Clare Fallon explains why supply chain sustainability is a vital part of any net zero strategy and how SMEs can cement their place as a supplier of choice for increasingly climate-conscious customers.
Research shows that the carbon footprint of the average supply chain is 11.4 times higher than a buyer’s direct operations, so it’s no wonder that large companies are increasingly looking beyond their own borders to deliver on their net zero ambitions.
Hundreds of the world’s largest organisations have now set targets to reduce greenhouse gas emissions in their supply chain. For example, Heineken has committed to achieving net zero across its entire value chain by 2040 and aims to work with suppliers to achieve a 30 per cent cut in emissions by 2030. HP has set the same 2040 goal, with the additional target of cutting supply chain emissions in half by the end of this decade. BMW has committed to reducing its supply chain emissions by 22 per cent on a per vehicle basis by 2030. The list goes on and on.
While most of these commitments focus on tier one suppliers in the first instance, many of the requirements being placed on these suppliers will naturally be passed on to their suppliers, causing a trickle-down effect that will ultimately impact everyone in the supply chain.
The drive to reduce supply chain emissions isn’t just about corporate responsibility, it’s also about managing risk. Research shows that major buyers could face an estimated $120 billion (£88 billion) in increased supply chain costs due to climate change, deforestation and water insecurity alone over the next five years. By improving transparency and engagement with suppliers, buyers are more able to identify opportunities to reduce these risks and future-proof their business.
As a result, more buyers are demanding environmental information from suppliers than ever before, and more suppliers than ever are responding.
What buyers are doing
According to one survey in 2021, by 2025 nearly eight in ten multinationals plan to stop sourcing from suppliers who could negatively affect their carbon reduction commitments. Suppliers that can actively contribute to their customers’ climate ambitions are therefore increasingly at an advantage.
Common measures being taken by buyers to reduce the climate impact of their supply chain include increasing the weight of sustainability and social value criteria when selecting suppliers, adjusting procurement KPIs, and using management platforms such as Sedex, EcoVadis and Achilles to gather environmental supply chain data.
Here are some real-world examples:
UK government now requires suppliers bidding for contracts above £5 million per year to commit to net zero emissions and submit a detailed carbon reduction plan.
BMW is making carbon footprints a ‘decision criterion’ in its contract award process and is establishing concrete carbon targets for its top 12,000 suppliers.
Microsoft has also made carbon reduction an explicit aspect of its procurement process and plans to expand its internal ‘carbon fee’ (a charge paid by each division in the business per tonne of carbon they produce) to emissions from the supply chain.
Unilever is setting up a system for its suppliers to declare, on each invoice, the carbon footprint of their goods and services as part of a long-term plan to introduce carbon labels on products. It is also actively prioritising partnerships with suppliers that have set science-based climate targets.
Tesco and Asda-owner Walmart offer preferential finance to suppliers based on their carbon data disclosure, emissions reduction targets and progress against sustainability goals. Walmart’s Project Gigaton initiative aims to avoid one billion tonnes of greenhouse emissions from its value chain by 2030.
Salesforce is working with 250 of its top suppliers to set their own science-based climate targets by 2024.
Apple has worked with over 100 of its key suppliers to switch to 100% renewable energy as part of a wider goal to achieve a carbon neutral manufacturing supply chain by 2030.
SMEs are taking action, too. Here in Greater Manchester:
Rochdale-based Crystal Doors has incorporated a net zero disclosure tool into its online portal for customers and suppliers.
We supported HOME in Manchester to incorporate sustainability criteria into its procurement process.
Become your customers’ supplier of choice
The Carbon Trust has produced a useful introductory guide on how to become a good supplier to climate-conscious customers. Here are some additional tips:
Understand your customer
Being a good supplier is partly about understanding your customer’s risks, providing them with the information they need and taking action to mitigate them yourself.
Scrutinise your customer’s environmental policy, the commitments they have made, or sustainability reports they have published to help you understand their values and priorities.
Direct feedback can also be useful. For example, Rowlinson Knitwear introduced new packaging material after customers expressed concerns about packaging waste in its annual customer survey.
Get your house in order
Introduce a robust environmental company policy and make sure you can demonstrate compliance with all relevant environmental regulations when asked.
You should be able to demonstrate measures taken and an ongoing strategy to reduce the environmental impact of your operations, products and services, focusing on the areas that have the biggest overall impact. It may also be beneficial to explore whether any external accreditations or certifications could increase your standing with buyers.
Measure, monitor and disclose
Hard data, especially your carbon footprint (but also other key indicators such as energy, fuel, water and waste), is hugely valuable. Have this information ready for responding to supplier requests when needed, or better still make it available in reports or on your website.
Crystal Doors is a particularly good example of an SME that has made as much information available on its website as possible, but it can be as simple as a clear environmental policy and a disclosure of your carbon footprint.
Set targets and promote progress
When you’re in a position to do so, set a formal net zero emissions target. The UK SME Climate Commitment is a formal route that allows you to become a signatory of the government-backed Race to Zero campaign.
Promote the progress and commitments you have made as part of your marketing strategy, keeping a close eye on avoiding greenwash. You could consider building credibility by producing thought leadership pieces or blogs on how and why you are taking action. An annual update or report on your progress can also be a valued part of your documentation for customers.
Engage and collaborate
Customers will often respond positively to advice and recommendations from their suppliers. You may be able to identify opportunities to improve environmental performance or make efficiencies that they might have missed, for example through product or packaging eco-design. This could even lead to opportunities to provide new products and services.
Pass it on to your supply chain
Your supply chain is also your customer’s as well, so embedding sustainability into your own procurement will ultimately reduce risks for your customer downstream.
Start by introducing supplier surveys and inserting sustainability or social value criteria into your invitations to tender. Being able to demonstrate that you have sustainability-conscious suppliers will also improve your social value by association.
Help is here
You can benefit from expert guidance on all of the above points and more through our online Journey to Net Zero programme, which is designed exclusively for Greater Manchester SMEs at an early stage on the path to net zero emissions.
The fully funded programme includes three workshops dedicated to building a competitive advantage as a green supplier, as well as understanding the wider net zero agenda, improving operations, and implementing an effective carbon reduction strategy.
This post was originally published on the GC Business Growth Hub website here.
Posted under General Interest on 26 August 2021