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Transform To Net Zero: The Supply Chain Perspective

22nd September 2021 Anita Hawser 6 min read

More than 3,000 businesses have made net zero commitments as part of the UN's Race To Zero Campaign. But the IPCC's latest report confirmed that the earth is warming at an even faster rate than initially thought. Bolder carbon reduction commitments must be made if the Paris Agreement's goal of reducing global warming by at least 1.5 degrees Celsius is to remain within the world's grasp.

Building a net zero value chain is a huge challenge for any company

Transform to Net Zero, a group of leading companies from across industries, was created with this goal in mind. Its mission is to help businesses back up their targets to achieve net zero by 2050 with credible transformation plans.

Scope 3 emissions are a key hurdle in the process. “Building a net zero value chain is fiendishly difficult,” explained David Wei, managing director for Climate at BSR. “Companies face many challenges, from target formulation and validation to reducing carbon intensive transport, to innovating new products and services, to deciding how to use credits en route to their net zero targets.”

At Climate Week NYC, supply chain leaders from household brands like Nike, Microsoft and Unilever, all members of Transform to Net Zero, talked about actions they are taking to engage suppliers to reduce upstream Scope 3 emissions, which are the largest part of a company's carbon footprint and will require supplier engagement in order to meet the Paris Agreement goals.

Greening supply chains will require supplier buy-in

At its AGM in May, Unilever’s transition action plan was overwhelmingly approved by more than 90% of shareholders. The plan included a target of reaching net zero emissions for products by 2039. But what does executing on that plan mean for supplier engagement?

David Ingram, chief procurement officer at Unilever, said working with companies like Maersk, whose methanol-fueled container ships will save an estimated one million tons of emissions, was a priority in future. “Working with companies that share the same values as us helps us achieve our goals,” he explained. “Supplier engagement across all of our climate and nature goals is crucial. We're not going to achieve our goals without them.”

Unilever's supply chain is already feeling the effects of climate change

Ingram said 450 partners in the company’s 55,000 strong ecosystem are critical to realizing its sustainable business ambition and commitments. “Unchecked, climate change will affect Unilever's entire value chain,” he said. The availability of raw materials for its products is already threatened by chronic and acute water stress, which in the past few months have impacted key crops and raised prices. “The increased frequency of extreme weather, storms or floods, is causing increased disruption,” he explained. “We know extreme weather events are reducing economic activity, and hence sales levels are falling in some of these sectors.”

Full disclosure from suppliers is part of Unilever's Climate Promise

Through its climate promise, Unilever is inviting its supply partners to demonstrate their shared values and commitment to measure, reduce and report emissions in their value chains. “We look forward to incentivizing and supporting their success in that,” said Ingram. While Unilever's climate promise is entirely optional, he said it presents an opportunity for suppliers to position themselves on the leading edge. Suppliers that sign Unilever's Climate Promise, agree to:

  • Setting a public climate target to reduce greenhouse gases by 2030
  • Publicly reporting progress toward meeting that target
  • Sharing greenhouse gas emissions footprint data with Unilever

Unilever is also launching a Climate Program with a subset of 300 diverse suppliers (chemicals, food, beverage, paper, pulp) who represent two-thirds of its upstream Scope 3 emissions. Ingram said raw materials, including its third-party manufactured product, account for about 60% of the company’s value chain emissions. “They are a primary focus of our overall emission reduction efforts over the next 10 years,” he said. “To be effective, we know we can't engage with 55,000 partners, so we need to focus on those that have the biggest impact for us.”

Nike encourages suppliers to take a leadership role

During the pandemic, Nike launched a new climate effort with strategic suppliers. Marine Graham, VP of Responsible Sourcing and Manufacturing at Nike said it is collaborating with suppliers to find better alternatives for production methods and energy sourcing. “The goal is for our suppliers to take on a leadership role around sustainability,” she said. To accelerate those efforts, Nike recently launched a Suppliers Sustainability Council (SSC). This group draws its leadership from 10 of Nike’s largest footwear and apparel partners, which account for more than half of its production volume.

“Climate change was among the top concerns raised by all members of the SSC,” said Graham, “with a focus on rising energy costs, the impact of increasing temperatures on working conditions, increasing intensity and frequency of extreme weather events, and upcoming government regulations and carbon taxes.”

Collaboration can greatly reduce suppliers' carbon footprints

To help its manufacturing partners on the SSC engage more urgently on climate, in May last year, Nike also created the Supplier Climate Action Program (SCAP). This initiative is focused on helping suppliers address climate change by focusing on their own long-term climate mitigation plans and aligning them with Nike's science-based targets for 2030. “We already know our supplier's [carbon] footprint and we were able to quickly identify those partners that would have the biggest impact by reducing emissions,” explained Graham.

The SCAP requires Nike suppliers to conduct a corporate greenhouse gas inventory, and set Scope 1 and 2 emission reductions in line with science. Graham says its efforts are already producing results, with some of its partners committing to ambitious reductions across their entire Scope 1 and 2 emission footprints. These encompass not only Nike-related emissions, but their entire footwear and apparel businesses, which translates to a 42% cut in baseline emissions over 10 years.

“These suppliers, which account for more than 60% of Nike's manufacturing emissions, will go a long way towards driving progress towards achieving our own enterprise science-based target,” Graham noted. “That translates roughly to a carbon equivalent of taking 300,000 passenger vehicles off the road a year.”

Incentivizing decarbonization among suppliers benefits everyone

Other Transform to Net Zero members continue to brainstorm other ways to support companies in this essential but daunting transition. Last year, Microsoft completed maturity assessments of 200 of its largest indirect suppliers, which provide services like facilities build-out, digital marketing, product testing and support. “These suppliers accounted for the majority of Microsoft's indirect emissions,” stated the company’s Senior Director of Procurement Compliance, Shara Holliday.

This year, it plans to assess an additional 200 suppliers. It has developed targeted educational webinars and materials to help suppliers through their emissions disclosure and reduction planning. In July, as part of its publicly available sustainability tools, it released comprehensive carbon accounting resources for suppliers.

To incentivize decarbonization among its suppliers, in July 2020, Microsoft updated its Supplier Code of Conduct, which outlines its expectations. “We require suppliers to disclose their Scope 1, 2 and 3 emissions and develop a plan to reduce those emissions,” Holliday said. “We can learn from each other. We are in this together. This approach helped us to understand resources, roadblocks to address and best practices that we could leverage from each other.”

Big companies should lead the effort

But what about suppliers that don't have the capital to decarbonize? Holliday says Microsoft focuses on suppliers that have large amounts of spend. “As big companies,” she explained, “we collectively have the biggest carbon footprint and thus should be leading the effort to decarbonize.” Holliday noted that Microsoft has partnered with the International Finance Corporation to identify technical solutions and financing opportunities in emerging markets. The program, which is currently being piloted, offers suppliers below-market-rate loans and advisory services.

For those suppliers still wondering how or even why they should decarbonize now, Graham of Nike says lower carbon businesses can save costs through efficiency measures. “They're also more likely to be climate resilient by planning for climate-related disruption,” she explained. “So by thinking about innovative solutions to climate now, they'll be better positioned against competitors who will be competing for business from brands, who over time are expecting them to become more and more environmentally conscious in their sourcing decisions. It's about creating mutual value with your extended supply chain.”