction in supply chain emissions.

Ikea reduced its transport emissions by 28% compared to its baseline fiscal year in 2017, according to a recent climate report. 

The improvement was attributed to an increase use of intermodal land transportation, biofuels and electric locomotives.

The retailer aims to reduce its transport emissions by 70% by FY30 compared to its baseline in 2017 through its decarbonization agenda: reduce, replace and rethink.

Global Sustainability Manager Elisabeth Munck af Rosenschöld outlined the strategy at TPM24 by S&P Global in Long Beach, California.

Reduce

“Reduce “ is about working with efficiencies, Munck af Rosenschöld said. It involves “continuous improvement, equipment utilization, fuel rates, optimizing the networks, working with fuel efficiency measures, digital solutions, etc.”

Being a big ocean shipper, in FY23 Ikea made approximately 1.7 million shipments through land and ocean, generating one million tonnes of CO2 equivalent of greenhouse gas emissions, according to Ikea’s climate report.

Shifting to a new technology or new fuel is not enough, the sustainability manager said. “We need to reduce the actual amount of energy that we are using [and] the amount of fuel that we are using.”

Replace

“Replace” refers to Ikea's efforts to transition away from fossil fuels to biofuels. 

“We see biofuels as an important piece of the puzzle to reduce emissions here and now in the shorter term perspective. It’s not the ultimate solution we need to work towards zero emissions,” Munck af Rosenschöld said.

Ikea started using biofuels in 2019, during a collaborative pilot project with CMA CGM, the Port of Rotterdam and GoodShipping. The pilot tested the use of biofuels in an ocean container vessel, which was proven successful, Munck af Rosenschöld said at the conference.

“We are using more biofuels as it is now in our supply chain for ocean shipping,” she said. “And with the latest ocean tender that we did, we will reduce our carbon emissions from our ocean shipping with almost 30%.”

Rethink

As its last step in its agenda, Ikea seeks to “rethink” and integrate new solutions in its supply chain

Munck af Rosenschöld said it’s not only about innovative technologies and zero emissions fuels, but about innovated collaborations. Ikea was the first member to join the Zero Emission Maritime Buyers Alliance, also known as ZEMBA, back in March 2023.

“So we are coming together with other cargo owners to demonstrate that there is a demand for zero emission ocean shipping. And the first ever request for proposal is now out there for 600,000 TEUs over a period of three years,” Munck af Rosenschöld said. The request is for the TEUs to be transported through ocean vessels powered by zero-emission fuels.

Other members include Amazon, Nike, New Balance, Brooks Running and Chewy, which are also requesting lower-emission shipping options in an effort to reduce their climate footprint.

“We are very happy to see that more and more cargo owners are coming onboard and joining ZEMBA — [we] just heard now that there are 28 companies now within ZEMBA and we would like many more to join because we are making a difference,” Munck af Rosenschöld said.

To decarbonize the world, the world must decarbonize the supply chain, and quickly.

Some 75% of all greenhouse gas emissions fall under Scope 3 emissions, which includes the upstream supply chain as well as the end use of a company’s goods and services. 

To cut those emissions enough to avoid catastrophic climate change will take technology, infrastructure, operational changes — and money. 

The total cost of transitioning the global economy to net zero emissions could cost an extra $3.5 trillion a year in capital spending, or roughly half the profits of the world's global corporations, according to a 2022 McKinsey estimate. 

As more businesses look to reduce the carbon footprint of their supply chains, the question of who will pay for the necessary changes — buyers or suppliers — will become more pressing. Even the world's wealthiest brands are discovering the true cost of decarbonizing their supply chains. 

“The amount of internal investment being put into decarbonization activities varies enormously between organizations,” said Simon Geale, EVP of procurement at the consultancy Proxima. “It's not just suppliers that are struggling with ‘How do I pay for this?’ It’s organizations.”

And while some major brands are investing to help suppliers lower their emissions, some may simply be dumping the issue and its costs onto their supplier base for them to figure out on their own. 

