How do companies measure (and offset) the carbon emissions of their suppliers?

Every year consumer pressure and government regulations on environmental pollution get stronger. Companies who were previously blind to the emissions of their operations are being pressured to measure, monitor, and mitigate their emissions through their entire supply chain.

While emissions are only a small part of environmental pollution from industry, they are usually the main point of focus because of their contribution to global warming. In this article we’ll explain how companies measure and mitigate their emissions.

Brief Background On Emissions in Supply Chains

To understand how a company views and starts to analyze emissions from their supply chain, you should be familiar with some of the vocabulary. Here is a quick primer on emissions and supply chains before we dig into how companies measure and reduce the footprint of their supply chains.

Emissions refers to the discharge of greenhouse gases; most commonly:

• Carbon Dioxide (CO2)
• Methane (CH4)
• Nitrous Oxide (N2O)
• Fluorinated gases

Scopes refer to the proximity of emissions to a company’s activities. The supply chain of most companies can go down multiple levels with certain suppliers having multiple suppliers of their own. To help describe how proximate emissions are to a company’s activities, emissions are grouped into tiers called scopes:

• Scope 1 Emissions – Direct emissions from owned or controlled sources
• Scope 2 Emissions – Indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.
• Scope 3 Emissions – All other indirect emissions that occur in a company’s value chain.

Examples of Common Scope Emissions

Definition and Table Source: CarbonTrust

Some companies may choose to start by only reducing proximate carbon emissions in their supply chain (scope 1 and 2). Others will measure and work to reduce their full supply chain. In both cases, the process a company needs to follow is the same.

Measuring Carbon Emissions in Supply Chains

To get recognition and in some cases certification of the reduction of their emissions, a company needs to have reliable data to back up any claims.

Companies follow these main 4 steps to start their reduction process:

1. Identify who is in your supply chain. This may only include proximate suppliers depending on whether a company wants to reduce scope 3 emissions or only scope 1 and 2.
2. Know what data to collect. Companies need to define how often, in what ways to collect data so they can benchmark it over time (there are several established frameworks a company can follow).
3. Start collecting data. Companies may need to set up data capture with suppliers who don’t have it already. They may also need a third party to help with this process.
4. Evaluate based on a framework. Companies need to organize their data into a usable framework, then evaluate.

Companies need to regularly update and audit their emissions data to maintain accuracy. The more accurate their emissions data, the better decisions they can make about reducing emissions throughout their supply chain.

Once companies have a measurement system in place, they can begin to make decisions on their data and take action to reduce their carbon emissions.

Decreasing & Offsetting Emissions in Supply Chains

Once companies have accurate data about emissions throughout their supply chain, they can identify trends that help them reduce their emissions within their allotted budget. Some things a sustainability officer may look for are:

• The biggest offenders by volume of emissions.
• The easiest areas to reduce – this may mean switching to a supplier with a lower footprint, or modifying products to reduce inputs that require high emissions to produce.
• Areas that have high overlap with the value of the business – for example moving to a green fleet may save the company on fuel expenses in the long run.

There are various strategies that will change based on the goals of the company. Some companies seek to only reduce their emission enough to meet minimum compliance. Others are seeking to significantly reduce their carbon footprint for various reasons, including but not limited to:

• Improving their brand image with customers
• Planning ahead and trying to increase the longevity and stability of their business
• Doing what they believe is fair and/or important for people and the planet

A popular method for outsourcing the reduction of emissions in a company’s supply chain is to offset their emissions. Carbon offsets describe a reduction in emissions of carbon dioxide or other greenhouse gases in one form to compensate for emissions made in another form. For example, a company may have 10M metric tons of CO2 emissions from their supply chain each year. Rather than reducing the source of those emissions, they may opt to “offset” them by investing in a project that removes 10M metric tons of CO2 emissions per year.

Note: Carbon emissions are not the only greenhouse gas that can be offset, but it is by far the most common.

Other Aspects of Sustainability in Supply Chains

In a way, carbon emissions are the first domino to fall when it comes to sustainability in supply chains. Here are some of the other areas commonly evaluated in the review of a sustainable supply chain:

Other Environmental Regulations – Companies need to meet other regulations within their supply chain such as proper waste management (most commonly to prevent chemical spills or hazardous materials disposal). To reach minimum compliance a company may require their suppliers to get an environmental compliance audit from a third party as a part of doing business.

Social Responsibility – Most companies are able to find suppliers who meet minimum pay and working conditions for their region to avoid legal ramifications. To meet the demands of their consumers, some brands may also get a third party to certify their product. A common third party certification for coffee and chocolate is Fair Trade Certified.

The Future of Supply Chain Emissions

As regulations and consumer pressure continue to mount, more companies will start tracking the emissions from their supply chains. They will likely use offsets to mitigate their footprint at first, because it is an easier way to start, but for long term success will need to find ways to reduce emissions on their own. Companies who are not able to measure and reduce their emissions will put themselves at risk of consumer backlash, fines, and even complete shut down of their operations.

About the Author

David Evans

David Evans is a freelance writer covering sustainability in supply chains. He writes to help companies and consumers understand the environmental and ethical challenges in supply chains so we can find viable solutions for both.