Supply Impact

GHG emissionsRegulations

Now is the time to act on reducing supply chain emissions!

The new report of the Intergovernmental Panel on Climate Change (IPCC) conveyed a strong message last week. Limiting global warming to 1.5 degrees Celsius is beyond reach “without immediate and deep emissions reductions across all sectors”. We argue that more emphasis on reducing supply chain emissions would greatly facilitate this outcome. Policy-makers, businesses, and consumers should all prioritize making progress in this regard.

Slow progress calls for immediate action 

IPCC has relentlessly shown over the last years that deep GHG emissions reductions are necessary to slow down climate change. Extensive evidence underpins the urgency to act on this matter, and the tools and know-how have evolved significantly. Yet, the extent of progress has been very limited. 

One example is the global energy transition. Despite a significant decline in the costs of solar and wind energy technologies – by up to 85% since 2010, energy and industrial systems have not changed drastically.

More so, Russia’s horrendous war in Ukraine has revealed how vulnerable the world is to disruptions in energy and food supply. It clearly exposed how strongly dependent Europe still is on fossil-fuels. It also uncovered the deep interlinkages across geopolitics, supply chain resilience, greenhouse gas (GHG) emissions and social sustainability.

Progress on the regulatory front

But, tremendous untapped potential exists. According to the IPCC, we can achieve a 40-70% reduction in GHG emissions by 2050. This requires, however, the right policies, infrastructure and technologies.

Over the past years, we have seen an unprecedented mobilisation towards sustainability, especially in Europe. The European Union and its member states have proposed and enacted various laws and policies. These include regulatory initiatives on corporate sustainability reporting (eg. the EU’s proposal), supply chain due diligence (e.g. the law in Germany, the EU’s proposal), the carbon border adjustment mechanism (CBAM), the  EU’s action plan for circular economy and related policies to enhance energy efficiency and accelerate deployment of renewable energy.

Yet, we need to make concerted efforts and provide active support to ensure effective implementation and bring about significant reductions in emissions.  

Focus on supply chain sustainability

Targeting these interventions along the supply chains is particularly important. This is because more than 80% of GHG are emitted outside the boundaries of organisations (i.e. the scope 3 emissions). Furthermore, a significant part of anthropogenic GHG emissions originates from industry (see figure), where supply chains are prominent. Only then can we transition from marginal action to meaningful results. 

industrial emissions call for supply chain sustainability

To achieve the IPCC target, businesses need to aim for net zero goals. This requires new production processes that use materials more efficiently (e.g. reuse, recycle products, minimize waste), reduce material demand, and rely on materials produced based on low-to zero-emission processes. 

Businesses can achieve net zero targets, but, again, only if they reduce emissions along the entire supply chain. Such broad actions can also have cascading effects across sectors

To this end, they need to collect extensive and ‘good quality’ data along the supply chain. Data needs to cover emissions from production, along with other environmental and social effects. A good data management system enables one to fully grasp the scope and size of impacts, which is a precondition for effective action. 

Further, to harness synergies and minimise trade-offs, companies also need a comprehensive risk and opportunities assessment process. Such assessments need to go beyond own operations into the supply chains and proactively explore innovative ways for value-creating collaborations across sectors.

Harness synergies and reduce trade-offs

The new IPCC’s report also emphasizes the need to maximize policy synergies and minimize trade-offs. The answer, experts argue, lies in cross-sectoral interventions. Yet, policy frameworks or sectoral strategies need to make further progress in this regard. On the upside, the latest EU policy interventions, such as the circular economy action plan,  increasingly aim for such outcomes. They, for example, encourage the redesign of furniture products to produce less waste and use agricultural waste. In this process, lower emissions, value creation for workers and reduced deforestation would be achieved.

In addition, as the IPCC report stresses, we currently still have limited understanding of the distributional impacts of climate mitigation actions. Experts point to remaining challenges in integrating social with environmental sustainability and addressing trade-offs. Yet, it is of utmost importance to hold the distributional impacts of climate change mitigation action in focus in order to ensure an equitable decarbonised world. Empirical evidence shows that the most vulnerable social groups face the highest costs associated with GHG emissions reductions. 

Therefore, firms and public organisations must demonstrate a clear commitment to deeply integrate environmental and social goals in efforts to reduce GHG emissions along their supply chains and minimise trade-offs. They can achieve this by, among others, conducting comprehensive risk and opportunities assessments along the supply chain and implementing systematic responsible procurement processes.

Act now

It may be easy to get lost in complex science and long reports. But, the message from IPCC’s latest assessments is clear: we need to act now and not later. Collaborations within and between organisations and across sectors, while accounting for distributional impacts, are essential for deep decarbonisation. 

Our Supply Impact team is well positioned to help you navigate the complex landscape of sector level regulations and global frameworks. Our ESG assessments and advanced analytics tools can support you to develop effective interventions for continuous improvement. Get in touch to learn more!