In some industries, such as fashion, those suppliers are already struggling with tight operating margins. “How are they going to invest when there's no cash flow? Cash flow is the problem,” said Chana Rosenthal, principal of reDesign Consulting. “That makes it challenging to invest in green [technologies].”

‘The biggest hill’ in climate action

At many companies, cost-control — not carbon reduction — remains the top priority.

In a 2023 Efficio study, only a third of surveyed executives and managers said they were “very confident” in their ability to hit their carbon reduction goals. The study shows cost control remained a top responsibility for procurement leaders over others, including sustainability. 

Even within environmental reduction investments, cost reduction is the top driver, according to a GEP survey of executives.

“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I'm going to have to do it. But when do I have to do it?’” Geale said, referring to action on supply chain emissions. “Because there's an immediate cost rather than an immediate payback.”

Unfortunately for humanity and the rest of Earthly life, the climate is indifferent to budget plans and profit targets. The world needs to cut greenhouse gas emissions by 43% by 2030 to avoid some of the most extreme outcomes of climate change, according to the United Nations’ Intergovernmental Panel on Climate Change.

Scope 3 emissions, specifically those tied to the supply chain, present an especially steep challenge and cost burden. Simply understanding the extent of a footprint takes time, data and often technology. All of that takes money. Because these emissions occur outside the company's purview, they are the most expensive to track, while also often being by far the biggest chunk of most carbon footprints.

“The biggest hill is Scope 3,” Jackie Sturm, Intel VP for global supply chain operations, told Supply Chain Dive in an interview. “If you look at Scopes 1 and 2, we have converted to renewables — well before this was popular.” In 2022, Intel’s U.S. and European operations ran on 100% renewable energy, and the company aims to operate on 100% renewables across global operations by 2030, according to its corporate responsibility report.

“But to bring that back to our supply chain is challenging because, as a semiconductor company, we use almost everything on the periodic chart.”

For Intel, that means its climate footprint size is tied to the mining of a range of minerals, each of which comes with its own emissions creation. Mitigating that footprint takes an enormous toolbox, including data collection, choice of more sustainable materials and working with suppliers, to find out how much of their carbon footprint is intrinsic to their production and what they are doing to mitigate it. 

Some carbon-reduction efforts could pay for themselves in the long run through operational changes that produce value by increasing efficiency or cutting down on energy costs, Sturm said. “How do I maybe reduce consumption? How do I shift my consumption to greener chemicals? How do I bring things in more regionally rather than transport them across the ocean?”

For suppliers that can afford it, they may have their own incentives to invest in emissions reduction, particularly in consumer goods sectors where more customers want sustainable products.

“What we found generally is, at least in our industry, it's really moving towards suppliers seeing climate as a competitive advantage, and really investing in their own value chains,” Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, said during an Economist Impact conference panel in Washington, D.C.

But many suppliers may not have the resources to make investments without help. 

How to get a CFO interested in cutting Scope 3

Finance may be able to help bridge at least some of the gap between global environmental imperatives and corporate financial goals, and between buyers and suppliers when it comes to cutting emissions.

For CFOs, “one of the things that really perks their ears up is the idea that they can get access to better financing rates by performing better on green initiatives, which I think is super interesting,” Geale said. 

The market for green capital has expanded rapidly in recent years. One area where investors can put their money to work funding the climate transition is through so-called green bonds and other lending instruments. 

These can help finance environmentally-focused projects. Apple, for example, announced $4.7 billion in green bonds in 2022 to “jump-start the development of new low-carbon manufacturing and recycling technologies,” including carbon-free aluminum for its products, as the computing giant aims for a carbon-neutral supply chain by 2030.

Walmart, the world’s largest retailer, announced an “inaugural” $2 billion in green bonds in 2021, with some of the proceeds going to waste-reduction and sustainable transport initiatives in its supply chain. So far, projects include a program working with tire supplier Apache Mills to turn used tire materials into heavy-duty commercial entrance mats sold at the company’s Sam’s Club stores. 

