Why investors ask for your supply chain carbon footprint

Biggest emission sources of a supply chain carbon footprint. On the left side a green factory is producing good that will be purchased by a company, generate scope 1 carbon emissions. On the lright side, a cargo ship and an airplane contribute to transport and logistic and business travel emissions in scope 2 and 3 co2 emissions.
Business travel, logistics and purchased goods are the main sources of suppply chain emissions.

Supply chains are key to reverse climate change

Over 90% of companies’ carbon footprint is located in the supply chain, often generated by suppliers on the other side of the world. However, very few companies measure the carbon emissions of their supply chains.

For listed companies, it is not yet mandatory to disclose the greenhouse gas emissions generated in the supply chain. In addition to it, calculating a full carbon footprint can take up to several weeks and requires very specific data, two things most companies don’t have.

Innovative technologies calculate a full carbon footprint in a tenth of the time, and they only need basic financial data. Unfortunately, too many companies are not aware of these solutions.

But supply chains are crucial for companies’ climate action. 1,000,000,000 tons of CO2 emissions could be avoided each year, if suppliers to just 125 multinationals increased their renewable electricity by 20%. It is the same amount of greenhouse gas emissions generated by Mexico and Brazil combined.

Companies have the power to shape the future of our planet. But why should they measure supply chain emissions and act upon them, if they are not required to do so?

A green pie chart represents a company's carbon footprint, including scope 1, 2 and 3 emissions. Scope 3 emissions, also called supply chain carbon emissions, represent over 90% of companies' greenhouse gas emissions.
Scope 3 emissions account for 90% of companies’ carbon footprint.

Measuring your carbon footprint: scope 1, 2 and 3 emissions

Experts agree that reporting on supply chain emissions will soon be mandatory, the only question is when. With the EU commitment to perpetuate bold climate action, this date will likely be close. 

Disclosing your supply chain carbon footprint is not only a matter of compliance. It is a way to earn the trust of your stakeholders and identify risks all along the value chain.

The Greenhouse Gas (GHG) Protocol sets the standards to measure GHG emissions all around the world, and virtually every corporate sustainability reporting program is based on it. 

According to the GHG Protocol, corporate emissions are categorised into three main groups: scope 1, scope 2 and scope 3.

Scope 1: direct emissions generated by owned or controlled resources. These are the emissions that a company generates while performing its business activities. In most cases, scope 1 emissions are generated by the fuel combustion that powers industrial processes or the vehicle fleet.

Scope 2: indirect emissions generated by the production of purchased electricity, steam, heating and cooling. These emissions are not generated by the company directly, but by the utilities that produce electricity, steam, heating and cooling. 

Scope 3: all other indirect emissions that occur in a company’s value chain. Scope 3 emissions are generated by resources not owned or controlled by the company, but that the company indirectly impacts in its value chain.

Scope 3 emissions are also called supply chain emissions, because they take into consideration the carbon footprint generated by a company’s suppliers.

Due to a tendency to specialize and outsource non-core activities, supply chain emissions account for around 90% of companies’ carbon footprint. And this number may rise in the future.

Companies' carbon footprints are mostly made of supply chain emissions. Three bubbles represent the division of carbon emissions in scope 1, 2 and 3 emissions. Scope 1 emissions are mostly generated by fuel combustion, scope 2 by electricity and heating, scope 3 by business travel, purchased goods and transport & logistics.
Greenhouse gas emissions are divided in scope 1, 2, and 3 emissions.

Why calculate the carbon footprint of your supply chain

Measuring the carbon footprint of supply chains should be a priority for businesses of any size. A sustainable supply chain can be your most valuable asset.

Here are five compelling reasons why every company should measure their full carbon footprint and reap the benefits of sustainability.

1. Supply chains hold the key to 90% of emission reductions

Scope 1 and 2 account for less than 10% of your carbon emissions, while over 90% are located far in the supply chain. Look at IKEA, a bold climate leader committed to reduce GHG emissions across the full value chain (scope 1, 2 & 3). In the baseline year, IKEA’s scope 1 and 2 emissions were just 2% of total emissions, with 98% lying in the supply chain. Had they measured only scope 1 and 2 emissions, they wouldn’t have done much more than switching electricity providers and installing led bulbs. You need to know the real footprint to make a real change. 

A pie chart represents scope 1, 2 and 3 GHG emissions for IKEA in 2016. Scope 1 and 2 emissions account for less than 2%, while scope 3 is more than 98% of IKEA CO2 emissions. The majority of the carbon footprint comes from the supply chain emissions.
IKEA scope 1, 2 and 3 greengouse gas emissions in 2016.

2. Disclosing supply chain emissions earns you trust

Imagine if your company’s financial report accounted for just 10 percent of your expenses, how would shareholders react? The same holds for your climate footprint. Companies that disclose their full climate footprint get up to 10 percent lower cost of capital, because they are trustworthy and more likely to thrive in the future. Disclosing your real footprint helps you gain trust not only from investors, but from employees and customers alike.

3. Reporting supply chain emissions will be mandatory soon

It will not take long before regulators find the power to make it mandatory to report on your supply chain emissions. The Sustainable Finance Disclosure Regulation (SFDR) required the disclosure of supply chain emissions already in 2021, but due to covid-19 it has been postponed to 2023. The latest regulatory developments signal that companies will soon be required to disclose the climate footprint of their supply chains. If you want to stay ahead of the curve, you should start measuring now.

4. Supply chains hold most of your risks 

It’s known that climate change will cause disruptions to global supply chains, and the world’s leaders still don’t know what to do. With environmental issues taking center stage, the risk of adverse environmental regulations is higher than ever. Carbon prices already increased to €31 a tonne and are expected to reach €50 soon. By measuring your entire carbon footprint, you can uncover the emission hotspots of your supply chain and reduce your CO2 emissions before the price gets too high.

5. Emission reduction means cost reduction

For many years, companies have seen sustainability as a burden to bear. Today, reducing greenhouse gas emissions is a great opportunity to gain efficiency and reduce costs. Two of the biggest sources of corporate emissions are materials and business travel. If you reduce the amount of materials used or the number of flights taken you are not only reducing emissions, you’re also cutting your costs. And finding capital to finance these projects has never been easier, as Alphabet’s recent sustainability bond shows.

Supply chain carbon footprint – where to start? 

Supply chains are the most powerful tool to curb carbon emissions. Instead of waiting for new regulations, companies should lead the transition towards a low carbon economy.

Sustainability managers should not spend weeks on Excel sheets, but rather focus on what really matters: reducing emissions.

That is why Normative automated all the carbon footprint calculations. No more begging for data, just science-based metrics and actionable insights to improve.

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