Decarbonisation has become a major issue for all companies, both private and public. Many have made ambitious commitments to reduce their overall environmental impact, focusing on their carbon footprint, in line with the Paris Agreement and its goal of net-zero emissions by 2050. Within this context, procurement departments play a crucial role to first, measure, and then find solutions to reduce indirect greenhouse gas emissions, also known as scope 3 carbon emissions, in an effective and sustainable manner.
What are scope 3 carbon emissions?
The World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI) initiated the Greenhouse Gas Protocol in the late 1990s. This partnership provides a framework for accounting and reporting greenhouse gas (GHG) emissions: CO2, CH4, N2O, NF3, etc. It includes three main scopes for conducting a company's carbon footprint assessment: scopes 1, 2, and 3.
While scopes 1 and 2 cover the direct and indirect greenhouse gas emissions associated with a given organisation's operations (equipment and facilities, energy production used, etc.), scope 3 refers to all other indirect emissions. These GHG emissions result from the company's activities but come from sources owned or controlled by another company. Thus, a company's scope 3 emissions mirror the scopes 1 and 2 of another organisation.
In other words, these are the carbon emissions that are "imported" and mainly come from suppliers. Because its scope is extremely broad, scope 3 is challenging to address. Nevertheless, it is essential to do so, and for good reason. Consulting firm McKinsey & Company highlights that it generally represents around 80 to 90% of the total emissions resulting from a company's activities.
This covers all categories of indirect greenhouse gas emissions upstream of the value chain:
- Procurement of products and services;
- Capital assets;
- Consumption of fuel and energy;
- Transportation and distribution of goods;
- Waste generated;
- Employee commuting;
- Business travel;
- Upstream leased assets.
Scope 3 also includes downstream emissions:
- Transportation of goods and services;
- Usage, transformation, and end-of-life of sold products;
- Downstream leased assets;
The key role of procurement in scope 3 carbon emissions
In the long run, all company departments will be involved in the quest for decarbonisation, across scopes 1, 2, and 3. In this context, procurement departments hold a prime position to participate in reducing carbon emissions, particularly scope 3 carbon emissions, which are also referred as indirect emissions.
As highlighted by Leon Laubscher, Climate Strategy Programme Lead at Unilever: “A good climate leader manages their own internal emissions. A great climate leader, tackles its supply chain as well. This might seem like planetary altruistic behaviour, but it simply makes good business sense to ensure your value chain partners also survive the transition. Use your purchasing power as a force for good by engaging with your suppliers and supporting them with managing and reducing their own emissions.”
As a manager of external resources, the procurement function can, above all, influence the upstream portion with suppliers. Since most companies are at the beginning of their ecological and energy transition, the entire supply chain needs to gear up on a large scale to improve its carbon footprint. This includes major supply chain partners, as well as smaller, less mature structures, which often account for a large share of carbon emissions.
In addition to contributing to the fight against climate change, comprehensive corporate decarbonisation strategies (up to scope 3) also address other procurement department priorities, such as cost reduction and compliance with growing regulations. It is therefore a virtuous circle for the entire ecosystem.
What strategy to address scope 3 carbon emissions?
Given the different maturity levels of stakeholders, companies must focus on support and collaboration to involve their supply chain in reducing carbon emissions.
Procurement departments often start by promoting CO2 emissions reduction efforts in communication tools used with suppliers and customers. This can be done through codes of conduct, contractual clauses, or awards given to partners who particularly stand out in this area.
They then focus on directly engaging their suppliers around this issue, joining a continuous improvement dynamic.
This can take several forms:
- Integrating sustainability criteria into procurement processes;
- Working on joint projects to reduce carbon emissions;
- Collecting data on suppliers' carbon emissions;
- Selecting suppliers based on their carbon emissions;
- Promoting the circular economy in procurement strategies;
- Implementing performance-related incentives for suppliers.
Today, companies have no choice but to adopt a global view to achieve the net-zero standard and initiate concrete actions at the entire value chain level. Moreover, any decarbonisation initiative must fit into a broader sustainable development strategy, embodied in the Corporate Social Responsibility (CSR) policy.
- Download our “Procurement Policy and CSR” white paper.