Walmart is also trying to help its vendors decarbonize through a supply chain finance program tied to environmental goals. Introduced in late 2021 as an “industry first,” the program — offered through HSBC — gives suppliers better financing terms if they meet science-based greenhouse gas reduction targets tied to the retail giant’s Project Gigaton, which aims to cut 1 billion metric tons of emissions from its supply chain by 2030.  

In effect, big retailers like Walmart can use their solid credit ratings to get cheaper finance and faster payments for their suppliers, and use that as a carrot to incentivize lower emissions. 

“When we propose one of these programs to a CFO, they're like, ‘Sure, this is great if we get more capital,’” said Eric Fisch, head of retail and apparel for HSBC’s U.S. commercial banking business. “And then we propose it to their chief sustainability officer, and they're like, ‘This is amazing. I want to do this.’”

The programs also can include capital for some supplier projects to help them with environmental and carbon-reduction initiatives. 

How supplier projects are chosen is still being fine tuned, and Fisch noted there is a limit to the number of projects such a program can fund. “If you did it for every vendor, all of a sudden you'd be out a lot of money,” he said.  

Outsourcing sustainability to suppliers

Whatever the usefulness and limits of such financing programs, they are far from ubiquitous. 

For many suppliers, especially in low-margin industries like apparel, buyers’ Scope 3 targets are just another challenging demand and expense leveled by the powerful brands they depend on as buyers. 

“More and more, you’re putting all of the pressure on suppliers,” Rosenthal said, pointing to the history of outsourcing manufacturing and other functions to suppliers outside of big consumer-facing brands. Sustainability, in that model, can be outsourced too.

Some garment manufacturers have reported this as happening. In a study that Rosenthal co-authored with Natasja Sheriff Wells for the NYU Stern Center for Business and Human Rights, some manufacturers in Bangladesh reported “expensive new environmental mandates to reduce water use and carbon emissions,” that added to their economic pressures. Brands, the report noted, generally declined to incentivize those mandates with financial benefits. 

Yet suppliers may well be interested in reducing their footprints. “We talked to many suppliers around renewable energy, and they're all interested — they want to, at least the ones we spoke to — but that's not an easy solution,” Rosenthal said. “It takes time and money.” 

Complicating matters is that buyers’ requirements around the environment keep changing and often vary from buyer to buyer. “What some suppliers are having trouble with is, they have invested in something and then something else comes along, and then they have to reinvest,” Rosenthal said. 

Across industries, there are a range of approaches, some more conducive to working with more financially strapped suppliers than others. 

“I've seen companies go to their supplier base and say, ‘Here's my target, comply or die. If you're not able to reduce your emissions in line with my target, I'm gonna kick you out,’” Proxima’s Geale said. “Which is a particularly draconian and ineffective way of running a decarbonization program.”

Geale went on to note, “I've also seen examples of where organizations are saying, ‘Let's have a more structured supplier engagement approach. Let’s figure out where you are, how we can help you, can we unlock financing solutions for you and be more collaborative.’” HSBC’s Fisch said he expects that the costs of the carbon transition will ultimately be split in some way among suppliers, buyers and consumers. He pointed to the recent period of historic inflation sparked by 2021’s supply chain snarls, which came with “a collective sharing of the pain" of cost inflation.

“Some of it got absorbed by the factory, and then some by the wholesaler, then some by the retailer, and then the price increased to some degree,” Fisch said of inflation. “It ends up becoming a collective burden. And that's the way I would envision any transition,” related to climate initiatives.

One simple way to help finance the transition for suppliers may be through generally good buying practices like paying on time and committing to purchases, according to Rosenthal. 

“If you truly want to decarbonize, you have to start there and allow them the ability to mend their business,” Rosenthal said. “Talk to them and figure out what their needs are.”

The length and complexity of supply chains are among the fundamental difficulties in reducing scope 3 emissions, which comprise the majority of most companies’ footprints.

At the same time, the size and layers of supply chains mean action around decarbonization can multiply as it moves through the chain. 

