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A phenomenon that occurs when there’s an overall balance between emissions produced and emissions taken out of the atmosphere, net zero is a hot topic in the global supply chain sector, where complex networks of suppliers and customers can have a substantial, positive impact on greenhouse gas (GHG) emissions. When developing its new “Net-Zero Challenge: The supply chain opportunity” report, the World Economic Forum (WEF) learned that:
- Many companies can multiply their climate impact by decarbonizing supply chains. For companies in most customer-facing sectors, end-to-end emissions are much higher than the direct emissions in their own operations. “By engaging suppliers to create a net-zero supply chain,” the WEF writes, “companies can boost their climate impact, enable emission reduction in hard-to-abate sectors, and accelerate climate action in countries where it would otherwise not be high on the agenda.”
- Eight supply chains account for more than 50% of global emissions. Food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight account for more than half of all global greenhouse gas emissions.
- Net-zero supply chains would hardly increase end-consumer costs. The WEF says that roughly 40% of all emissions in these supply chains (outlined above) could be abated with readily available and affordable levers, including circularity, efficiency, and renewable power—with only marginal impact on product costs. “Even with zero supply chain emissions,” it writes, “end-consumer costs would go up by 1–4% at the most in the medium term.”
- Decarbonizing supply chains isn’t easy. The WEF says that even leading companies struggle to get the data they need and to set clear targets and standards to which their suppliers must adhere. “Engaging an often-fragmented supplier landscape is challenging,” it writes, “especially when emissions are ‘buried’ deep in the supply chain, or when addressing them might require collective action at the industry level.”
The good news is that there are steps organizations and procurement departments can start taking now to do their respective parts in reducing supply chain emissions. According to the WEF, the most important steps that all companies can take in 2021 are:
- Building a comprehensive emissions baseline, gradually filled with actual supplier data.
- Setting ambitious and holistic reduction targets for reducing emissions.
- Revisiting their product design choices.
- Reconsidering geographic sourcing strategies (i.e., can it be made closer to home?).
- Setting ambitious procurement standards.
- Working jointly with suppliers to co-fund abatement levers, or those programs and initiatives aimed at reducing GHG emissions.
- Working together with peers to align sector targets that maximize impact and level the playing field.
- Using scale by driving up demand to lower the cost of green solutions
- Developing internal governance mechanisms that introduce emissions as a steering mechanism and align the incentives of decision-makers with emission targets.
Preparing for the Future
According to the WEF, decarbonizing supply chains could be a game-changer for global climate action, and it could have a major positive impact. “Especially in customer-facing sectors where a company’s direct emission footprint is relatively low,” it points out, “companies can address significantly larger emission volumes through their supply chains.”
WEF adds that supply chain decarbonization presents a giant and as-yet-untapped opportunity for international climate action. “Upstream decarbonization (i.e., those operations in which the materials flow into the organization), however, is hard and takes time,” the organization concludes. “It will require companies to change the way they design products, how they choose and engage with suppliers – and how they govern their own organizations. Leading companies are already addressing some of these challenges. It is time for others to start doing so, too.”
