“Companies are realizing the importance of including scope 3 in their disclosure process”

Businesses are meant to be conscious. Advocating sustainability and a net-zero carbon footprint is now a necessity, not only to keep the planet clean and green but to also meet customer demand and needs. However, identifying factors in a supply chain that contribute to climate change, and helping outline subsequent policies to limit climate change is not as simple as it seems. It requires supply chains to achieve an efficient way of carbon reporting. To understand the importance of carbon reporting and emission disclosures, read through our exclusive interaction with Prarthana Borah, Director, CDP India, who talks about the challenges faced by organisations in efficiently reporting carbon emissions, the importance of scope 3 disclosure, the role of technology in helping achieve effective carbon reporting, its benefits and much more.

Supply chains are responsible for a disproportionately large share of the world’s carbon emissions. What are your views about decarbonizing the supply chain?

It is extremely critical to ensure that supply chains become more sustainable if we are to combat climate change at the required scale. Otherwise, the world does not stand a chance of below 20 degrees C.

Research conducted by CDP based on disclosure data by value chain partners, reveals that supply chain emissions are on average 11.5 times greater than the company’s operational (direct) emissions. However, the challenge lies in generating this data because it means coordination across value chains which are very large and decentralized especially in India.

Decreasing a company’s scope 1 and scope 2 emissions may no longer be enough or acceptable and many companies are realizing the importance of including scope 3 in their disclosure process to anticipate climate risk better. 

Companies must and are beginning to take the lead to engage more extensively with their suppliers and incentivize them to reduce their footprint. In 2022, 3 companies, Wipro, Adani Power, and Adani Green, signed up to CDP’s supply chain program, to disclose their emissions across their supply chain. While globally CDP has several companies who have been disclosing across their supply chain, this is the first time, we are seeing this kind of proactive initiative by Indian companies.

Businesses must prioritize climate-friendly procurement and include specific requirements for their suppliers to meet as a part of their business processes. Supply chain members need to be encouraged to practice waste reduction, and material circularity, measure product-level emissions and implement emissions reduction initiatives. Corporates should also support their suppliers in decarbonizing their operations by knowledge sharing, capacity-building exercises, and resource allocation

CDP’s 2021 Annual Report shows that out of the 88 companies who disclosed to CDP, 85% engaged in some way or the other in their value chain. While climate engagement with suppliers was on onboarding and compliance with customers it was on education and information sharing.

What challenges and complexities are being faced by logistics organizations in calculating and reporting carbon emissions?

Since a large proportion of supply chain companies are MSMEs or SMEs, they cannot measure and assess their emissions in the way large corporates do. In the absence of a dedicated sustainability team, the skillset and technical knowledge are missing. Also, sustainability and climate risk are still at a nascent stage of discussion when it comes to the SME/MSME sector in India so the need to quantify the footprint has not emerged as necessary. Unlike corporates, they do not face pressure from different stakeholders like the public, regulatory authorities, or investors, and nor are there any mandatory environmental disclosure regime for them yet, hence there simply isn’t enough impetus for them to start addressing climate issues and have an emissions accounting system in place.

Additionally measuring and reporting include data collection, reviewing GHG emissions across multiple facilities and divisions, and verifying assumptions of emissions. While calculating scope 1 and scope 2 emissions may still be viable for suppliers, however, scope 3 emissions are much more complex as it requires them to deal with their own set of value chain partners (smaller entities) who may be even less equipped to calculate emissions.

What benefits can one yield with accurate carbon reporting and emission monitoring in the logistics chain?

The most important benefit that a company can accrue from accurate emissions accounting is they can set strategic emissions reduction targets as their operational boundary would be more well-defined. Including the value chain will only make their targets more effective and achieving them would subsequently have a greater impact on tackling emissions.

Among other positive outcomes, it will enhance the company’s brand reputation and give them a competitive advantage in the market since stakeholders will get the message that the company is committed to tackling carbon pollution and is going the extra mile to manage its indirect footprint. A study done by CDP on companies who disclosed shows that 95% of the companies disclosed a good reputation.

What role does technology play in the effective calculation and reporting of carbon footprint?

Since the emissions accounting process can be complex, time-consuming, and prone to errors, especially for beginners, the use of the right technology can simplify this process and enable a more efficient, transparent, and accurate means of recording emissions data. Often there are multiple databases and systems involved with different carbon-producing assets, and the work required to classify and organize the data from different business units and assets is significant. Technological solutions like Artificial Intelligence of things (AIoT) can address some of the challenges associated with carbon management. They can make sourcing of real-time activity level data inventory from a myriad of systems more streamlined. This helps the company to efficiently structure and transform data into reports for accurate emissions monitoring and measurement, reducing overall efforts around data collection and enhancing data quality.

Elaborate on the importance of data in empowering the supply chain and making it more sustainable.

Data can help companies identify their strategic suppliers and those who are contributing the most to their indirect emissions. It would help the suppliers benchmark their performance with peers and allow them to understand the extent of action required to become more sustainable

Data would help them work to leverage their strengths and uncover areas for improvement. For example- if a company is procuring raw materials from different vendors, data can help them understand the scale of emissions arising from transportation and distribution and help them prioritize vendors in closer proximity.

Above all risks can be anticipated about climate and its impact in the future in terms of how it will impact the business.  

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