“I've spoken to maybe 1,000 suppliers on the different webinars and conferences we've held over the last 12 to 18 months,” said Robert Williams, AstraZeneca’s director of procurement sustainability. “If I speak to 1,000 suppliers, and they speak to 1000 of their suppliers, that's a million suppliers in two conversations. And that's the pace we need to move at.”

AstroZeneca’s suppliers are working to reduce their own scope 3 emissions, Williams said during a Science Based Targets (SBTi) initiative webinar.

“I recall speaking to one of our key direct materials manufacturers, who told me that actually 80% of their carbon emissions are in their supply chain,” Williams said. “It's absolutely essential that our key suppliers are cascading these requirements down their supply chain.”

Procurement as a profession and business function is arguably a key battleground in the effort to reduce greenhouse gasses and prevent catastrophic climate change. 

That’s because supply chains and scope 3 account for the vast majority of most companies’ emissions. As Luiz Amaral, CEO of SBTi, noted on the webinar, scope 3 emissions (which also include the downstream value chain the end use of products) are 11.4 times greater than the average company’s direct emissions. 

“We can only avoid the worst impacts of climate breakdown if we are to tackle those scope 3 emissions,” he said.

Amaral also pointed to the difficulties in reducing supply chain emissions that many have brought to his organization. Those challenges include access to supplier data — a lament repeated by others in the webinar and in executive surveys — as well as influence over suppliers, confidence in vendors’ ability to deliver on outcomes and the lack of detailed guidance.

Despite those obstacles, SBTi — a consortium of NGOs, nonprofits and the United Nations Global Compact that works with corporations to set emission reduction and net zero targets — reports a steep increase in companies setting goals for cutting their emissions. That includes scope 3, with 406 companies set scope 3 goals with SBTi in 2022, bringing the total to 1,134 companies, according to the organization’s latest progress report. 

Along with Williams, Tom Scholte, sustainability manager for the global healthcare giant Philips, also pointed to the broad impact of efforts to reduce scope 3. 

“We have a direct business relationship with more than 20,000 suppliers,” Scholte said. “And this means that by decarbonizing our supply chain, we have a potential impact of at least seven times greater than the emissions reduction from our operations.”

The company has a goal for 50% of its suppliers, by spend, to commit to carbon reduction targets by 2025, Scholte said. In 2022, 41% of the company’s suppliers set science-based targets, up from 28% in 2021.

Scholte described a “carrot-and-stick” approach for incentivizing suppliers to commit to reductions. To incentivize suppliers, Philips includes emission measurement and reduction targets in its code of conduct for vendors and incorporated targets into its design standards. It has also set up capabilities, both within the company and outside it, to help suppliers upskill and build what Scholte describes as “climate maturity.”

Philips’ teams will also help suppliers identify high emissions risk areas in their businesses as well as opportunities to become more energy efficient, such as by replacing outdated lighting systems or inadequate insulation, Scholte said. 

Beyond the level of individual suppliers, action on emissions sends broader messages — in the form of “demand signals,” as Williams described them — to the market that can spur innovation in supply chains. 

“We're giving those signals that we want to change, we need change, we'll be buying changed materials, and we want suppliers to change too,” William said.

WASHINGTON — For Nike Chief Sustainability Officer Noel Kinder, scope 3 emissions are “one of the things that keep me up at night.”

scope 3 is a category comprised of a company’s indirect greenhouse gas emissions up and down the value chain, from materials and supply chains to the end use of a product or service. The sportswear giant’s supply chain represents more than 90% of the company’s climate footprint, making it among the very top sustainability issues facing Nike.

scope 3’s share of emissions at Nike is standard for the fashion industry and most other sectors in the economy. Many companies are just beginning the complicated task of tracking their scope 3 footprints, not to mention reducing them.

Data, supplier partnerships and creativity are key to tracking and reducing emissions in the supply chain, several corporate executives noted at the 2023 Economist Impact's Sustainability Week U.S. conference in Washington, D.C.

During a panel on corporate efforts to achieve net zero emissions, Kinder pointed to two primary levers Nike can manipulate to reduce its supply chain emissions.

