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Why companies are “greening” their supply chains – and what it means for your business

Emission responsibility requires buy in from companies, vendors, and customers alike

Why companies are “greening” their supply chains – and what it means for your business
Cargo containers stored in transhipment station
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“Do unto those downstream as you would have those upstream do unto you,” wrote the environmentalist Wendell Berry. It’s an apt description of how, in 2021, more and more businesses are thinking about their carbon footprint. Companies are no longer concerned solely with the emissions generated by their own operations; they’re also thinking about the impact of their entire supply chain: OEMs, utilities, and transportation.

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This means more and more businesses will come under environmental scrutiny not just from regulators or the public, but also from their own customers. Add to that the impact of the COVID-19 pandemic, which, with all the shortages of vital goods and fragile logistics it revealed, has brought widespread public attention to supply chains, and it means more companies will exit the pandemic with a broader focus, looking at upstream and downstream pollution as part of their responsibility.

HOW TO THINK ABOUT YOUR EMISSIONS IN RELATION TO YOUR CUSTOMERS

Leading thinkers on sustainability now divide emission responsibility into three different categories, or “scopes.” Scope 1 refers to the emissions from sources that a business directly owns or controls, like on-site boilers, furnaces, or a fleet of delivery vehicles. Scope 2 refers to emissions associated with energy the business purchases from the grid. And Scope 3—the one this essay is concerned with—involves all other emissions up and down the supply chain, both upstream suppliers and downstream customers.

The emissions associated with the production of raw materials (Scope 1 and 2 emissions) show up in the footprint of buyers/OEM assemblers (as Scope 3 emissions). It’s one of many reasons to begin proactively reducing your emissions now.

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The environmental case for greening your business is obvious: Lower emissions means fewer greenhouse gases in the atmosphere, reducing climate change. But increasingly switching to renewables is also in your business interest. In many places solar and wind power prices are competitive with fossil fuels; in some cases, they are cheaper. Also, your suppliers, customers, and even the public will evaluate their relationship to you based partially on your emissions practices going forward.

Aside from potential cost savings, the transition to clean energy is proving to be a business driver. Investment in the energy transition, including sectors such as renewables, storage, and electrified transportation, hit $500 billion in 2020, with $1 trillion in green bonds issued in September 2020 alone. The WilderHill New Energy Global Innovation Index (NEX)—an equity index composed of global companies focused on clean energy and decarbonation—dramatically outperformed both the Nasdaq and the S&P 500 in 2020, according to Bloomberg.

HOW TWO COMPANIES ARE MEETING THE SCOPE 3 CHALLENGE

Two major manufacturers—General Motors and Sonoco Products Company—offer meaningful lessons for others in Scope 3 emission reduction. According to Bloomberg Finance, 97% of General Motors’ emissions are scope 3, which the company is working aggressively to reduce. (GM expects to sell exclusively electric vehicles by 2035, and to be completely carbon neutral by 2040.)

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Eyeing its network, GM has set strict emission reduction standards for companies along its supply chain, with the goal of 100% participation of all suppliers by 2023. It’s also helping suppliers locate renewable energy sources to make their operations greener. But even with a fully electrified portfolio of vehicles, GM still must address its own emissions. To that end, the company has become a major buyer of Power Purchasing Agreements (PPAs) and is now the ninth largest nonutility buyer of such agreements in the world—and the largest buyer in the automotive industry. (PPAs are long-term agreements between a buyer and seller of energy and are often used to help utilities finance developing renewable sources.)

Packaging company Sonoco Products Company has a different challenge as a supplier. It has developed a system for tracking its own emissions in order to be fully transparent with its customers. The company has said that it is “encouraged by our customers to set ambitious sustainability targets, to incorporate renewable energy into our portfolio, and to collaborate on specific projects across the value chain that can mutually decrease our carbon footprint.” Those efforts have paid off, and Sonoco has been honored with sustainability awards from Dow Jones Sustainability World Index and Sustainable Asset Management.

REDUCING YOUR SCOPE 1 AND SCOPE 2 EMISSIONS

Becoming a carbon-emission-free company doesn’t happen overnight, nor does it happen by changing any one thing. Here are moves your company can make to address Scope 1 and Scope 2 emissions:

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  1. Establish a baseline to understand your organization’s emissions sources and scopes, and
  2. Identify relevant projects, including but not limited to fuel switching (Scope 1), fleet electrification (Scope 1), and renewable energy purchasing (Scope 2).

In order to be successful and accountable, you need an emission reduction plan that will satisfy multiple stakeholders. Here’s how to start down that path:

Understand your resource usage and set ambitious targets to reduce it. By installing the proper technology and collecting the right data, you’ll be prepared to share information on your resource usage with your customers when they ask for it. It will also help you identify areas where you can improve, setting you up for further emission reductions down the line.

But tracking is not enough; you need to set ambitious reduction goals. Organizations like the World Resources Institute’s Science Based Targets initiative routinely help companies identify goals that are both ambitious and achievable.

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Electrify your own fleet of vehicles. Electric cars are coming onto the U.S. market at a rapid clip. The infrastructure for recharging is increasingly common, and charging stations are likely to be nearly ubiquitous in a few years

Switch now to renewable energy sources to the extent possible. Even incremental moves can make a big difference. For example, CDP’s Supply Chain Report says that its 125 members could realize one gigaton of emissions (or one billion metric tons) reduction if they shifted just 20% of their current output to renewable resources.

Work with a partner that aligns with your values. Enel X offers an array of climate-oriented solutions, including emissions reporting, strategy and roadmap workshops, renewable energy procurement, and more. But beyond selling sustainability solutions, we adhere to these values ourselves. Enel X is part of the Enel Group, a global leader in sustainable supply chains and sustainable procurement. Enel works closely with its supply chain partners to ensure its own supply chain meets its high standards for sustainability. In 2020, Enel launched the Supplier Development Program for companies that work with the Enel Group to offer access to financial services, managerial training, and initiatives for innovation, the circular economy, and internationalization.

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START YOUR TRANSITION NOW

Even if your customers aren’t yet looking at your emissions, your best bet is to transition before they start asking. Setting up an effective system takes time—being an early mover can make you a more formidable competitor.

Responsibility for reducing emissions is no longer the siloed responsibility of individual companies; like a supply chain, it ties manufacturers, wholesalers, retailers, and customers together. By acting now to get insight into your own emissions, you can strengthen your business and ensure a better tomorrow for everyone.