Does the 1.5°C SEG address all supply chain issues?
The guide does not address all environmental sustainability – or even climate – issues, but focuses on key areas that each company should consider for effective implementation.
Are suggested actions applicable to all suppliers and supply chains?
As every supply chain is different, companies may differentiate the SEG’s actions as appropriate for their suppliers.
Individual suppliers will each face their own challenges and opportunities – based upon sector, geography or other factors. Some may require additional support or innovative solutions to deliver their 1.5°C target while others may be well positioned to act faster, and should be incentivised and supported to do so.
Which suppliers should companies work with to set a 1.5°C aligned target and move to action?
In line with the warning from the IPCC’s WG1 Sixth Assessment report, all companies need to take climate action and align with the 1.5°C ambition. 1.5°C Supply Chain Leaders suggest that companies encourage all suppliers to align with the 1.5°C ambition, and link them to resources they can leverage, such as the SME Climate Hub. Each company can then prioritize a subset of priority suppliers to work with directly to take climate action.
How to Use
Each recommendation comes with an explanatory “Why”, “What”, and“How”, and a list of resources.
- The “Why” explains in what ways the recommendation connects to supply chain decarbonization, as well as the benefits of implementing the recommendation.
- The “What” is a brief description of the recommendation.
- The “How” includes practical steps to implement the recommendation.
- The linked resources are intended to simplify the implementation of the associated recommendation by providing examples or standardized templates.
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Clear management support from the start as well as a defined structure of responsibilities enable effective implementation of a company goal to work with suppliers to halve their GHG emissions before 2030, in your own organization and with suppliers.
- Secure management commitment to work with suppliers to halve their GHG emissions before 2030
- Define clear internal responsibilities to achieve this goal
- Seek top management’s commitment to working with suppliers to halve their GHG emissions before 2030
- Have management facilitate alignment on climate strategy with relevant departments, such as procurement/sourcing
- Assign clear responsibilities and clarify implications for procurement/sourcing
Publicly stating your 1.5°C Supplier target communicates to stakeholders – including suppliers – the company’s ambition to align its procurement with climate science.
Setting a target to work directly with priority suppliers to halve their GHG emissions before 2030 is a key step in aligning a company’s supply chain with climate science.
- Set and publicly state a goal to work with suppliers to halve their GHG emissions before 2030
- Communicate your target to suppliers, prioritizing which suppliers to engage with directly for maximum impact, and which to direct at publicly-available tools and resources like the SME Climate Hub (for small and medium sized suppliers)
- Set a scientifically aligned and achievable target, and craft a plan that is suitable for your organization to achieve it. The target should include requesting suppliers to halve emissions before 2030, in alignment with the 1.5°C ambition.
Possible target metrics:
- % or number of strategic suppliers to halve their GHG emissions
- Reducing supplier GHG emissions by a specified percentage by a given target year
- Specific % of spend to halve their GHG emissions
- Publicly state your 1.5°C Supplier target
- Include interim goals in the run up to 2030 to facilitate progress.
Mapping GHG hotspots and the GHG reduction potential across the supply chain informs where supplier engagement efforts are likely to yield the greatest impact.
When working with suppliers to halve their GHG emissions before 2030, companies need to prioritize resources where most effective.
- Understand the main GHG hotspots across your supply chain, the GHG reduction potential, supplier maturity and buyer leverage
- Prioritize which suppliers to engage with directly for maximum impact, and which to direct at publicly-available tools and resources like the SME Climate Hub (for small and medium sized suppliers)
- Start by understanding the steps of your supply chain, from upstream raw material sourcing down to the products/services delivered to you
- Conduct a GHG hotspot analysis to understand where the largest GHG emission sources are located in your supply chain
- Prioritize which suppliers to engage with directly, using criteria such as supplier GHG emissions, GHG emission reduction potential, readiness of suppliers to engage and strength of relationship with suppliers.
- Direct engagement with selected suppliers can help facilitate climate action and focus resources where they are likely to make the biggest impact
- Support can be provided to all other suppliers through connections to publicly available resources, like the SME Climate Hub (for small and medium sized suppliers) or SBTi (1.5°C ambition).
- Communicating clear expectations to suppliers encourages them to set targets and take action to halve emissions before 2030.