The first is what he called the “feedstock” — i.e., the materials such as polyester, leather and rubber that the brand’s products are made from. The other lever is the energy it takes to convert that material into finished product, and which is supplied to grids where Nike sources its goods.

“Today, collaboration among brands, collaboration across industries has become really, really important to us,” Kinder said.

He added: “We can send a collective demand signal in places like Vietnam and Indonesia, to say, ‘We have these Science Based target goals. Our scope 3 is really the largest component, the most meaningful. We need to collectively signal that demand so that our suppliers can use renewable energy to fuel their operations.’”

Nike has looked to on-site solar power at overseas production facilities, Kinder noted, adding, “Which is really great, but it doesn’t have the generation capacity to cover our entire footprint.”

What’s needed, then, is for more sustainable energy feeding grids in heavy producing companies, which Kinder and others hope will happen as more brands work to reduce their scope 3 emissions and create demand for that energy.

Working with suppliers to cut scope 3

While Kinder noted the importance of industry collaboration, others also pointed to how crucial collaboration with suppliers is to scope 3 reductions. 

For spice company McCormick & Co., scope 3 accounts for more than 95% of greenhouse gas emissions. That means key factors in reducing the company’s overall footprint are outside of the company’s direct control.

“So you need to make sure you have partnerships with your suppliers,” Michael Okoroafor, chief sustainability officer for McCormick, said on a panel focused on scope 3.

Okoroafor pointed to the company’s participation in the Supplier Leadership on Climate Transition program. The collaborative provides vendors with training and mentorship — financed by brands — to develop a strategy to reduce greenhouse gas emissions in line with global targets.

McCormick doesn’t just have a supply chain, it is a key player in the supply chain of others. That includes some of the largest food retailers in the world, who can impact the climate goals for an entire ecosystem of companies.

“In our own case, we don’t have a choice,” Okoroafor said. He pointed to Walmart and other large retailers that are pushing for more sustainable products and are working to reduce their own scope 3 emissions. “This customer, this retailer, they hold the key to the kingdom,” Okorafor said. “You’ve got to make sure you comply.”

External pressure to reduce emissions 

Investors can also influence a company’s path and speed toward scope 3 reduction. They also indirectly create an impetus for buyers and suppliers to share data on emissions.

Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, noted that her company’s shares are held in several climate investment funds, and investors regularly ask the company to produce specific information about its footprint.

“If you can’t produce it, they can’t invest in you,” Mahon said. “We're able then to go back to our suppliers and say, ‘This is the reality we're facing.’”

Brand marketers can also drive sustainability initiatives in supply chains, Mahon noted. Marketers might say, “I want to make XYZ claim on XYZ product,” Mahon said. “The environmental team says that’s possible or not possible. And then we go back to the supplier and say, ‘What would need to be true in order for us to make this claim?’”

Simple communication with suppliers can also drive progress on climate. Dave Duncan, vice president of sustainability at digital manufacturing solutions company PTC, said the company goes through its spend data and reaches out to suppliers about their path to emissions reduction.

“‘Are you committed, yes or no?’” Duncan said, describing conversations between his company and suppliers. “Frankly, those are the phone calls driving the exponential increase in commitments.”

Dive Brief:

• Forty-five percent of companies believe they are ready to report on their scope 3 greenhouse emissions by 2024, according to a poll of leaders in IT and sustainable strategy conducted by Morning Consult for IT giant IBM.
• At the same time, just 38% said their businesses are currently measuring their scope 3 footprints, per the report.
• While indirect emissions account for the vast majority of most companies’ carbon footprints, scope 3 ranks relatively low among performance indicators firms use to measure sustainability. “Specific KPIs, notably supplier metrics, are likely being overlooked,” the report’s authors write.

Dive Insight:

IBM’s report is a reminder of how much work is yet to be done in tracking and reducing supply chains’ carbon footprint.

