The pressing need for climate action has never been more evident. In just three years, humanity has consumed half of the carbon budget safeguarding us from a post-1.5ºC future and we have witnessed an immense surge in climate-related disasters. Recent extreme weather events, such as the floods in Libya have been accelerated because of climate change and highlight the escalating threat. “We really have a very short time to turn the tide on climate change,” said Julia Salant, General Manager for Carbon Solutions at EcoVadis during a New York Climate Week webinar.
Crucial in this context is the fact that the vast majority of organizational emissions come from the value chain. This presents an unprecedented opportunity. “This is something we haven’t seen before. It's a really long-term investment and it has an opportunity to bring both innovation and collaboration in terms of technology, in terms of business processes and in terms of new business models that's really awaiting us” says Julia.
Emerging Global Trends: Regulatory Shifts and Enhanced Carbon Disclosure
This opportunity is arising against the backdrop of a changing regulatory landscape. All around the world, we’re seeing an increased focus on reporting on carbon emission disclosure, most recently with the enactment of California’s SB 253. This piece of legislation reinforces the escalating global momentum for more stringent carbon disclosure, transitioning from merely voluntary commitments to binding regulatory mandates. Companies, especially those at the top of their respective industries, are experiencing mounting pressures—not just to disclose but to consistently enhance their carbon performance. “Once you start disclosing, it's really important to build this regimen of reporting on an ongoing basis, but also it really creates the ecosystem in which improvement can be really prioritized and tracked and monitored,” pointed out Julia
Understanding Value Chain and Market Maturity
As noted above, an overwhelming proportion of companies’ emissions lie within the value chain, emphasizing the critical role supply chains play in carbon management. “What we're seeing is that the challenge of decarbonization becomes extremely complex when we're starting to look at where the emissions are occurring,” said Julia. “Almost no industry escapes this. We see that the vast majority of emissions are in the value chain, with some industries going as close to 90% of their emissions in value chain, which creates this imbalance of risk and influence.”
This interdependence also accentuates the need for collaborative climate action, bridging the gap between ambitious goals and tangible results. “Supply chains will play an extremely important role in the way in which our businesses address their carbon emissions, which means that partnering, working together, and driving climate action together with our stakeholders across the value chain is going to be a really important point to bring us from ambition to action.”
What’s good to see, as Julia pointed out, is that a lot of EcoVadis customers and stakeholders view this extreme importance of value chain and supply chain emissions as an opportunity to ignite change. This is an opportunity to reach outside of your organization, an opportunity to secure innovative practices with your suppliers that are beyond business as usual.
Business Incentive: Sustainable Products and Their Market Premium
BCG's recent analyses suggest there is a premium associated with sustainable products. This trend, coupled with the rapid technological evolution, has paved the way for a plethora of tech-driven solutions ranging from carbon accounting to bespoke decarbonization services.
“We're looking at regulatory challenges, we're looking at the complexity and the imbalance influence and opportunity to reduce emissions. What we're also seeing is that in one of the recent BCG studies, we see that actually there is an associated premium within the path towards net zero within the supply chain,” explains Julia. While the premium increase may only be a single-digit percentage increase the important thing is we are starting to experience this opportunity already. “Ultimately there is already an opportunity to address some of these topics with more sustainable products.”
EcoVadis’ Carbon Action Module: Steering Supplier Decarbonization
Recognizing the multifaceted challenges companies face, we introduced the Carbon Action Module two years ago as part of our offering. This collaborative platform aims to meet companies wherever they are on their decarbonization journey and guide them along their improvement path. By providing a robust suite of tools and features, the platform aids suppliers in reporting, computing, and strategizing improvements.
And while we understand there is no silver bullet to reducing carbon emissions and every company will need to work on its own plan there is a major need to engage suppliers and take them on this journey in a scalable way.
Engaging suppliers in climate action demands teams, resources, and continual monitoring of performance metrics. Typically, procurement organizations are left to juggle this responsibility amidst numerous other priorities. This makes it clear that for effective supplier engagement, scalability is essential.
Since launching the Carbon Action Module in 2021, we have assessed over 40,000 companies, providing each with carbon scorecards. Initial insights were concerning; 80% of the first 20,000 rated suppliers were either insufficient or beginners in their decarbonization efforts. Fast forward to 2023, and these figures are starting to reverse. Encouragingly, companies are maturing in their sustainability performance, with fewer at the beginning stages and many more progressing toward intermediate and advanced levels.
“This is nowhere where we want to be within this decarbonization journey with our suppliers, but having this first conversation with your suppliers and having a full visibility on where the challenges are and where the opportunities are, is extremely powerful,” says Julia.
The Power of Continuous Improvement and Reporting
An ongoing emphasis on reporting and measuring emissions is the first step to effective decarbonization. Continuous assessment ensures focus and garners attention from leadership teams. This attention then paves the way for commitment to goals underpinned by internal data. Preliminary data from repeat assessments of approximately 6,000 companies in EcoVadis’ network reveals a positive trend: companies are advancing in their carbon maturity levels.
As Julia observes, “Reporting and measuring emissions is a really important exercise to get started onto the decarbonization journey. Once you start doing it year after year after year, you create a continuous cycle and a focus on continuous improvement.” Plus, once the leadership teams start noticing those improvements, they become more comfortable committing to goals, especially when there is internal data and KPIs to be tracked.
Collaboration: The Key to Decarbonization and Sustainability
Discussing various aspects of decarbonization and sustainability, we cannot emphasize enough the importance of collaboration. Partnership for Carbon Transparency (PACT) is one such collaborative effort. Spearheaded by EcoVadis and hosted by the World Business Council for Sustainable Development, PACT has brought together over 200 companies dedicated to sustainability and carbon emissions reduction. Its recent release of technical specifications and methodological guidelines stands as a testament to their commitment, aiming to harmonize product carbon footprint reporting. This initiative not only offers a solid foundation and common language for companies at varying stages of their decarbonization journey but also propels advanced companies to rigorously report product carbon footprints.
However, PACT is merely one example amidst a broader landscape of collaborative efforts. Across industries—pharma, chemicals, aviation, to name a few—many enterprises are joining hands, reaching out, and engaging with their suppliers in pursuit of a collective goal. Such collaborations, by unifying various sectors under umbrella initiatives, are championing the harmonization of standards, thereby advancing the maturity and standardization of reporting.
All in all, a critical lesson emerging from industry leaders is the significance of positive reinforcement and understanding. To expedite decarbonization, it's vital that we acknowledge and reward efforts, tailored according to each supplier's maturity. And by leveraging technology, we can engage with suppliers, making sure they are neither overwhelmed nor disengaged. Moreover, engaging top-tier leadership from both sides—buyer and supplier—can accelerate action toward sustainability goals.
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