Tackling carbon in the supply chain

How one multi-company initiative is accelerating the switch to renewable electricity, with lessons for other sectors.

For an average company in most non-primary sectors, an overwhelming majority of their greenhouse gas emissions are Scope 3 – carbon emitted up and down the value chain. The make-up of these figures varies by sector, but the largest contributors are usually associated with the lifetime use of their products and emissions from the goods and services which the company buys. A review of data reported in CDP in 2022 [1], for example, shows that over 75% of the carbon emissions of a company in the chemicals sector come from their value chain, with the majority (44%) associated with the goods and services they purchase.

These upstream emissions are increasingly becoming a focus for company decarbonisation strategies. As companies start to deliver substantial progress against their Scope 1 and 2 emissions reduction targets, attention turns to their Scope 3, and with it their suppliers. Indeed, if a company plans to get its target signed off by the independent Science-Based Targets Initiative (the gold standard to show alignment with the goals of the Paris Climate Agreement) they have no option but to include the supply chain element in their calculations.

You can’t manage what you can’t measure

The first step for most is a measurement and mapping exercise; find your biggest suppliers, convert the annual spend into an estimated carbon emission using pre-made conversion tables and you have a crude map, with a sense of where the biggest emissions arise. A big spend doesn’t always translate into large emissions. Spending £1 million with your lawyers leads to estimated emissions of 100 tonnes, but you will hit the same figure buying only £80,000 of concrete (DEFRA table 13) [2]. But a spend-based footprint of this sort is the essential starting point and is pretty much the current position of most listed companies. See, for example the report by Merck KGaA [3].

The second step is to begin a process of supplier engagement by working with those largest spend / largest emission suppliers to request their precise footprint data and discuss a shared plan for reduction. At this stage, companies’ understanding of their emissions can change dramatically. It’s common that actual suppliers are much better – or much worse – than the crude sector averages that make up the spend-based conversion tables. Collecting primary data of this sort is a stage of maturity that only a few of the largest and most committed companies have reached

What comes after emissions measurement?

Measuring supply chain emissions is – of course – only an enabler. The goal is reduction – practical decarbonisation. How can responsible buying companies do that?

The honest answer is that we are still working it out. The process of engagement alone – making it clear to suppliers that buyers are interested in this and asking them for action – has begun to shift the market. SLR increasingly receives requests from tier 1 suppliers to ‌global leaders, asking us to help them set their own decarbonisation strategies. This rising tide is lifting all boats.

But the best companies – like many of SLR’s clients in the pharmaceutical sector – feel that they want to do more. They want to provide practical guidance, and even commercial incentives, for suppliers willing to act. The problem of course is that each supplier is different and buyers aren’t in the details of each of their suppliers’ processes. How can they provide advice without putting themselves into the role of unpaid technical consultants?

The leaders are responding thematically, providing support on cross-cutting programmes like energy efficiency, clean heat, or renewable energy. An exciting project in pharma is providing practical help to suppliers to source renewable electricity and delivering massive carbon savings.

There are considerable challenges in the sourcing of renewable electricity, such as the differences in regions and markets that have no established accounting mechanisms. But many large pharma companies have already learnt how to source renewable electricity for their own operations, so why shouldn’t suppliers?

Enter Energize

Energize is a buyer-sponsored programme that provides healthcare sector suppliers with the tools and knowledge they need to source renewable electricity. The 24 sponsors [4] encourage their suppliers to join an online education scheme which trains their people in the business case and practical details of sourcing renewable electricity.

At the end of the course, Energize then gives suppliers the option to join others in their region (North America or Europe) to form cohorts to collectively sign multi-buyer Power Purchase Agreements (PPAs), something that they may not have access to on their own. A PPA is a large-scale contract to purchase renewable electricity at a set price for a set duration, agreed usually with the developer of new renewable assets. Armed with PPAs before construction, developers are more likely to receive the finance they require to get going, making PPAs a very green source, leading as they do to new renewable capacity being installed (‘additionality’).

To date, the Energize programme has successfully signed two PPA cohorts, with the most recent one sourcing a total of 245 GWh per year in Spain [5] for a 10-year term. This represents over 40,000 metric tonnes of CO2 avoided per year. And this adds to the first group of multi-buyer PPA signed for a total of 560 GWh per year [6] also for a 10-year period, estimated to avoid over 390,000 metric tonnes of CO2e. The additional renewable electricity capacity generated via these multi-buyer PPAs has a positive impact on the environment, while simultaneously providing certainty and stability to companies participating in them.

The ‘practical decarbonisation road’ ahead is long and full of challenges, but programmes like Energize for sourcing renewable electricity, and other solutions leveraging readily available technologies, prove that practical action doesn’t need to wait.

Advisory Digest

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Note: SLR provides the Project Management Office for the Energize programme, which is delivered by Schneider Electric and endorsed by the Pharmaceutical Supply Chain Initiative. Visit the Energize initiative [6] to learn more.

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References

[1] https://cdn.cdp.net/cdp-production/cms/guidance_docs/pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-by-sector.pdf

[2] https://www.gov.uk/government/statistics/uks-carbon-footprint

[3] https://www.merckgroup.com/uk-en/Carbon-Reduction-Plan-Merck-KGaA.pdf

[4] https://www.se.com/ww/en/about-us/newsroom/news/press-releases/energize-supports-four-global-healthcare-companies-collaborating-on-a-multi-buyer-ppa-for-a-long-term-supply-of-renewable-electricity-67a1f4d44c53b5dc560f345d

[5] https://www.se.com/ww/en/about-us/newsroom/news/press-releases/the-energize-program-celebrates-landmark-multi-buyer-ppa-deal-to-decarbonize-healthcare-supply-chains-66f1563c20b8ed4e0c04bb1b

[6] https://hub.zeigo.com/energize