As new laws targeting supply chain transparency come online, both at the state-level in the U.S. and internationally, companies could face new requirements to disclose their scope 3 emissions. Yet a 7 percentage point gap exists between those leaders who say they are ready to report on their scope 3 emissions and those who are actually measuring them, according to the survey.

“There are some disparities between business leaders’ perceptions of their organizational capabilities versus what their organization is already doing,” the report authors write.

Scope 3 emissions cover everything from raw materials and third-party manufacturing to freight and a product’s end-of-life cycle. Its breadth, complexity and indirect nature make it a complicated challenge to unravel, much less solve.

Tesla called scope 3 calculations “highly academic” when it provided figures for its indirect emissions for the first time ever this spring.

Even the high tech industry, with a reputation for being data savvy, is far behind on scope 3. A 2023 Accenture analysis found that “many High Tech companies lack the deep visibility across the supply chain that’s required to address their upstream scope 3 emissions.”

Luiz Amaral, CEO of Science Based Targets initiative, said in the summer that companies often point to a lack of access to supplier data as a major challenge in tracking and reducing scope 3 emissions — a common theme in scope 3 discussions and one that is reflected in executive surveys.

“Getting a clearer picture of your supply chain emissions is a vital starting point for any science based target,” Amaral said in a webinar this summer. “One does not manage what one does not measure.”

When it comes to deploying information technology to track scope 3 emissions and other sustainability issues, the top challenges listed were overall budget limits and overall budget allocation challenges, according to the IBM survey.

IBM, which has products that track scope 3 emissions, tapped Morning Consult to perform the survey, which was conducted in August. It drew from a sample of 3,250 business leaders, defined for the survey as decision-makers in IT and sustainability strategy within their organizations, from 13 countries.

Even the purchase of a new forklift is done with sustainability in mind at Colgate-Palmolive.

“If someone is going to put forklifts in a warehouse, there’s no question it is going to be electric,” Chief Supply Chain Officer Luciano Sieber said in an interview. “No one is going to come and propose one that needs fossil fuels as an energy source.”

The CPG company has for more than two decades made sustainability issues and data part of the DNA of its supply chain. Its sustainability team grew out of the supply chain organization and today has personnel still embedded in Colgate’s supply chain and packaging teams.

Colgate sets aside a minimum of 5% of its capital spending for waste reduction, climate initiatives and other sustainability efforts.

The company won’t invest in new machines if they can’t run recyclable structures, Sieber noted. Packaging types, even if they have other benefits, are rejected without argument internally for similar reasons, because they can’t be recycled.

“The strategy is so ingrained in our organization that it is part of every single function in the supply chain,” Sieber said. “We know the targets, we know what we want to achieve, and then it’s just part of the decision-making.”

When the company set a goal for reducing the waste its factories send to landfills, its manufacturing facilities competed among themselves to see which division would be first.

“They get very creative,” Chief Sustainability Officer Ann Tracy said in an interview. On the waste-reduction target, factories started with a literal dumpster dive, examining contents of dumpsters to see what materials they could cut out, reuse or recycle, Tracy said.

For example, one factory in South Africa producing bar soap found that it had a “huge issue” with boiler ash after assessing its waste, and ended up supplying it to a brick factory that could use the boiler ash in manufacturing, Tracy said.

Sustainability ‘swords and shields’

Colgate takes on sustainability issues with what Tracy calls swords and shields. “Shields are the things we have to do,” she said, pointing to areas such as responsible resourcing where there may be reputational risks involved, or because regulations, tax law and other factors compel action from the company.

“Swords are where we want to lead,” Tracy said. “We can’t lead everywhere. We have to choose what’s relevant for Colgate as a business to focus on.”

One of those areas is action on the climate. “We really believe we’re punching above our weight there,” Tracy said.

Colgate was the first large multinational corporation in its sector to get its net zero targets approved by the Science Based Targets initiative (SBTi), according to the company’s latest sustainability report.

The company’s targets call for 100% renewable electricity in its global operations by 2030 and a 42% reduction its scope 1 and scope 2 emissions by the same time. That's along with a 42% cut in emissions from its purchased goods and services — i.e., its supply chain — in the same time frame.

