Edge Impact on three organisational levers for procurement to address supply chain emissions

While the majority of organisations that produce annual sustainability or ESG reports are mostly across Scope 1 and Scope 2 emission calculations, reporting Scope 3 emissions reaching up your supply chain on the other hand introduces a dual challenge: the acquisition of improved supply chain data and the enhancement of supplier emissions performance, says Nicole Thompson, Principal Consultant, Sustainable and Ethical Procurement at Edge Impact.

Below, Nicole shares with PASA the three straightforward steps that any procurement team can undertake to make this challenge less daunting:

1. Communicate upfront to all suppliers that they will be evaluated on their emissions reduction activity

Include requirements for emissions reduction and weighted evaluation criteria in pre-qualification or tender specifications. Use core (minimum) requirements in your request for quotations or tenders so that supplier performance on emissions reduction commitments can be compared. A requirement might look like:

• Demonstrate that you are measuring your Scope 1 & 2 emissions and have a target and plan in place to reduce those emissions
• Do you have a science-based target?
• Do you publicly report on decarbonisation initiatives?

Signal that those suppliers that are taking action on emission reduction will be preferred, by weighting evaluation in their favour.

Be sure to communicate any expectations upfront and as early as possible in market testing and supplier engagement.

Use minimum requirements and stretch or desired emissions reduction criteria to set the bar – tell suppliers where you want to go and let them pave the way to get there.

2. Consistently ask for emissions data and embed decarbonisation questions in standard go-to market activities

Request data during supplier selection. 

Set clear boundaries on the data you need to inform your baseline. 

Data requested should be meaningful and manageable making it simple for your suppliers, increasing success of receiving the information and making it easier for you to analyse and use. 

A simple short list may look like this:

• Total annual organisational Scope 1 and 2 emissions
• Total annual organisational Scope 3 emissions by category
• Product or service emissions footprint
• Bonus: information includes all of the above by intensity and any methodologies

Include this in your next EOI, RFQ and RFT. Embed emissions reduction into category planning and supplier selection.

3. Incentivise emissions reduction by embedding expectations into supplier contracts

Clearly define emission-related contract requirements (such as providing annual data as listed above) and KPIs, and ensure that suppliers understand and agree to them. 

Consider including clauses or performance scorecards that promote and reward emission reporting, disclosure and continuous improvement. This integration sends a clear signal that emission reduction is a priority for you.

Incentives may look like recognition, preferential business such as longer contracts, more work or beneficial payment terms or pay for performance agreements.

Remember that the requirements, incentives and the level of support provided to suppliers will be dependent on supplier size.

While a suite of standard requirements for emission reductions can be developed, the approach will need to be tailored to the size and maturity of your suppliers. Your procurement team can help you write the most appropriate contract requirements.

Do these three things sound familiar? These are all procurement tools that all organisations have at hand. You can use them to address Scope 3, circularity, modern slavery or nature – or better yet, integrate these issues into a supplier code or sustainable procurement strategy and start communicating expectations to suppliers.

Next steps

If you take one next step, it should be to simply start the conversation on Scope 3 emissions internally with your procurement team, and externally with your priority suppliers.

Learn more with PASA

Keen to delve deeper into Scope 3? Watch out for Scope 3 content at the following PASA events:

The 11th Annual PASA Premier Confex, which will take place at the Flemington Racecourse Conference Centre in Melbourne from 18-19th October, including several relevant keynotes across two days from high-profile speakers such as Edge lead Tanya Harris 

The 3rd Sustainable Procurement & ESG Today event, which will take place online on 15-16th November, including expert contributors on ESG in a procurement context. Showcasing a double feature on net zero and particularly the challenge of Scope 3 emissions reduction up the supply chain, including an extended one hour net zero special with Tanya Harris 

The PASA CPO Roundtable on 16th February 2024, for PASA Connect member CPOs, featuring Edge expert Nicole Thompson talking exclusively about Scope 3 up your supply chain

PASA Connect’s March 2024 session for members – coming soon on Scope 3