Big Corporates and their Supply Chain Emissions: The Ugly Truth

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The climate crisis is real. And, the heat waves, tsunamis, floods, and deep freeze all attest to it. Countries and companies are all working towards lowering GHG emissions, by adhering to protocols for effective measuring, yet, these efforts aren’t enough. 

Recent research from CDP – a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts – reveals that companies are failing to track supply chain emissions, and are risking falling foul of sustainability regulations. 

CDPs’ 2022 supply chain report, Scoping out: Tracking nature across the supply chain, shows that leadership required disclosure on environmental impacts is not materialising at the scale and scope required, with only 41% of companies reporting on any of their supply chain emissions. Nearly 70% of companies told CDP they did not assess the impact of their value chain on biodiversity in 2022. 

At present, the measuring of GHG emissions is mostly restricted to Scope 1 (direct emissions) and Scope 2 (emissions from direct purchases of energy) only. Disclosure on Scope 3 (indirect emissions which occur in activities outside the boundary of an organization—such as vendors, suppliers, etc.) is often neglected. Across the 18,500 companies disclosing to CDP in 2022, only 7,000 said they had engaged suppliers on climate change.  

However, the picture might change as the EU (under the European Sustainability Reporting Standard)s, the US (under the Securities Exchange Commission Regulation, and internationally under the International Sustainability standards Board (ISSB) – global baseline standard for climate-related financial disclosure) may pronounce disclosure on Scope 3 emissions necessary. 

Few firms taking lead on sustainability reporting

Giving hope, CDP says a small but growing number of companies are taking the lead, “by building nature into business as usual”. 

CDP also reports that one in every 10 companies includes climate-related requirements in their contracts with suppliers, and that “this is also happening to some extent with deforestation”, adding that “most of these requirements are not yet aligned with 1.5°C climate science, with under 1% of companies requiring their suppliers to set Science-Based Targets.” 

Among the few firms taking the lead in sustainability is Inditex – a Spanish multinational clothing company. In 2022, Inditex achieved its goal of 100% renewable electricity in its facilities. The company also works with its suppliers and other organizations in the industry to foster the implementation of specific improvement plans in its supply chain. In 2022, Inditex launched the first pilot of its Collaboration Programme for Environmental Improvement aimed at transforming the supply chain and reducing its environmental impact, emphasising on water, polluting discharges, and management of chemical products and energy, and involving 208 key facilities.

Similarly, Philips is also incentivizing its suppliers to commit to science-based CO₂ emissions reduction targets – a key part of its efforts to reduce emissions across the company’s end-to-end value chain. With 40% of its suppliers (based on spend) now committed to science-based targets [1], Philips is already well on the way to achieving its 50% supplier commitment target for 2025.

Swedish multinational clothing company H&M, in a bid to achieve its goal of net zero emissions by 2040 has announced at COP27 its interim target to reduce the group’s absolute scope 1, scope 2 and scope 3 emissions by 56% by 2030 and by at least 90% by 2040. The company has also allotted an annual budget of around SEK (Swedish krona) 3 billion (USD 287 million) to further decarbonize its value chain.

A.P. Moller-Maersk updated its ambitious climate targets, including the objective to reach net zero emissions by 2040. The company has continued to invest towards reaching its ambitious targets. Maersk entered into 9 green fuel partnerships in 2022, intending to source at least 750,000 tonnes of green fuel by 2025. The green fuel will be necessary for the new green vessels. In September, the company announced the purchase of 6 new vessels, adding to the 13 already in the order book. The first green vessel will have its maiden journey in 2023.

Leading by example, while companies are making efforts CDPs report well highlights that the environmental action is not happening at the speed, scope, and scale required to limit the global temperature rises to 1.5°C.

As per Corporate Climate Responsibility Monitor 2023, 24 global companies (H&M, Maersk, Apple, Walmart, JBS, Stellantis, Foxconn, Microsoft, Mercedes-Benz, Ahold Delhaize, Volkswagen, Nestle, DHL, Inditex, PepsiCo, American Airline, Samsung Elect., Holcim, Carrefour, Fast Retailing, Arcelormittal, Google, Thyssenkrupp) have committed themselves to prepare and implementing decarbonization plans that align to limit warming to 1.5°C.

However, the climate strategies of 15 of the 24 companies are of low or very low integrity.

While most companies have made the 2030 pledge, their targets can not be taken at face value. 

To make an actual difference, companies need to access the entire scope of emissions from Scope 1, Scope 2, to Scope 3 emissions. Most companies, at present are addressing only a limited scope of emission sources. Moreover, most of the companies’ Scope 3 emissions account for over 90% of the GHG emission footprints, while for others 2030 targets are misleading due to reliance on offsetting. 

The Climate Responsibility Monitor suggests that for the 22 companies with targets for 2030, these targets translate to a median absolute emission reduction commitment of just 15% of the full value chain emissions between 2019 and 2030. This is in comparison to the need to cut global GHG and CO2 emissions by 43% and 48% between 2019 and 2030 respectively, to be in line to limit the global temperature increase to 1.5°C.

The monitor also points out that only 5 of 24 companies’ net-zero pledges represent a commitment to deep decarbonization.

What is Needed

To effectively reduce GHG emissions and make supply chain decarbonization a reality, companies need to step up and report with transparency of their complete emissions. There is a need to collaborate and at the same time, have top management engage and prioritize the progress of climate goals. Also, companies need Science Based Targets Initiative (SBTi) and policies from the state to help pave the way to enable companies to decarbonize.