Materials and their end destinations are also of intrinsic importance to the company, which sells some 9 billion tubes of toothpaste worldwide every year, among many other packaged consumer products.

“We consider plastic waste an existential issue for us,” Tracy said. “All our packaging is plastic today. An so it’s a huge risk. It’s just a crime how much plastic ends up in the landfill today.”

Colgate is on track to convert entirely to recyclable toothpaste tubes by 2025. Getting to that point means converting all its factories to equipment that can handle recyclable material.

To scale and get the recyclers on board and willing to accept their tubes, Colgate shared the technology around its recyclable tubes with the industry. Now, other major brands have committed to recyclable tubes as well so that an estimated 75% of the 20 billion toothpaste tubes used worldwide will be recyclable by 2025, per Colgate’s sustainability report. “We kind of led a movement there,” Tracy said.

All of these efforts come amid broader efforts to transform the company’s supply chain. That includes a system and analytics overhaul to get digital systems communicating with each other and get personnel all the data they need, from across the supply chain, in one place.

Beyond profits, operational efficiency can also lessen the company’s environmental footprint.

“If my lines are running well, I’m going to improve energy consumption, I’m going to waste less water, I’m going to waste less product materials, which is also driving sustainability,” Sieber said. “If I'm running my trucks at 99% efficiency, I'm not only improving financials, I'm improving our sustainability footprint.”

REI Co-Op’s targets for cuts to its greenhouse gas emissions have been approved by the Science Based Target initiative, the outdoor retailer said in a company post.

Its near-term targets call for a 47% cut in its direct emissions under scopes 1 and 2 by 2030 against a base year of 2019. Ultimately, REI committed to cutting 90% of its emissions under scopes 1, 2 and 3, and reaching overall net-zero emissions across its value chain by 2050.

As it eyes cuts to its scope 3 footprint, REI aims to have 41% of suppliers by emissions commit to adopting science-based targets by 2025.

"We believe businesses have an urgent responsibility to address the climate crisis and invest in the communities in which they operate," Chris Speyer, REI’s chief merchandising officer, said in a statement. "The co-op is proud to retail a huge number of brands that share this sense of responsibility, and we will continue collaborating with our partners to reduce our collective impacts."

In its supply chain, REI pointed to a three-year clean energy agreement it signed with solar energy company Sol Systems and Nester Hosiery, a sock maker that is one of the retailer’s largest manufacturers.

The deal provides Nester Hosiery and REI with 11,000-plus renewable energy credits sourced from solar energy installations in North Carolina. REI said that credits “represent a big step forward, as they ensure one of the co-op's key suppliers gets 100% renewable electricity.”

The company used a similar approach in its international supply chain. REI recently purchased 25,000 credits from renewable energy projects in Vietnam, Indonesia, Cambodia and the Philippines through clean energy procurement specialist Powertrust.

REI called the purchase “the next step in the co-op's journey to decarbonize product manufacturing,” which the company said would spark new energy products and reduce manufacturing emissions in countries where it sources products.

This summer, SBTi — a consortium of organizations that works with corporations to set emissions targets — reported a steep increase in companies setting goals for cutting their emissions.

Yet many companies have only begun setting targets, including in the emission-heavy fashion industry.

Some estimates put the greenhouse gas footprint of fashion as an industry at 8% or 10% of the world’s total. Environmental advocacy group Stand.earth said the fashion industry’s progress on climate has been “insufficient and extremely disappointing” to date.

The organization gave almost every player it graded — 43 in all — a “C”-level score or lower. Only one, H&M, scored as high as a B-. REI received an overall score of C- from Stand.earth, which was higher than the majority of those scored.

The grade from Stand.earth came out months before the retailer announced SBTi’s sign-off on its climate goals. Targets are factored into those scores, but the majority is determined from concrete actions taken to reduce emissions, according to Rachel Kitchin, a corporate climate campaigner with Stand.earth. The organization looks specifically at things like financial support and data sharing with manufacturers, steps toward circular production, and reducing emissions in their materials.

