Speaker: Peter Spiller, Partner and Head of EMEA Sustainability in Operations Practice McKinsey, hosted by Fergal Byrne, Executive Producer, The Sustainability Agenda
As questions surrounding Scope 3 emissions are rising on the business agenda, understanding why and how we must address them is key to achieving decarbonization. With that in mind, we have launched a new podcast series featuring senior business and thought leaders who talk us through their experiences in tackling supply chain decarbonization.
The Rise of Scope 3 Emissions on the Business Agenda
The COVID-19 and Ukrainian crises have pushed supply chain resilience right to the very top of any executive’s agenda, with supplier sustainability performance being increasingly recognized as a key risk indicator. With that, Scope 3 emissions, which are the greenhouse gas emissions coming from a company’s supply chain have also earned their place among the key topics to address by any business. However, unlike Scope 1 and 2, value chain emissions are much more difficult to identify, measure, control and reduce.
In the first episode of our podcast series, we talked with Peter Spiller, McKinsey Partner Purchasing & Supply Practice Expert, to get his insight on some of the key questions around how we can tackle Scope 3 emissions.
Why are Scope 3 emissions so difficult to tackle?
The multi-stakeholder nature of Scope 3 emissions makes them much more complex than Scope 1 and 2 – and also more difficult to measure and reduce. Scope 1 emissions are those related to the resources owned by a company and Scope 2 come from its electricity consumption. Scope 3 emissions, meanwhile, are created by resources owned by a company’s suppliers so to tackle them a huge level of collaboration between different stakeholders is absolutely vital.
Data sharing among buyers and suppliers is critical as it is impossible to reduce what cannot be measured. However, lack of measurements, standards and trust is what mostly undermines the ability of buyers and suppliers to collaborate and share data. Capabilities and instruments to properly measure Scope 3 emissions are lacking and this is mostly due to a shortage of life cycle assessments (LCAs) experts on the market. Plus, standards which define best practices and boundaries for measurement are often loose or underdeveloped.
Another critical issue in tackling Scope 3 emissions is trust. Without trust between buyers and suppliers addressing the other challenges is virtually impossible. And, according to McKinsey’s Peter Spiller, nowadays this is a key challenge: Upstream companies are reluctant to disclose data about their carbon emissions because they fear downstream companies will use those data to influence the cost structure.
What are key tools to drive decarbonization?
Two driving forces to incentivize collaboration are believed to be regulations for carbon accounting and demand for low carbon products from consumers. This is because suppliers need not only an incentive to share their data but also guidance on how to engage in disclosure.
Today, companies are setting targets to initiate the conversation with their stakeholders and the broader public. A tool which is gaining momentum recently is the Science Based Target Initiative (SBTi) which provides companies with a path to reduce emissions in line with the Paris Agreement goals.
What are the major mistakes companies are making when it comes to decarbonization?
While setting targets is an important first step to engage in decarbonization along the supply chain, the lack of action after the setting of those targets is one of the main barriers to significant emission reduction in supply chains. When setting targets, it is essential to ensure we have the resources and capabilities to work toward them. Realistic goal setting is key to ensuring commitment to targets – and this is what brings an added value to the company, its stakeholders and the planet. Setting targets which are hard to achieve can showcase vision but without procedures in place to achieve them it easily becomes greenwashing.
About the Speaker
Peter Spiller is Partner and Head of the EMEA Sustainability in Operations Practice at McKinsey.
Based in the Frankfurt office, he primarily advises clients across industries including telecoms, high-tech, automotive, and consumer goods on operations transformation, supply chain, and procurement topics. He co-leads McKinsey's efforts in environmentally-sustainable operations and is a leader of McKinsey’s work in product development and procurement in the Europe, Middle East, and Africa region. Working across geographies, Peter focuses on environmental sustainability as he advises business leaders on ESG strategy, carbon accounting and tracking, supplier sustainability transformations, and supply chain decarbonization.
About the Podcast Series
The Scope 3 Agenda Podcast is a monthly series produced by EcoVadis in collaboration with Fergal Byrne from The Sustainability Agenda featuring stories from senior business leaders working on supply chain decarbonization to reduce Scope 3 emissions across different industries. In the six episodes we talk to business and thought leaders from a range of industries and explore strategies, challenges and lessons learned by companies who have embarked on a decarbonization journey.