A growing number of companies are recognizing the importance of reducing their greenhouse gas (GHG) emissions. The momentum for companies to address their environmental footprint is part of a growing trend to supercharge environmental, social, and corporate governance (ESG) performance. Performance which is increasingly tied to improved customer relationships, higher brand value, and greater operating efficiencies.
As companies increasingly commit to impressive ESG goals, their focus often extends only to first tier suppliers and wholly owned company facilities. For every company producing any physical or digital product today there is an inevitable reliance on third-party suppliers. Left out of their ESG data are the indirect activities attributed to distant or disconnected second and third tier suppliers, part of broader “Scope 3 emissions” that include indirect GHG emissions from sources not owned or directly controlled by the reporting company but related to their business activities. And left out of that equation is the vast possibility for the supply chain and those trading partners to create positive environmental value.
According to MSCI, “as of March 2020, only 18% of constituents of the MSCI ACWI IMI reported Scope 3 emissions.”
Scope 3 emissions typically account for the largest source of a company’s environmental footprint and accordingly, customers, investors, business partners and shareholders expect this data to be part of a company’s ESG disclosure today. However, as a not yet mandatory reporting field on many ESG frameworks, your company may be overlooking a significant area of opportunity for GHG reduction, goal setting and progress reporting that can help you stand out in an investment market increasingly focused on ESG performance.
It is important that your company address Scope 3 emissions by carefully selecting business partners across tiers that can adhere to your supplier code of conduct, and your company’s ethos, mission, and values as well. Following are the four most valuable ways to align your suppliers with your corporate sustainability commitment and perform better across your own ESG metrics.
1. Perfect ESG Data Collection Once, Then Repeat
Each supplier in your network has their own unique business and communication processes, however they have more in common than you might think, and they all hold a piece of the data puzzle as reporting on Scope 3 emissions becomes a priority for your company to be recognized on ESG performance. Rather than try to get all your suppliers together on a conference call or webinar, instead hand select the most likely suppliers in your network to perfect your processes.
Consider who might already be a top performer within their own operations, or who is most likely to respond to procurement changes. Work with these high performing suppliers first to address their challenges, understand how they want to collect and report on valuable ESG data points, such as GHG emissions. Is it via surveys, an online data portal, or a quarterly 1:1 call? Once you have perfected the process with a few hand-picked accounts, roll out your new emissions data collection process across all suppliers to quickly scale impact.
2. Group Suppliers By Their Sustainability Performance
When it comes to sustainability performance, there will always be leaders and laggards. Not all suppliers in your network will have the tools to measure or manage for GHG emissions. Group your suppliers on how they’ve performed to date on various ESG metrics. Categories should include suppliers that haven’t responded yet to your efforts to collect ESG data; suppliers who are responding but not improving; and your supply chain top performers.
Craft a plan for each group –- from educating them on how to measure GHG emissions data in the first place, to how to share that data with your buyer organization, to goal setting around emissions reductions. Successful engagement with suppliers often requires a company to work closely with its supply chain partners to facilitate a mutual understanding of emissions-related targets, as well as the opportunities and benefits of GHG reductions. By segmenting and communicating with each group accordingly, you’ll get more buy in from those business partners, collect better data, and see improved ESG results over time.
3. Recognize Your Sustainability Top Performers
When part of your business strategy is to demonstrate sustainability leadership, it’s important that you recognize outside suppliers as an extension of your internal business operations. After you’ve carefully selected the right suppliers and made an investment to work with them for the long term and to help them become more energy efficient in their own operations it’s essential to praise the achievements of your top performers. Whether through an annual award ceremony or offering more favorable contract terms, the suppliers who are actually moving the need on GHG emissions reduction and transparently sharing ESG data deserve to be recognized.
Give your top performing suppliers a boost on social media, compliment their performance in a supplier newsletter and offer them the microphone at company events and webinars to share how they’ve achieved success. It pays off doubly to recognize your top performing suppliers in this way given that their own emissions form the bigger picture of your company’s scope 3 emissions footprint and how you’ll be evaluated on sustainability performance.
4. Leverage Consumer Opinion To Drive ESG Performance
Not only is it a good business practice employ operational practices that reduce your overall impact, customers and consumers are now expecting it as well. Increasingly, customers and stakeholders are calling on companies to increase transparency and report on the lifecycle emissions of their products, including Scope 3 emissions. No longer can a supplier in a faraway geography fly under the radar. Today’s top performing ESG companies are more transparent than ever and invite consumer scrutiny by sharing their challenges, efforts, and triumphs across every tier of the supply chain.
Take the time to learn how your customers feel about performance across certain ESG metrics and communicate with them on these points – via packaging and advertising to make them feel like a bigger part of the story. But avoid greenwashing; no one expects a perfect strategy on day one. The more transparent you are with internal and external audiences; your customers will be happy to do business with you into the future and you are bound to perform better across a host of ESG metrics.
Whether reporting on Scope 3 emissions is just a matter of doing good business, or an actual business requirement, we encourage you to engage with suppliers often and early. Ensuring that your suppliers are in line with your business strategy and brand vision isn’t just good business, it’s also great for the planet and your own ESG ratings. Leading companies are engaging with their suppliers in new and innovative ways that drive real sustainability performance all originating in the supply chain.
As the market demands that companies become increasingly environmentally minded, it’s important that as a business, you ensure your direct suppliers are aligned with your company’s emission goals. Our solutions supercharge your ESG performance by helping your company engage more meaningfully with suppliers on their Scope 3 emissions to strengthen your performance for a low-carbon future and to meet today’s investor expectations. Get in touch with our team of ESG experts to learn more about how we can help boost ESG performance across the supply chain.