- Expectations should be communicated from your top management to your suppliers’ top management to strengthen the message; and from procurement to sales/key accounts to make them actionable through the relevant business channel.
- Joining forces with other buyers through 1.5°C aligned procurement pledges sends and strengthens a unified message, providing an additional incentive for suppliers to act.
- Provide a clear ask from top management and procurement- for all suppliers to halve their emissions before 2030
- Align your ask with other buyers’ to send a unified message to suppliers about the need to halve emissions before 2030
- Communicate requirements for suppliers to halve emissions before 2030 from your company top management (e.g. CEO) to suppliers’ top management and from procurement team to the supplier sales/key account team.
- Expectations should be clearly communicated to suppliers, but can take many forms, according to each company setting. For example:
- Communicate to suppliers what resources are available to support them in taking climate action
- Integrating your climate expectations to halve emissions before 2030 into procurement documents and processes effectively ties the buyer-supplier relationship to achieving climate goals, and providing clarity to both suppliers and the procurement team.
- Integrating climate metrics and considerations into existing procurement processes incorporates climate action into day-to-day operations
- Modify key procurement templates and processes to require suppliers to halve GHG emissions before 2030
- Include such requirements in the evaluation of new suppliers and renewal of contracts with existing suppliers
- Devise a plan to integrate climate action into existing supplier base
- Include text requiring suppliers to halve their emissions by 2030 and report on GHG emissions in line with recognized standards (e.g. GHG Protocol) in key procurement documents. This includes but is not limited to:
- New supplier contracts
- Supplier Code of Conduct
- Supplier self assessments
- Performance cards
- Ensure that climate considerations are included as a standard part of the processes and documents in your procurement portal
- Work with procurement team to integrate your climate goals into existing supplier relationships, as part of supplier dialogue
- Because contractual relationships and suppliers’ maturity levels on climate vary, process integration may require flexibility across different suppliers
- The procurement team has a fundamental role in making your supplier decarbonization strategy effective.
- For this reason, relevant procurement teams must be trained on your company’s decarbonization strategy and the role they can play in their relationship with suppliers. Their buy-in and understanding is fundamental.
- Appropriate internal incentives structures linked to achieving climate goals can strengthen internal buy-in.
Build support from the procurement team to contribute to achieving 1.5°C goals by:
- Training procurement staff, and
- Aligning internal incentives for relevant teams
- Identify employees to onboard to achieve supplier decarbonization goals (e.g. those in charge of key categories or geographies)
- Train selected members of the procurement team, as relevant, on your company’s climate goals, the importance of halving supply chain emissions before 2030 and the role of procurement in meeting those goals
- Consider appropriate incentives linked to climate performance for procurement and sustainability teams. For example, relevant climate KPIs could be integrated into employee review and performance evaluations
An open dialogue with suppliers on climate can help buyers understand climate performance, build trust, and identify support needs and opportunities for collaboration.
Integrating climate performance into the ongoing procurement/key account business interactions – rather than setting up a separate process – positions climate as a central business topic.
- Include climate in ongoing business interactions between procurement and suppliers’ sustainability and sales representatives.
- Hold regular dialogue with suppliers to review climate performance.
- If you have not conducted previous buyer-supplier dialogue on climate, start by:
- Sharing the expectation that suppliers halve emissions before 2030, in alignment with your company’s climate targets.
- Asking suppliers if they have existing emission reductions plans, and inquire about support needed.
- Regularly discuss climate performance with suppliers (e.g. by reviewing supplier scorecard), to follow progress, provide feedback on peer performance, and identify mutual needs and opportunities.
- Such regular interactions between procurement teams and supplier representatives can vary in form (e.g. business review, email communication, one-on-one meetings, group meetings) and frequency (e.g. quarterly, yearly). A minimum frequency of yearly is recommended.
While some suppliers might already be on track to halve their emissions before 2030, others might not know where to start.
Pointing suppliers to resources and examples can provide additional confidence to suppliers to more rapidly set their goals to halve emissions before 2030 and take action to deliver them.
Support can dramatically increase the speed of action and performance of less climate mature suppliers.
