Published 5 years ago.
About a 5 minute read.
20 percent of the world population lacks access to modern electricity, but access to 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 climate change, accounting for 60 percent of GHG emissions, SDG 7 proposes to resolve this issue by promoting the use of renewable energy while decreasing the use of conventional.
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 their final products.
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. Such criteria can include optimizing the energy consumption of the 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 the company has developed a 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.
After defining how to integrate energy criteria in procurement decisions, organizations can inform their suppliers about new requirements. The company can disseminate procurement policies to its 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.
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 CDP — a common way to collect data about the environmental footprint of suppliers and other companies. 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.
If the energy consumption of one or more of an organization’s raw materials is high, or if key suppliers have higher 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 organise supplier forums to encourage sharing of best practices among 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 lighting is both financially and environmentally beneficial when calculating the life cycle cost, as LED lamps’ 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; 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 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’s falling in line with the interconnected objectives of the SDGs — especially SDG 7.
Published Nov 7, 2018 11am EST / 8am PST / 4pm GMT / 5pm CET