ESG in Supply Chains - measuring your environmental impact

If 90% of your problems came from one place, wouldn’t you do something about it?

When it comes to environmental impacts, for many companies, that’s exactly the case.

According to leading consultancy, McKinsey (2019), ‘more than 90% of companies ’environmental impact comes from their supply chains’. Put simply, no matter how effective you believe your sustainability practices are, if you’re not addressing your supply chain then, at best, you could be focusing on just 10% of the issue!

Environmental consultancy, The Carbon Trust broadly agrees, claiming that ‘Typically, the carbon emissions from a company’s value chain are between 65% and 95% of the total emissions triggered by whatever it is a company does’.

Again, according to McKinsey, retail firms’ supply chains typically account for 11.5 times each company’s impact; and for food & beverage companies it’s 24 times.

As if the environmental issue isn’t reason enough, when you add the McKinsey claim that ‘supply-chain disruptions cost the average organization 45% of a year’s profit over the course of a decade’, it’s not hard to see that ignoring your supply chain is likely to be a costly decision – for your business financially, and for the planet. And yet, there are far too many businesses doing just that. Whilst diligently attending to the mitigation of their own environmental impacts, assiduously pursuing Scope 1 and Scope 2 carbon reporting policies, they consign their Scope 3 emissions to the ‘too difficult box’.

Scope 1 (direct emissions from company-owned machinery, facilities and vehicles) and Scope 2 emissions (indirect emissions associated with generation of electricity, heat, steam and/or cooling) are critical of course. But if the McKinsey findings are correct, it’s Scope 3 emissions that make the vital difference to a company’s effective GHG mitigation.

Scope 3 covers the impacts of business travel, employee commuting, waste disposal, use of sold products, transportation and distribution, investments, leased assets and franchises and that all-important impact of ‘purchased goods and services’ – in other words, your supply chain. Before everyone reading this looks at the Scope 3 list and consigns it to the box I’ve already mentioned, let’s ask ourselves why measuring Scope 3 emissions might just be worth the effort.

Addressing Scope 3 enables you to assess where the emissions ‘hot spots’ are in your supply chain, to identify resource and energy risks in the chain, to determine which of your suppliers are leaders and which are laggards (after all. It will be your company’s reputation that it affects), to focus on energy efficiency and cost reduction opportunities in the supply chain, to engage with suppliers and influence their journey and to improve the energy efficiency of suppliers’ products and services.

Don’t be put off by the broad range of Scope 3 reporting. Just treat it in the same way as your Scope 1 and Scope 2 emissions. Look for the most efficient, reliable, sustainable and accessible way to collect the data. That might involve working with your suppliers in order to do so, but any meaningful collaboration with suppliers can only bring benefits to your company so doesn’t that make the whole exercise even more worthwhile?