Supply chains are the engine of climate action
“Can individual actions reverse climate change?” Sustainability professionals reflect on this question every day.
If we look at the science of climate change, companies generate more than two thirds of the global emissions. Individual actions can make a difference, but only companies can counteract climate change at scale.
More than 90% of companies’ emissions are located in the supply chain, produced by many different suppliers. Switching electricity providers is a great start, but changing what your company buys could have a far greater impact for the sustainability of our planet.
However, calculating supply chain emissions is no easy task. It requires a vast amount of data and deep scientific knowledge. Software solutions can automate the entire calculation process, but some companies seem to ignore these new technologies.
Sustainability managers should focus on what matters: reducing greenhouse gas emissions. But for an effective climate strategy, you need a detailed climate footprint.
So how do you calculate supply chain emissions?
Calculating supply chain emissions: spend-based versus activity-based
Reducing greenhouse gas emissions in your supply chain can bring about substantial cost reductions and efficiency gains. In addition to it, disclosing the full carbon footprint of supply chains can earn you the trust of investors and employees alike.
Supply chain emissions are called scope 3 emissions, according to the Greenhouse Gas (GHG) Protocol. Scope 3 includes all indirect emissions generated by resources not owned or controlled by the company, but that the company indirectly impacts in its value chain.
Examples of emission categories in scope 3 are purchased goods and services, transportation, business travel and waste produced in the operations. The full range of emission categories is described in the technical guidance for calculating scope 3 emissions.
There are two main methods to calculate supply chain emissions:
- Spend-based method: centred around the economic value of purchases. The expenditure for every purchased good or service is multiplied by a relevant emission factor.
- Activity-based method: relies upon data tracked within the company or provided by suppliers. Activity data, like the liters of fuel burnt by a truck, are multiplied by the corresponding emission factors.
For those companies that calculate the carbon footprint of their supply chain for the first time, a spend-based approach is the best option. Gathering the necessary data should be simple, since every purchase is recorded in the accounting system and can be easily exported.
Spend-based emissions calculations are very comprehensive, because they take into account everything you buy.
This approach gives a broad overview of your company’s GHG emissions, allowing you to identify the biggest sources of your carbon emissions.
On the other hand, spend-based calculations may not be very specific, because their emission factors are built on the average GHG emissions of the industry. If you bought a chair, a spend-based approach would consider that you bought a piece of furniture, ignoring whether the chair was made of iron or wood.
Since spend-based calculations use average industry emissions, it may be hard to track emission reductions and report on your sustainability progress.
To get more detailed insights into the biggest sources of your emissions, an activity-based approach may be a better solution.
The activity-based method requires you to collect additional data, both internally and from your suppliers. If your suppliers calculate their own CO2 emissions or perform life-cycle assessments (LCA), your carbon footprint calculations will be much more detailed.
Activity-based calculations give actionable insights to reduce supply chain emissions, because they break down the impact of each single product or service. You can then compare the climate footprint of different products and choose those with the lowest climate impact.
However, gathering the data required for an activity-based assessment can take a very long time, and many suppliers might not even know how much they emit.
A practical guide to calculate supply chain emissions
The Greenhouse Gas Protocol suggests to first measure your emissions with a spend-based approach, integrating activity data later on. To carry out a spend-based assessment you need three data points: your purchases, the industry of your suppliers and the corresponding emission factors.
You can easily export your purchases from your company’s accounting system. Once you have your long Excel spreadsheet, every purchase needs to be classified according to the industry of your suppliers. The UNSPSC is the most widely used industry classification standard, but you may use other standards if appropriate.
As you will realize, manually classifying each purchase takes fairly long and leads to frequent errors.
The last step is to find the right emission factors for the industries of your suppliers. There is no single resource that lists all the emissions factors, so you will have to do a lot of manual research, and some databases will turn out to be available only for a fee.
Emission factors can be found in government agencies, research institutes, company reports and regulatory disclosures. Unfortunately, finding the right emission factors is currently the weak point of every carbon footprint calculation.
Even in activity-based calculations emission factors are often hard to find, since many suppliers don’t even know how much carbon emissions they generate.
Climate technology can make your life easier
For every hour spent on performing calculations, an hour is lost to reduce emissions.
Climate technology can free up your time and help you achieve net zero emissions. Emission accounting engines gather thousands of data points and calculate your supply chain emissions automatically. All you need to do is upload your data.
If you want to make your carbon footprint even more specific, you can integrate activity data when available.
With emission accounting engines you can track your footprint over time and prove the results of your precious work. They even give recommendations on the most impactful actions you can take to reduce your carbon footprint.
Companies all around the world are committing to achieve net zero emissions.
Climate technology helps them deliver on that promise.
Want to know your supply chain emissions?
Try the world’s first emission accounting engine