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Supply Chain
How to Streamline Supply Chain Emissions Accounting

Climate change exposure and carbon emissions remain barriers to resilient supply chains. Here, South Pole and SupplyShift discuss new developments in supply chain visibility that can help mitigate these risks once and for all.

One of the biggest challenges for companies when it comes to setting and achieving sustainability targets is supply chain operations. Companies already have to incorporate changing factors within their supply chains — including tariffs, cost of materials, etc. Accounting for emissions and other climate change activities, however, has always required vendors to have the same values or be incentivized — since they didn’t have a direct business risk, and because of the massive undertaking required to assess and track emissions and impacts.

With countries around the world starting to implement measures to achieve emissions-reduction targets, there are likely to be new regulations that affect supply chains and manufacturing. This should make it easier to get second- and third-party vendors onboard, but it also means finding an efficient way to quantify emissions among the many entities that corporates will now need to factor into their own accounting. 

Early leaders such as Gap and Nike — the latter of which has 700 contract factories — worked tirelessly to create programs and influence suppliers to participate. When it first getting started, it even had to show suppliers the ropes and help them set up their own accounting. 

Thankfully, things have come a long way; and it’s now possible to streamline the process and even gather, assess, and analyze data with greater complexity. 

SupplyShift is a technology platform that helps businesses create more transparent, responsible and resilient supply chains by creating visibility into supplier performance in order to manage risks. Climate change exposure and carbon emissions are two of those risk factors. South Pole works with SupplyShift to help companies determine the full context of their exposure, understand the breadth of their emissions footprint and reduce it. After all, the supply chain is where most of a company’s carbon emissions occur.

The following is an excerpt of a conversation between South Pole and SupplyShift about new developments in supply chain visibility related to emissions and climate change risk factors.

South Pole (SP): In your experience over the past few years, how has the topic of climate change management and moving towards low carbon/net zero become an issue for your clients?

SupplyShift (SS): As far back as 10 or even 20 years ago, companies started taking action to reduce their carbon footprint. However, this was generally focused on a company’s own operations. The vast majority of emissions occur in the upstream and downstream value chain. More recently, companies have really started to focus on reducing emissions in the supply chain, which presents a unique share of challenges.

At the same time, the impacts of climate change on the planet are more apparent every year. These two factors have come together to cause an explosion of companies setting science-based greenhouse gas (GHG) targets as well as net-zero targets. This is a great indication that folks are starting to focus on the areas that really make a difference. 

SP: What are the key carbon/climate change supply chain data challenges that your clients experience and what solutions are you proposing to them to solve them?

SS: Some of the key challenges we see are:

  • What to ask of suppliers: Sometimes the biggest impacts are found beyond tier 1 suppliers, so information/engagement needs to be further up the chain. Companies need to figure out their strategy to get to the right data quickly from multiple tiers, so that they can apply it to decisions. Our platform helps companies efficiently collect multi-tier data and tailor questions to the supplier’s position in the supply chain.

  • Building supplier capacity to measure and reduce: Many smaller suppliers don’t know how to measure their carbon/GHG emissions and/or aren’t taking steps to implement. SupplyShift takes the burden of measurement off of suppliers by allowing them to provide inputs that we calculate on the backend.

  • Helping suppliers achieve real reductions: financing reductions, incentivizing reductions. By serving up insightful analytics, we help companies identify the biggest opportunities to make reductions within their supply base.

SP: What should companies know about collecting this complex supply chain data?

SS: Start simple, and build from there. It’s easy to ask all of your suppliers if they measure, if they’ve set a target, if they’ve made reductions, and if they plan to get started soon. 

It is very difficult to calculate the lifecycle carbon footprint of all of your products using real supplier data (rather than modelled results). Companies waste a lot of time “over-measuring” — when they could instead focus on identifying suppliers that need help taking that next step in measuring their own emissions and tracking their company’s overall progress, enabling companies to have more accurate data. 

Also, standardize questions used to gather data. Suppliers get asked all kinds of questions, and the more companies can harmonize and take advantage of standard question sets, the less overwhelming it will be for suppliers and the more likely they’ll be to respond and do so accurately and timely. SupplyShift works with dozens of partners to standardize question sets across industries and topics; standardization around carbon data, in particular, has been gaining a lot of momentum.

Overall, we can’t make perfect the enemy of good; the most important thing a company can do is start. To encourage this, SupplyShift released the Greenhouse Gas Starter Assessment — which companies can use for free to collect data on supplier commitments, target setting, reductions, etc.

SP: How do you envision the world of data management across value chains — for carbon/climate change and other sustainability topics taking shape over the next five years?

SS: This will become an integral part of doing business, rather than a special project. Sustainability will become a key factor in the broader nexus of supply chain, procurement, finance and risk. Companies are beginning to centralize how they engage suppliers, and make climate factors and sustainability part of ongoing performance review. 

The term ‘resilience’ has exploded through the pandemic. Through the more tumultuous periods of the pandemic, companies that already had strong sustainability programs faced less disruption overall. Along those lines, we expect transparency and other core tenets of sustainability to be adopted as strategies by more traditional business functions.

SP: Many companies are setting ambitious climate goals. How are you helping them achieve these goals?

SS: The biggest piece missing from the puzzle is real, quantitative data. We help companies access that quantitative data. One of the ways we do this is by making it easier on suppliers. Using SupplyShift, they can calculate their own carbon footprint by inputting their energy consumption. We roll all of the data up into emissions factors and aggregate it for the client so they can analyze it thoroughly and derive the insights that guide their decision making.

Real data helps companies quickly understand if suppliers are meeting their expectations and taking action. Of course, combining that supplier data with expert advice through partnerships like the one we have with South Pole creates fully enabled programs that really help companies accelerate impact.