Managing the carbon footprint for a sustainable supply chain
What is your carbon footprint (CFP)? It's a question that highlights the environmental impact of an individual's or organisation's activities through the emission of greenhouse gases (GHGs), mostly carbon dioxide.
CFP stemmed from the ecological footprint concept in 1990, but gained popularity after British Petroleum's 2003 advertising campaign that asked people on the street what their CFP was.
Although aimed at individuals, the message - mind your CFP and help save the environment - is equally relevant to corporations.
A pact to put a cap
Greenhouse gas (GHG) emissions trap heat in the Earth's atmosphere, contributing to climate change. They are primarily emitted while burning fossil fuels such as coal, natural gas, and oil for electricity and heat.
Activities such as food waste, travelling by petrol and diesel fueled vehicles, and consuming electricity all contribute to an individual's or organisation's CFP, which is a measure of their GHG emissions.
Large industries are responsible for a significant amount of GHG emissions, with Energy, Transportation and Manufacturing occupying the top three positions. For example, the transportation sector contributes to GHG emissions through the use of cars, trucks and aeroplanes. Transportation is a key facto in supply chains in industries, hence they are the logical area to focus on for CPF reduction. In fact, Carbon footprint management is a crucial aspect of creating a sustainable supply chain.
As author Tom DeLay says, “Cutting carbon in the supply chain is the next critical stage in the business contribution to reduce carbon emissions to tackle climate change and, represents a significant commercial opportunity.”
Scope for improvement
Today, regulators and investors in most developed nations require companies to calculate and disclose their CFPs.
To help companies measure and report their GHG emissions, the GHG Protocol for corporate accounting and reporting standard was published, which separates emissions into three scopes.
Scope 1: direct emissions arising from operations under a facility’s control, including onsite fuel combustion.
Scope 2: emissions from energy use, that is from using electricity, steam, heat and/or cooling acquired from third parties.
Scope 3: covers upstream and downstream value chain emissions, which include emissions contributed by purchase, supplier transportation and business travel.
Of these three scopes, Scope 3 emissions, also known as supply chain emissions, account for a whopping 80% of companies' total GHG emissions. This highlights the importance of addressing supply chain emissions when developing strategies to reduce a company's carbon footprint.
A mountain to climb
Achieving net zero for Scope 1 and Scope 2 emissions is a difficult task, and addressing Scope 3 emissions adds yet another level of complexity.
One of the main challenges is obtaining complete and accurate data on the environmental impact of a supply chain. This is due to supply chain complexity, which renders emissions hiding deep within fragmented, multi-tiered supply chains invisible and challenging to trace. Furthermore, addressing emissions in the supply chain requires industry-wide cooperation, which can be challenging to achieve.
Companies need to collaborate on initiatives to develop common standards and share data to minimise emissions, even if they are competitors. This is a demanding task.
Time for action
Though difficult, supply chain emissions offer the greatest room for improvement to achieve sustainability goals.
With only a small impact on product pricing, over 40% of all supply chain emissions may be reduced using easily accessible and affordable levers. Setting clear carbon reduction targets and tracking progress towards those targets is important for effective CFP management.
Here are some examples of how companies can reduce their CFP and make their supply chains more sustainable:
- Sustainable sourcing of materials and products can reduce emissions by reducing the CPF of the entire supply chain.
- Adopt renewable energy: Renewable energy sources such as solar and wind power reduce CFP. Additionally, installing on-site renewable energy systems like solar panels to generate power is also a good idea.
- Implement circularity: Circularity involves reusing and recycling materials and products. Companies can implement this by redesigning products to be more durable and recyclable, or by setting up closed-loop supply chains that allow for the reuse of materials. Supply chain partners can collaborate to reduce emissions by sharing data and implementing joint reduction strategies.
- Optimise transportation: Transportation can be optimised by consolidating shipments, choosing efficient modes of transportation depending on the distance and using routing software to minimise travel distance. The latest last-mile delivery system which is still in the test phase, drones, has the potential to benefit the environment significantly. Yet another method to adopt is the use of low-emission transportation options such as electric or hybrid vehicles.
- Improve energy efficiency of facilities: This can be done by installing energy-efficient lighting and HVAC (Heating, Ventilation and Air-Conditioning) systems, using automation to reduce energy waste, and upgrading to more efficient equipment.
- Collaborate with suppliers: Companies can work with their suppliers to reduce emissions throughout the supply chain. This can involve setting sustainability standards for suppliers, sharing best practices, and collaborating on initiatives like renewable energy procurement.
These are just a few examples of how companies can reduce their CFP and make their supply chains more sustainable. By taking a proactive approach to decarbonization, companies can not only reduce their environmental impact but also improve their bottom line and enhance their reputation.
Managing CFP is critical for achieving a sustainable supply chain that stands on three pillars: environmental, social, and economic factors. Engaging stakeholders and conducting cost-benefit analysis while minimising emissions is essential in creating a truly green supply chain.
Ideal GHG target setting and decarbonization approach lies between being overly ambitious and too cautious.
Companies must commit to decarbonizing their supply chain through decisive action. A holistic approach to managing CFP can create a sustainable supply chain while benefiting the environment, society, and bottom line.
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