- Provide tools and resources that suppliers at different maturity levels can leverage to take action towards halving their emissions before 2030
- Offer ad-hoc support where needed
- Direct suppliers to publicly available tools and guides as appropriate:
- GHG Accounting methodologies and tools: GHG Protocol
- Target-setting methodologies and tools: Science-Based Targets Initiative (SBTi)
- Strategy setting: 1.5°C Business Playbook
- Tools and resources tailored specifically for small- and medium-sized businesses: SME Climate Hub
- Sectorial or geography-specific resources that are relevant for your supply chain, as different types of suppliers have different needs
- Link and encourage suppliers to leverage climate commitments in line with the UN Race to Zero to signal public alignment and act faster with other players
- Offer ad-hoc support to inexperienced suppliers, such as:
- Grouped supplier webinar or gatherings
- Facilitate access to third-party services
- One-on-one support, such as expert sessions to calculate GHG emissions; guidance on metrics and reporting; SBTi target setting, and similar.
Referring to climate-related recognition and incentives schemes – and not merely requirements – can encourage climate action.
Recognition and incentives linked to climate performance are a complement to buyer requirements. While the appropriate means to accelerate action will vary by company, they may provide a boost to suppliers that are less mature on their decarbonization journey; lack motivation; or simply do not have the right resources to get started.
Incentives and recognition can take many forms and need not always be financial.
- Identify appropriate ways to encourage suppliers’ emission reductions. This might include schemes such as recognizing supplier performance, financial incentives and/or collective buyer-supplier action
- Define appropriate ways to recognize good supplier climate performance, and embed them in the procurement process, as relevant.
- Avenues may include:
- Supplier recognition: recognize supplier climate performance publically (e.g. through website) or with peers
- Preferential conditions: for example, improved payment terms, or locked-in longer contracts linked to climate performance
- Applying discount factors in contracts, linked to progress towards climate targets
- Direct financing of interventions: financially contribute to GHG reduction (e.g. switch to renewable energy in a supplier factory)
- Leverage better credit rating to facilitate supplier loans
- Collective financing with suppliers, for example, on renewable energy installations
- Grouped decarbonization target with supplier
- Suppliers’ disclosure of a target to halve emissions before 2030 signals their intention to align with a 1.5°C ambition.
- Yearly reporting on GHG emissions and progress against the targets creates accountability and allows tracking.
- Disclosing progress publicly allows suppliers to share the same information with all of their customers and other stakeholders at the same time.
Request suppliers to publicly disclose:
- Their target to halve emissions before 2030
- Their yearly GHG emissions and progress towards such target
- Request suppliers to set and publicly disclose a target to halve emissions before 2030
- Request suppliers to assess and publicly report their Scope 1, 2 and 3 GHG emissions on a yearly basis, in line with international standards such as the GHG Protocol or CDP Minimum Reporting for SMEs
- Request suppliers to assess and publicly report yearly progress towards their target of halving emissions before 2030
- Recommend that suppliers also report progress annually through a sustainability report made publicly available on their website
- Tracking suppliers’ yearly disclosures allows the buying company to assess suppliers’ progress towards their goal.
- Tracking suppliers’ data enables the company to understand and disclose how targeted efforts with select suppliers contribute to achieving the company’s own climate goals.
- Companies can leverage progress indicators in their dialogue with suppliers to help ensure continual progress.
- Define a clear process to track supplier climate performance at least annually, ideally by leveraging publicly reported indicators disclosed by your suppliers
- Leverage suppliers’ public reporting to track:
- Existence (or not) of a goal to halve emissions before 2030
- Yearly GHG emissions and progress target
- Define responsibility for tracking within your organization. Tracking is sometimes a manual process, but consider opportunities to automate the process with your data management platform in order to minimize errors and simplify
- Make information available to procurement teams for their dialogue with suppliers
- Note that reporting from suppliers will cover their entire organization’s scope, not just the proportion of emissions directly associated with the production of your products
- Tracking the aggregate progress of suppliers towards setting targets and halving their emissions before 2030 helps the company monitor progress of its 1.5°C target for suppliers and adjust its approach if needed.
- Supplier’s performance data is an important component of buying companies’ public climate reporting and demonstrating transparency to its stakeholders.