“Having an SBTi [target] approved is a great step for them,” Kitchin said of REI in an interview. “It means they need to focus their minds on how they're going to achieve those cuts.”

Shippers are being given preliminary carbon pricing as European legislation aimed to reach carbon neutrality by 2050 fast approaches.

The EU Emissions Trading System will apply to the shipping sector starting Jan. 1, 2024, and will require ocean carries to monitor and report their carbon emissions. By the end of the year, carriers purchase the equal amount of emission “allowances,” where one allowance counts for one ton of CO2.

Legislation will apply to vessels traveling between EU countries and vessels traveling between an EU and non-EU port.

Some details in the law are still yet to be finalized, such as a list of transshipment ports. The list is expected to be published by the end of 2023, according to an advisory from CMA CGM.

Here’s a list of ocean carriers and their estimated 2024 carbon pricing.

CMA CGM

CMA CGM, which announced its estimated carbon pricing on Oct. 5, said it “decided to alert that EU ETS added costs will induce a surcharge applicable for all containers loaded on CMA CGM services impacted by the regulation.”

The carrier’s surcharge amounts will start mid-November, and will be reviewed on a quarterly basis.

Maersk

Maersk announced its estimated carbon pricing on Sept. 15.

“The cost of compliance is expected to [be] significant and will keep increasing with the phased implementation,” the ocean carrier said in a statement. “It will be passed on in the form of a standalone surcharge known as ‘Emissions Surcharge’ applied to all bookings on the voyage that will be subject to the EU ETS.”

Maersk’s ECO delivery bookings will not be subject to the emissions surcharge as the service replaces fossil fuels with biofuels.

For shippers using Maersk, the emissions surcharges will be updated every quarter.

Hapag-Lloyd 

Hapag-Lloyd announced its estimated carbon pricing on Sept. 21.

Shippers already using Hapag-Lloyd’s Ship Green service will receive a credit of 25%, 50%, or 100% of the ETS surcharge on the freight invoice, the carrier said in a statement. Ship Green helps shippers avoid 25%, 50% or 100% of emissions.

“The emissions accounting will start in 2024, and the first ETS allowances are to be surrendered in September 2025. In 2027, ships will pay for 100% of the emissions released in 2026,” the carrier said.

More than 300 of Apple’s manufacturers have now committed to using 100% clean energy in their production for the tech giant, the company said in September. 

Apple’s “Supplier Clean Energy Program” now represents 90% of its direct manufacturing spend following recent commitments from more than 50 additional producers.

The announcement brings the company closer to its goal of being carbon-neutral across its products by 2030, it said. That goal includes Apple’s global supply chain and the lifetime use of its devices. Apple is also eyeing a 75% cut in total carbon emissions by 2030.

Some 65% of the emissions tied to Apple’s products result from supplier manufacturing in its scope 3, or indirect, footprint, according to the company’s latest sustainability report. Over the past two years, Apple and its suppliers have worked to triple the amount of renewable electricity in the company’s supply chain.

With help from a multi-billion dollar green bond offering, the device-maker has put up money of its own to help suppliers transition to clean energy. It has invested in solar and wind projects in China and Japan amounting to nearly 500 megawatts, and plans to invest in more, per Apple’s sustainability report.

The company has been carbon neutral in its own operations since 2020, it said.

The same day that Apple announced new supplier clean energy commitments, the company also unveiled its first carbon-neutral products in its Apple Watch line of devices. It called the milestone “a major step in the company’s journey” toward its 2030 goals.

Driving a 75% reduction in emissions for each of the carbon-neutral devices were both design changes and clean energy use, according to Apple.

Specifically, the company’s criteria call for manufacturing processes to use 100% percent clean electricity and 30% recycled or renewable material, while no more than 50% of the products can be shipped by air.

Apple has also replaced leather watchbands with a textile called FineWoven, which is made from 68% post-consumer recycled material and has “significantly lower emissions compared to the more carbon-intensive leather,” according to the company.