Consumers today are more conscious than ever. They’re looking for brands that prioritize the environment and build sustainability into every aspect of their business. The world is waking up to the urgent need for sustainability. Businesses, once driven solely by profit, are now realizing that a greener footprint is not just an ethical obligation but a strategic imperative. At the heart of this transformation lies the value chain – a complex network of activities that bring a product or service to market. By integrating sustainability into every link of this chain, businesses can not only reduce their environmental impact but also get new opportunities for growth and innovation.
A value chain is essentially the series of activities involved in creating a product or service, from raw material sourcing to final delivery. Every step in this chain leaves an ecological footprint. From the energy consumed in manufacturing to the waste generated in packaging and transportation, the environmental impact can be significant.
Many companies setting science-based targets understand their direct emissions (Scope 1) and those from purchased energy (Scope 2). However, the real climate impact often hides in the supply chain. CDP data reveals that supply chain emissions are typically 5.5 times larger than Scope 1 and 2 combined. While some companies experiment with Scope 3 reductions, widespread action lags.
Supply chain emissions actually dwarf operational emissions by a staggering 11.4 times. Despite this massive impact, many companies remain unaware. 39% companies, including 6% of manufacturers, dismiss or ignore this major Scope 3 contributor, overlooking a quarter of their sector’s total emissions.
Embracing supply chain sustainability can strategically affect your business decision. By integrating a few practices into their value chains, companies can reap numerous benefits. Cost savings through resource efficiency, enhanced brand reputation, and increased customer loyalty are just a few examples. Moreover, sustainability can open up new market opportunities and foster innovation.
Value chain is at the epicentre of sustainable business today. Unlike the first generation of environmental legislation that focused solely on a company’s immediate footprint, the newly coming frameworks delve deeper, almost each of them touching upon the value chain. This shift means that organizations must now take responsibility for all their upstream suppliers—a logical move considering that the majority of a company’s impact and risk are rooted in its value chain.
Regulators are tightening the screws. The SEC proposes a climate disclosure rule that will require companies to disclose Scope 3 emissions if they are material and aligned with company targets. This data will inform leadership decisions, transparency initiatives, and impact reporting to demonstrate progress. The CSRD also demands high-quality, comparable data on strategy, targets, and board/management responsibilities, all backed by third-party assurance.
Voluntary frameworks also nudge companies towards full transparency. The CDP, though voluntary, has gained widespread adoption among investors and procurement organizations. It demands comprehensive supply chain emissions data, effectively setting an industry standard. Likewise, the Task Force on Climate-related Financial Disclosures (TCFD) prompts companies to disclose climate-related risks and opportunities, including those within their supply chain.
Other notable frameworks include the Global Reporting Initiative (GRI), which offers extensive sustainability reporting standards, and the Science Based Targets initiative (SBTi), which has even given methodologies for target setting for scope 3 emissions.
Companies need an average of 12-18 months for partial disclosure preparation and two to three years for full disclosure. To avoid increased investor pressure, customer scrutiny, and media attention, companies must act now to prepare for these regulatory changes.
Understanding where your business impacts the environment is the first step towards building a sustainable value chain. Every stage, from sourcing raw materials to product disposal, presents opportunities for improvement or measurement.
Sourcing Sustainably
- Ethical and Responsible Sourcing: Ensuring that raw materials are procured from suppliers who adhere to high environmental standards.
- Reducing Environmental Impact: Opting for materials with a lower carbon footprint, minimizing waste, and prioritizing renewable resources.
Sustainable Production
- Energy Efficiency: Implementing energy-saving technologies and practices across the production process.
- Waste Reduction: Minimizing waste generation through efficient processes and adopting circular economy principles.
- Eco-friendly Materials: Using sustainable materials and reducing reliance on harmful chemicals.
Sustainable Distribution and Logistics
- Optimized Transportation: Reducing carbon emissions through efficient route planning and utilizing eco-friendly transportation modes.
- Sustainable Packaging: Using recyclable or biodegradable packaging materials and minimizing packaging waste.
End-of-Life Management
- Product Design for Recycling: Designing products with ease of disassembly and recycling in mind.
- Extended Producer Responsibility: Taking accountability for the entire product lifecycle, including proper disposal.
Measurement is the entry point for companies to understand and quantify their environmental impact. Buyers engage with suppliers to gauge the broader implications of their operations, but many companies focus only on their direct operations, overlooking the wider impacts across their value chain.
Accurate measurement is crucial because what gets measured gets managed. Emissions, particularly Scope 3 emissions, play a critical role in achieving climate goals. Despite this importance, a significant disparity exists in reporting: while 71% of disclosing companies report Scope 1 and/or 2 emissions, fewer measure and disclose their Scope 3 emissions. This gap arises from several challenges:
– Companies struggle with limited data transparency and traceability across the value chain.
– Data quality and granularity are often low.
– Companies have limited influence over most Scope 3 categories.
– The regulatory environment is constantly changing.
To effectively manage and improve your sustainability performance, you need robust measurement systems in place. Automated and scalable tools to help measure and track your emissions can really make your business progress towards environmental goals.
Once you’ve collected data on your sustainability performance, it’s crucial to communicate your efforts effectively. Transparency builds trust with customers, investors, and stakeholders.
Building sustainable value chains is no longer a choice but a necessity. A healthy planet is essential for the long-term success of businesses and society as a whole. By integrating environmental considerations into every stage of the value chain, companies can not only reduce their ecological footprint but also gain a competitive advantage.
The journey towards a sustainable future requires collective action. Businesses, governments, and consumers must work together to drive positive change. By embracing sustainability, we can create a world where economic prosperity and environmental protection go hand in hand. Let’s build a greener, more resilient future together.
Not sure where to start? The process of decarbonization of the supply chain can be confusing, but not impossible. Connect with our experts today, and know more about how you can make the process easier for your orgainization.
