Twenty percent of the world population lacks access to modern electricity, but using affordable, reliable and sustainable energy is crucial to achieving many of the United Nations’ Sustainable Development Goals (SDGs), from poverty alleviation via advancements in health, education, water supply and industrialization to mitigating climate change. While energy remains a major contributor to global warming, accounting for 60 percent of GHG emissions, Sustainable Development Goal 7 proposes to resolve this issue by promoting the use of renewable energy while decreasing the use of conventional energy.
Organizations are approaching SDG 7 in several ways. As they increasingly incorporate life cycle approaches into business practices, supplier collaboration emerges as an important part of the process. For industries such as the automotive sector, for example, supplier-made parts have a big impact on the environment via consumer use.
Environmental impacts in other industries, such as food and beverage, come from the production and sourcing of ingredients. While supplier collaboration can help companies better understand where their ingredients come from and how they are procured, engaging third parties in this kind of mission is not always easy. This article presents a set of approaches that companies can take to engage their suppliers to reduce their energy consumption, ultimately reducing the environmental impact of the final products.
Step One: Integrating Energy Criteria Into Procurement
Before effectively engaging suppliers, companies should internally integrate the criteria of energy consumption and GHG emissions into their procurement decisions. This involves participation from internal stakeholders first before reaching out to suppliers and vendors the organization might work with. Such criteria can include optimizing the energy consumption of the final product (e.g., using parts that reduce energy loss in the final product), optimizing the production process itself (e.g. using equipment that runs on biofuel or has high-energy efficiency) or optimizing the production process of raw materials used (e.g., making steel in energy-efficient furnaces).
The level of integration will depend on the maturity of the company’s sustainable procurement program and how closely its energy performance is related to its financial and regulatory guidelines. If a company has developed sustainable procurement system and also sees that its energy performance is highly correlated with business performance, it can implement a set of standards with specific performance figures that its suppliers will need to satisfy.
Additionally, if a company only recently started integrating the energy consumption and GHG emissions criteria in its supply chain, taking into account whether its suppliers have implemented policies and actions to reduce energy consumption is a good start.
Step Two: Communicate With Suppliers
After defining how to integrate energy criteria in procurement decisions, organizations can inform its suppliers about new requirements. Companies can disseminate procurement policies to their entire supplier database or share a supplier code of conduct or charter that outlines the company’s expectations. Organizations may need to take additional steps to ensure that suppliers understand the implications of these policies. The process might also require the company to ensure its expectations are cascaded to Tier 2 and Tier 3 suppliers.
Step Three: Monitor Supply Chain Energy Consumption
One important, necessary step for managing energy consumption and GHG emissions in a product’s life cycle is to know about the scope 3 emissions. Ideally, companies would obtain information specifically related to the manufacture of their final products from their suppliers. However, as a first step, organizations should ask their suppliers about the latter’s total energy consumption and emissions via the CDP report. This report is a commonly used tool to collect suppliers, among other companies, environmental footprint. Alternately, companies can set up their own assessment to obtain such information from their suppliers, or conduct on-site audits to monitor the energy consumption of their suppliers, among other issues.
Step Four: Encourage Suppliers to Reduce Energy Consumption
If the energy consumption of one or more of an organizations’ raw materials is high, or if that key suppliers have an important energy consumption, companies should engage with their suppliers to help reduce this impact. One way to achieve this is to invest in suppliers’ capacity building by providing specific training on how to reduce energy consumption and GHG emissions. Organizations can also share methods on using renewable energies as an alternative or by organizing supplier forums to encourage sharing of best practices among suppliers.
Benefits of Engaging With Suppliers
Organizations can benefit financially by adopting a life cycle approach and encouraging their suppliers to decrease GHG emissions. A Mckinsey & Company study suggests that the cost of CO2 abatement in the first phase is negative, meaning that companies actually benefit financially from improving their CO2 footprint. For example, changing from incandescent to LED lamp is both financially and environmentally beneficial when calculating the life cycle cost, as LED lamp lifetime is much longer and its energy consumption much lower. Companies that work with their suppliers are also more innovative, especially when collaborating to reduce environmental impact as they can come up with more creative, lasting solutions that work for both parties.
Achieving SDG 7 will require companies to make adjustments throughout their supply chains. However, the process will depend on the willingness of the supplier base and the company’s own maturity in sustainable procurement. The engagement will differ depending on supplier size, as well: For example, an organization might handle a small, family-owned business differently than a global supplier that handles procurement operations for thousands of other organizations. The approach will also vary depending on if the company has a more traditional focus on quality, cost and delivery rather than focusing on the inclusion of environmental factors in its procurement decisions. Regardless, companies should take a holistic approach to supply chain and procurement sustainability to ensure it is in line with the interconnected objectives of SDGS – especially SDG 7.
By Haruka Tamura, CSR Analyst
This article was originally published on SustainableBrands.com
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