- Assess and publicly disclose suppliers’ aggregate yearly progress towards halving their emissions before 2030
- Tie suppliers’ disclosure to company progress towards its overall supply chain decarbonization target
- Publicly disclose company progress on achieving your 1.5°C Supplier Targets. Relevant indicators might vary by company, and possible target metrics could include:
- % or number of engaged suppliers with a goal to halve emissions before 2030
- % or number of suppliers progressing towards halving emissions before 2030
- % or amount of spend with suppliers who have a target to halve emissions by 2030
- Use relevant channels for reporting, such as sustainability report/website, or specific platforms
- Include such reporting in the company’s wider climate/sustainability reporting
Collaboration & Innovation
Collaboration can be catalytic for each company by helping identify new solutions, enhancing knowledge, sharing best practices and driving collective solutions at systemic or industry levels.
Collaboration can help harmonize decarbonization approaches across stakeholders and industries, which can:
- reduce climate action ‘fatigue’ for buyers and suppliers
- encourage other buyers to join the movement, thereby encouraging collective progress
- incentivize suppliers to take action in response to unified requests from multiple buyers
The collective action enabled by collaboration can help to co-invest in exploring a variety of emerging approaches, accelerate climate action, and drive successful innovation to scale.
- Collaborate with a broad range of stakeholders outside of normal scope of business operations – such as peers, NGOs, customers, governments, academia – to support a systematic approach towards decarbonization
- Accelerate the progress of existing collaborations or create new ones where gaps need to be filled
- Adopt a collaborative mindset. While every company will pursue their own collaboration strategy, all companies that seek to enable catalytic change will need to do so in partnership with stakeholders outside their existing operations to both reap and sow support for decarbonization goals.
- You may consider:
- Teaming up with like-minded partners in a multi-stakeholder collaboration to drive unity and change for decarbonization at a systemic level, such as 1.5°C Supply Chain Leaders
- Teaming up with like-minded buyers to accelerate change amongst common suppliers
- Working with partners to deploy programs or other solutions aimed at supporting climate action in your supply chain
- Educating customers about your efforts and enlist their support
Many industries must be fundamentally re-designed to enable a 1.5°C pathway; this might mean a significant shift in supply chain models. Incremental change might not be enough, yet disruptive solutions often start small and may be beyond the traditional scope of suppliers.
Innovation and disruption can facilitate major progress on decarbonization while also generating significant competitive advantage.
An innovation and disruption mindset can also be closely linked to, and accelerate, action in the other four blocks.
- Evaluate the need to disrupt company sourcing model to achieve overall supply chain decarbonization goal
- Identify, pilot and scale new solutions, particularly disruptive ones with high potential for drastic GHG reduction
By their very nature, innovation and disruption cannot be prescribed. Innovative and disruptive companies are, for example, looking to:
- Evaluate the materials and processes used to produce products/services and consider switching to more climate-friendly alternatives (input substitution)
- Consider suppliers located in closer proximity to sales markets in order to reduce transportation impacts and create local resilience (geography switch)
- Apply a circular mindset by assessing the entire product lifecycle and develop ways to move from a cradle-to-grave model to a cradle-to-cradle one (circularity)
Innovation and disruption can also accelerate your work in the other blocks, for example:
- Foundation. Consider innovative and disruptive solutions to tackle the hotspots in supply chains that are hardest to abate with traditional solutions.
- Procurement. Innovate supplier selection criteria and procurement team reward structure to prioritize the selection of climate-aligned suppliers.
- Supplier Engagement. Collaborate with other buyers sourcing from the same market to create a common funding pool to support suppliers’ decarbonization efforts
- Reporting. Leverage technology to increase traceability and ease the reporting process
- Collaboration. Demonstrate leadership by sharing innovative solutions which can scale across industries.
1.5°C Supply Chain Leaders
The 1.5°C Supply Chain Leaders will work together to drive climate action throughout global supply chains and support small and medium-sized enterprises (SMEs) through the SME Climate Hub, understanding the need to work with and support suppliers to halve emissions before 2030 and achieve net zero emissions before 2050. The 1.5°C Supply Chain Leaders was founded by the Exponential Roadmap Initiative together with Ericsson, IKEA, Telia Company, BT Group and Unilever and is supported by the International Chamber of Commerce and the We Mean Business Coalition.