Up to 75% of a company’s environmental impact is found within its end-to-end supply chain activities
With global supply chains becoming more complex and interconnected, it has become imperative for companies to focus on making their supply chains more efficient and sustainable. In fact, up to 75 per cent of a company’s environmental impact is found within its end-to-end supply chain activities, according to findings from McKinsey.
As such, companies are increasingly focused on reducing their reliance on fossil fuel energy sources to improve their overall carbon footprint across their owned factories, processing facilities, and fleet vehicles, as well as gain greater visibility into the energy sources and usage rates of their upstream suppliers.
Here are three steps that companies can take to gain more visibility into their carbon footprint and create a more sustainable, energy-efficient supply chain.
1. Measure carbon emissions performance to set a baseline
One of the first steps toward a more sustainable supply chain is to measure and account for a company’s current energy usage and environmental performance across its business and suppliers. Companies can start the process by collecting data on the energy sources and emissions output of their products, facilities and fleet vehicles. They can then use this data to set a baseline for their current carbon footprint and assess potential opportunities to transition to renewable energy to power facilities or transition to electric-powered fleet vehicles.
Many companies are equipped to start the process of an internal Scope 1 and 2 carbon footprint audit, but another aspect to consider is measuring data focused on their Scope 3 carbon footprint, which entails emissions data relating to their upstream suppliers. This means evaluating trading partner relationships throughout the supply chain–from raw material extraction through product use–to gain greater transparency and understanding of their suppliers’ use of renewable energy and overall sustainability efforts. Doing so helps companies identify carbon emissions risks and opportunities across their end-to-end supply chain.
The requirement for due diligence on multiple sustainability fronts–including shifting to renewable energy sources– has become front and center as global companies seek efforts to reduce their overall carbon footprint within their supply chains. These efforts will continue to grow in importance through the remainder of 2023 and beyond.
2. Set achievable carbon emissions goals and targets
Once a baseline has been established, the next step is to develop goals and targets that align with the Paris agreement’s not-to-exceed threshold of 1.5°C global warming and India’s goal of achieving 50% cumulative electric power capacity from renewable energy sources by 2030.
In this stage, companies can set more specific goals and timelines for transitioning to renewable energy sources and establish KPIs to ensure that progress towards renewable energy goals is staying on track. These initiatives and KPIs can also extend to their suppliers. In order to successfully manage progress, companies must engage their suppliers in the development of their decarbonisation targets.
As more and more companies take on sustainability and non-renewable energy initiatives, it will impact how goods and services are sourced. For example, downstream vendors will increasingly be making sourcing decisions based on the availability of supplier carbon emissions performance data and targets.
As companies gain greater visibility into their supply chain and suppliers’ sustainability targets, they may determine that they need to source materials from alternate suppliers to achieve their own sustainability targets and goals.
3. Take steps to report the results
To ensure a meaningful outcome on sustainability initiatives and transition to renewable energy sources within the supply chain, companies must actively monitor and track performance over time and report on their progress. As a result, companies need to set renewable energy metrics and key performance indicators (KPIs) that align with specific industry frameworks and national standards but are also meaningful to customers and investors.
By addressing the energy usage that is prevalent throughout global supply chains and committing to finding opportunities to transition to renewable energy sources, companies can do their part to create efficient supply chains that are able to meet future business demands.
(Siddhartha Niyogi is the ceo and managing director, o9 Solutions India.)