Supply Chain Carbon Management: From Disclosure to Better Performance

Ryan Schuchard, Manager, Climate and Energy

A company’s supply chain is one of its top levers for addressing climate change. However, as the Carbon Disclosure Project’s latest supply chain report shows, it is challenging in practice to reduce supplier greenhouse gas (GHG) emissions. According to the report, which describes the actions of more than 2,300 suppliers, there remains a significant gap in efforts to reduce GHG emissions between multinational corporations (MNCs) and their suppliers.

For example, while 92 percent of the MNCs who request supplier information also have emissions reduction targets, only 38 percent of the reporting suppliers do. And, while 69 percent of those MNCs are investing in emissions reduction, only 27 percent of suppliers are doing the same.

This gap exists for good reasons. A disproportionate number of suppliers are based in emerging markets like China, where energy is relatively inexpensive. The MNC participants also tend to be global brands with sophisticated management systems, while many suppliers are smaller and less mature.

What will it take to close this gap? BSR sees three opportunities:

• Be a part of the solution. MNCs need to not only ask suppliers questions but also help them get the technical assessments, coaching, and resources they need. Some managers mistakenly believe that disclosure requests will automatically send a signal that leads suppliers to reduce emissions, while in reality, surveys are often assigned to personnel without budgets, and carbon-reducing investments are not made. Therefore, companies that are serious about supplier GHG reduction cannot stop with surveying—they need to develop literacy around the energy management issues their suppliers face and understand individual supplier's specific opportunities.
• Use data that’s useful. To play a more active role, companies need to understand what is happening inside supplier operations. However, the data expressions many are most familiar with—lifecycle assessments (which compare categories of suppliers) and carbon footprints (which outline a supplier’s overall energy use)—say little about what individual factories have done or should do. Companies need to add to data collection efforts aimed at diagnosing managerial and technical weaknesses for energy efficiency, identifying specific energy-saving opportunities through energy audits on the ground, prioritizing potential energy-saving actions, and understanding what stands in the way of the suppliers taking the next step.
• Enable different kinds of suppliers, together. Supplier situations are diverse. In electronics, for example, the energy use of the top 10 percent of suppliers may be 10 times greater than the average (see figure below). Also, some suppliers will have not yet made any proactive investments in energy efficiency, while others are already managing carbon and energy in a sophisticated way. A single, middle-of-the road approach to training will serve neither of these groups. Companies need to find ways to drive forward suppliers of different shapes, scales, and stages of evolution together.

Scope 2 Emissions (Electricity Consumption) of Electronics Suppliers

Source: Responses from more than 350 suppliers to the Electronics Industry Citizenship Coalition 2012 Carbon Reporting System survery

Building on the two-year Energy Efficiency Partnership (EEP) pilot project, which developed management capability for energy efficiency for more than 100 suppliers in China, BSR is launching a Supplier Carbon Performance (SCP) initiative. Using technical energy management as a frame of reference, SCP acquaints suppliers with best practices for managing and reducing carbon. SCP also adds several resources for which suppliers have articulated needs: on-site factory consulting, group trainings organized by common sectors and situations, and a diagnostic tool for quickly evaluating efficiency improvement opportunities at the outset.

Disclosure of supplier climate issues is vital—yet it is not alone sufficient to drive GHG reduction. Companies need to complement disclosure and reporting efforts with initiatives that investigate suppliers’ individual needs and play an active part in helping them to set and achieve their own commitments.

For more on supply chain management of climate change and BSR’s Supplier Carbon Performance initiative, contact Ryan Schuchard.