Setting Supply Chain Sustainability Targets

As organizations continue to advance at managing their own environmental impact, they are beginning to ask suppliers to do the same.

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Supply chain emissions can make up a significant portion of an organization’s greenhouse gas (GHG) impact, creating the need for meaningful supply chain targets.  Developing targets to manage GHG emissions generated outside of direct operations may seem daunting to those organizations, given the difficulties associated with obtaining quality data and the myriad of data sources. WSP outlined a number of steps to help organizations get started:

Step 1: Determine the relevance of all Scope 3 GHG emissions categories.

Scope 3 GHG emissions are indirect emissions generated as a result of activities that occur outside an organization’s operational boundary. As outlined by the GHG Protocol, there are 15 Scope 3 categories, including, for example, emissions generated from purchased goods and services, employee commuting, and business travel.

A relevance assessment is an evaluation of all 15 Scope 3 categories to determine which categories are relevant to a specific organization’s business model and activities. The results of this assessment will give an organization greater insight into the potential data requirements for each relevant category and identify potential internal and external data providers specific to the organization.

Any categories that do not apply for a given organization are considered not relevant, and emissions calculations do not need to be made. For example, if an organization does not lease any owned space to others, then Category 13, Downstream Leased Assets, is not relevant.

Step 2: Conduct a screening-level inventory of all relevant Scope 3 categories.

A screening-level inventory is a high-level estimate of emissions for each relevant Scope 3 category.

In a screening-level inventory, a complete data set is not required for each category. Instead, estimations and assumptions are used to determine if the category is significant enough, in terms of emissions, to warrant the time and effort required to calculate emissions aligned with the GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard. 

For some categories, a screening-level inventory may represent the best available data.

Step 3: Develop prioritization criteria and a prioritized list of categories for future emissions calculations, taking into consideration:
1. Significance in terms of the quantity of GHG emissions
2. Level of effort for activity data collection
3. Quality of data available, and how that data can be tracked to show progress over time
4. Degree of potential ability to make an impact

Step 4: Calculate emissions for priority categories.

The GHG Protocol’s Scope 3 Standard provides user-friendly guidance and tools for organizations interested in quantifying and reporting emissions across the value chain, including emissions related to upstream and downstream activities.

The Scope 3 standard is internationally accepted and can be used by any organization. It enables organizations to assess and prioritize potential impact areas and supports organizations in developing strategies for engaging suppliers and customers to reduce emissions.

Step 5: Evaluate the appropriate type of target(s) for your organization.

Which categories are prioritized will impact the type of target(s) that are most appropriate. For example, if purchased goods and services (Category 1) is a significant contributor to an organization’s Scope 3 emissions, an emissions reduction target or an engagement target could make sense.

Organizations should also consider the target boundary, base year, target year and level of ambition. In this step, we recommend assessing the maturity of an organization’s sustainability and supply chain programs to inform the scope and ambition of its target(s). For example, certain suppliers may need guidance and support, including those in regions more vulnerable to climate change risks such as extreme weather events or water stress. Suppliers in regions with stringent environmental regulations may also be more open to setting reduction targets.

Also, an organization should consider the type and quality of data for downstream Scope 3 categories beyond those impacted by suppliers, such as the use of sold products as well as end-of-life emissions.

When considering the appropriate type of target for and organization, there are a variety of options. The most common are discussed in the table below.

Target Type

Description

Advantages

Challenges

Organization Example

Quantitative reduction

Targets specifying absolute- or intensity-based reductions in Scope 3 GHG emissions

Absolute targets ensure actual reductions in emissions while intensity targets account for business growth

May be difficult to quantify actual emissions, making it difficult to quantify overall reductions and achieve targets

Swisscom; reduce Scope 3 GHG emissions by 18% between 2013 and 2020

 

Product use-based reduction

Targets specifying reductions in Scope 3 GHG emissions from use of sold products

Does not require organization to collect emissions data from suppliers

May not clearly reflect the direction of change in absolute emissions

AMD; improve compute performance per watt of energy consumed by mobile APU processors 2500% by 2020, from 2014 levels

Project-based target for supply chain

Targets specifying cumulative reductions in Scope 3 GHG emissions from emission reduction projects among suppliers

Reflects the impact of supplier activity, rather than a difference in annual emissions across all suppliers or the supply chain

Access and coordination with suppliers may be challenging; potential difficulty in communicating progress given that supplier emissions reductions may not all be attributable to organization

Walmart; reduce CO2e emissions from upstream and downstream Scope 3 sources by one billion tonnes between 2015 and 2030

Supplier engagement

Targets requiring increasing engagement with suppliers or the supply chain

Allows for action where quantifying Scope 3 emissions may be challenging; provides an opportunity to deepen supplier relationships

May not result in clear or quantifiable reductions

Daiichi Sankyo; 90% of key suppliers by purchase value will institute GHG reduction targets by fiscal year 2020

 

 

Step 6: Define target parameters (definition, boundary, base year, target year) if appropriate and relevant.

We recommend clearly defining your target(s) to support accurate and repeatable quantification of progress over time. Having clarity on target parameters will also enable an organization to manage expectations with internal and external stakeholders through succinct communication on its website and public disclosures. 

Step 7: Set the level of ambition appropriate for priority categories and target parameters.

Evaluate and determine the degree of ambition appropriate for the organization and the target parameters that have been chosen. For example, in many cases, a longer target time frame can pave the way for a more ambitious target.

Step 8: Announce target(s) publicly.

Work with marketing and communications colleagues to publicly announce the organization’s target(s). Options for publication include, but are not limited to, corporate websites, annual corporate social responsibility or sustainability reports, annual reports, press releases or third-party websites and publications. By publicly committing to your target(s), your organization will be held accountable for its performance, which will ultimately help propel you toward target achievement.

Step 9: Work with stakeholders to drive action around targets and continually track and report progress.

Meet both externally with suppliers that will need to be part of a target achievement plan, as well as internally with stakeholders who have a role in the target(s). Early action will help ensure that the target(s) will be met. Reporting progress will help drive accountability.

Another option for organizations interested in setting a Scope 3 target is to use the Science-Based Targets Initiative’s (SBTi’s) guidance. SBTi defines and promotes leading practice in science-based target setting by asking organizations to commit to and set emissions reduction targets in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to pre-industrial temperatures.

SBTi-approved targets require an ambitious Scope 3 target when Scope 3 emissions cover a significant portion (less than 40 percent) of an organization’s overall emissions, which is frequently the case. Targets are considered ambitious when the emission reduction targets are aligned with climate science to keep global temperature increase below 2 degrees Celsius. This initiative lends credence to the importance of setting ambitious Scope 3 targets.

It’s also important to consider the industry of the target-setting organization. For example, for organizations that do not produce physical products, such as those in financial services, we recommend steering away from product-based reduction targets, which may be less relevant. For a technology company that produces consumer electronics, however, this type of target is more appropriate.

For information on supply chain engagement, see WSP’s article titled “The Do’s and Don’ts of Sustainable Supply Chain Engagement.”