Sustainable procurement policy – a carbon focus
Sustainable procurement is defined by the Chartered Institute of Procurement & Supply (CIPS) as “the act of adopting social, economic and environmental factors, alongside the typical price and quality considerations, into the organisations handling of procurement processes and procedures.” In a world that is potentially facing diabolical climate change, sustainable procurement is a critical element in reducing this climate risk.
In our blog, Reducing Carbon Emissions, we noted that scope 3 emissions often represent 80% of supply chain emissions. Whilst reducing emissions that are directly controlled (that is, scope 1 & 2 emissions) is an obvious course on the road to net zero, the reduction in scope 3 emissions is less clear.
Scope 3 emissions can be categorized as either upstream or downstream. Upstream emissions are also referred to as cradle to gate emissions. If the emissions being considered, also include downstream emissions, the term applied is cradle to grave emissions.
The GHG Corporate Value Chain (Scope 3) Accounting & Reporting Standard) is the most authoritative document for defining the rules for scope 3 emissions inclusion in the carbon account. It has 8 upstream emission categories and seven downstream emission categories.
The upstream categories that should be considered in the development of a sustainable procurement policy include:
1. Embedded emissions in purchased goods and services.
2. Embedded emissions in acquired capital goods (i.e. assets used for revenue-generation).
3. All the emissions of extracting fossil fuels and processing them for end use (scope 1 and scope 2 emissions from fossil-fuel use are directly related to greenhouse gas emissions arising from their combustion).
4. Emissions from the transportation and distribution of products (excluding fuel and energy products) by vehicles not owned or operated by the reporting company, including both inbound and outbound logistics.
5. Emissions from third-party disposal and treatment of waste that is generated in the reporting company’s owned or controlled operations in the reporting year, including solid waste and wastewater.
6. Emissions from the transportation of employees for business-related activities in vehicles owned or operated by third parties, such as aircraft, trains, buses, and passenger cars.
7. Emissions from the transportation of employees between their homes and their worksites.
8. Emissions from the operation of assets acquired by operating lease by the reporting company and not already included in the reporting company’s scope 1 or scope 2 inventories.
There are a number of factors that have stalled companies from decarbonizing their upstream supply chains. These factors include:
• Lack of transparency. For instance, what are the embedded emissions in the products or services provided to your company?
• Supply chain complexity. Emissions may be spread across many countries and tier n suppliers (i.e. suppliers of suppliers).
• The economics of a sustainable procurement supply chain. For instance, if we do the right thing and seek out net zero suppliers, are we going to pay through the nose? What impact will this have on our customers as costs are passed on?
• The sources of products or services needed are limited.
• Gaining unification of objectives within the organisation. Not all departments will necessarily have the same priorities.
In the World Economic Forum’s report Net Zero Challenge: The supply chain opportunity nine supply chain initiatives that organisations should implement are recommended and summarized here:
1. Develop a comprehensive emissions baseline. This can start with the application of database software such as top-down input/output options or bottom-up options such as Ecoinvent. For the most accurate level of transparency, procurement officers can tailor their estimates through the use of full life-cycle analyses of key products and by developing supplier-specific knowledge (at least for their “emission hotspots”).
2. Once there is transparency on supply chain emissions, organisations should set a public 1.5°C-aligned target and/or net-zero target across all emissions scopes and understand what this means for their business.
3. Redesign products for sustainability. For in-series products – where fundamental changes are hard to make – this includes reducing the energy footprint in suppliers’ operations and increasing the share of recycled input materials.
4. Design value chain/sourcing strategy for sustainability. For example by limiting the need for long-range logistics (remembering the GHG Protocol’s fifth category of upstream emissions as listed above).
5. Integrating emissions metrics into organisational procurement standards so suppliers are on notice of procurement requirements.
6. Work with suppliers to address their emissions including joint abatement and circularity projects, supplier education, technical support and methodology sharing, especially in relation to efficiency initiatives.
7. Engage in sector initiatives for best practices, certification, traceability, policy advocacy including putting pressure on industry bodies and other organizations to establish sector-level targets for climate action.
8. Scale-up “buying groups” to amplify demand-side commitments.
9. Introduce low-carbon governance to align internal incentives and empower your organization, or put another way, organisations seeking to improve their procurement should lead by example with low-carbon emission strategies in their own operations.
In conclusion, it is absolutely imperative that organisations right across the globe adopt a sustainable procurement policy that has impact in reducing upstream value chain emissions. Unfortunately, from an ESG perspective, many organisations are ignoring this aspect and focussing on their close-to-home scope threes only, such as waste, business travel and employee commuting.
The problem is compounded because ESG rating agencies, suffering from lack of data, have not been able to adequately include Scope 3 emissions assessments in their reviews. Only 19% of companies in the manufacturing industry and 22% in the service industry disclose this data. This has to change.