Roadmapping Supply Chain Decarbonization
The 2015 Paris Agreement prompted world governments to make a commitment to limiting global temperature rise to below 2°C above pre-industrial levels. However, subsequent studies show that limiting warming to 1.5°C is critical in avoiding the catastrophic impacts of climate change (IPCC, 2018). In order to achieve this ambitious but necessary target, GHG emissions must be halved by 2030 and drop to net-zero by 2050 (SBT). The implications of this call to action are that supply chains across all industries must revolutionize and decarbonize. This is no easy task.
Across many industries there has been a recent influx of commitments to net zero goals. For example, if we look specifically at the apparel and footwear industry, we see a proliferation of companies setting science-based targets (SBT’s) on climate change (WRI, 2021). Since 2018, over 100 apparel and footwear companies have either set SBT’s approved or committed to setting such targets. Furthermore, 239 companies signed up to the SBTI in 2020. Of these 239, 94 percent committed to reducing their Scope 3 emissions. This is a step in the right direction as Scope 3 emissions account for 80% of their overall climate impact (McKinsey & Company, 2020). How they will go about achieving these reductions is the challenge.
In conversations with Apala Group’s clients, we have identified that initiating a decarbonization roadmap is a critical first step. To assist in this process and drive decarbonization in alignment with a 1.5°C scenario, we have created a supply chain decarbonization roadmap below. While the following parameters have been described in general terms, each will require more informed, nuanced steps specific to the each company’s unique supply chain, goals and available pathways.
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Roadmapping Supply Chain Decarbonization
Understanding Goals: At this stage companies establish which internal factors are priorities or might influence their decarbonization strategy. For example, a company might have goal outside of specific climate targets i.e. becoming an industry leader, adhering to certain standards or protocols, achieving a specific certification, minimizing cost, etc.
Data Collection: In order to map out a path towards achieving decarbonization, companies will need to commit to collecting both quantitative and qualitative data. This data will begin with obtaining information on the locations of Tier 1 and Tier 2 suppliers. Companies should also establish an understanding of where each supplier is on their sustainability and carbon reduction journey through conversations and surveys. Obtaining baselines for electricity consumption, thermal energy usage, and carbon emissions will also be required. This data can often be estimated from supplier-provided information, through various industry tools, or using data obtained from site-specific energy and carbon audits. The more granular the data, the more likely your emissions tracking will be accurate over time.
Assessing Pathways: In this step, various pathways to decarbonization should be assessed to determine what options are are most viable in the short- and medium-term. These options may include renewable electricity, renewable thermal, energy efficiency, fleet electrification and others. Each of these decarbonization opportunities will have their own costs, benefits, and timelines for implementation and it is important to determine how they differ by markets. Supply chain partners located in Mexico, for example will have different market structures and opportunities than those located in Singapore.
Target setting: Once a company has identified and assessed the potential pathways, it is time to incorporate those into targets specific to the organization and supply chain. Targets may include goals related to suppliers' renewable energy consumption, net zero supply chain targets, and carbon reduction goals. This is critical for defining the project roadmap, establishing timelines, and determining financial models. Examples of these targets may be 50% of Tier 1 suppliers using renewable energy by 2030 or achieving net zero by 2050. It is also critical to communicate these targets to the supply chain. This has the potential to prompt suppliers to undertake their own decarbonization initiatives more quickly.
Identify Solutions Providers: Once ambitious targets have been set, it is now time assist supply partners in identifying solutions providers who can help facilitate and realize the pathways previously identified. This not only includes identifying external providers and project developers, but which internal team members will be responsible for each aspect of the process; From facilities and project managers to factory owners and technical experts. This can be an especially challenging part of roadmapping. However, having the right partners and people on board is critical to the success of a decarbonization strategy.
Implement: Now that the changes needed to meet company targets have been calculated, implementation begins. These will include energy efficiency upgrades, renewable energy procurement, changes in material selection, etc. While some will be carried out by a solution provider, there are others which require engaging employees, consumers, and customers. This is generally the most time consuming stage of the decarbonization process. Keep this in mind when developing a roadmap.
Neutralize : If there are residual emissions or emissions the organization is unable to fully abate through renewables procurement and efficiency upgrades, using carbon offsets can be a useful tool during the decarbonization process. However, these should take place after as much decarbonization efforts have been exhausted or as a tool to meet interim targets along the established decarbonization timeline.
Communicate, Verify & Report: As the company moves forward with implementation of targets through various projects and pathways, it is critical to monitor performance. Measurement and verification can help ensure carbon reductions are on track and data is accurate for disclosure and reporting. Outside of official reporting and disclosure, it is also important to communicate company accomplishments to consumers and help move the industry forward.
While this is by no means an exhaustive guide to roadmapping a supply chain decarbonization strategy, this article aims to inform readers of the general process and concepts they will need to consider while mapping out their decarbonization strategy. For additional information and a more granular look at each of these steps, please contact Apala Group and keep an eye out for our next Supply Chain Decarbonization Coffee Chat!