For most companies, the vast majority of their corporate emissions come from outside of their operations. According to the Science-Based Targets Initiative, supply chain emissions are an average of 11.4 times greater than emissions from direct operations. So in order for your company to meaningfully decarbonize, it is almost guaranteed that you will need to implement a supplier engagement program that helps your suppliers decrease their emissions.
We won’t lie —reducing supply chain emissions is a major undertaking, rich in complexity. But it is enormously worthwhile—not just because it is essential to meet net-zero targets globally, but also because it enhances your company’s supplier relationships and builds a more resilient supply chain. Plus, supplier engagement has a network effect: as more and more companies set supplier emissions reduction goals, decarbonization will eventually become an essential part of any supplier’s business strategy if they hope to continue earning business.
Like any other complex business undertaking, supplier engagement happens one step at a time. Let’s break down each of these steps in order.
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Setting a supplier engagement goal
The first step in designing a supplier engagement program is to decide on your goal. Depending on how mature your climate program is and how much supplier data you already have on hand, your supplier engagement goal might be a science-based target (SBT) for reducing emissions, or it could be as simple as collecting a certain amount of supplier data by the end of the year.
If you are diving into your supply chain emissions for the very first time, this goal may be even simpler. “The first step is to create a landscape assessment of the actual suppliers that you’re working with,” says Wan Lee, Sustainability Project Director at Optera. “There may be some suppliers that are higher impact, but they are difficult to engage or unable to participate.” Understanding the status of each supplier relationship will make the rest of your supplier engagement process go more smoothly.
Of course, if you have already done the work of mapping your suppliers and their emissions, your goal might be more sophisticated, up to and including a commitment to an SBT. Supplier-oriented SBTs can focus on reducing absolute emissions among suppliers, reducing emissions intensity, or engaging a certain percentage of your suppliers to set their own SBTs.
Prioritizing suppliers for direct engagement
“First is understanding your suppliers, and then you can begin understanding which ones to engage with,” says Wan. It’s likely that you may need to pick and choose which suppliers you will engage with directly, especially if you have a particularly complex supply chain. The GHG Protocol recommends ranking suppliers by their expected contribution to emissions, or the amount of spend you have with each one, and then engaging directly with the top 80 percent.
Ranking your suppliers to identify which ones make up the top 80 percent is an undertaking in itself. If you are collecting emissions data for the first time, you may not yet know each supplier’s expected contribution to emissions. Product or industry averages can get you started, or you can rely on disclosure databases like CDP. Industry trade organizations might also have compiled emissions data. There are a variety of ways to begin ranking your suppliers; for a complete breakdown, check out this deep-dive blog on the subject.
Identifying cross-functional partners within your organization
You can’t execute a supplier engagement strategy entirely on your own; achieving any supplier engagement goal will require internal collaboration. Before the project gets underway, you’ll have to identify the stakeholders within your organization who manage supplier relationships and/or have information that could inform your supplier engagement strategy. This will likely include procurement, supply chain, accounting, and/or finance teams.
If you decide to prioritize suppliers according to how much your company spends with each, for example, procurement, accounting, or finance teams can give you all the data you need to do so.
Setting up a data collection and management system
Regardless of which goal you’ve chosen for your supplier engagement program, it’s guaranteed that it will require data from your suppliers. You have options for data collection and management, whether you work with industry organizations, choose a dedicated carbon accounting software, or go the DIY route. We have broken down all the data collection and management considerations you should keep in mind in this article.
Engaging with suppliers
When you’ve done all the prep work—set a goal, identified key suppliers, engaged relevant internal stakeholders, and set up your data collection and management system—it’s time to start engaging. Your suppliers are likely to run the gamut when it comes to emissions awareness, so a key part of supplier engagement will be education. Set up training workshops, Q&A sessions, or other formats for your suppliers to learn about scope 1, 2, and 3 emissions and how to decarbonize.
Incentivization is another important element of supplier engagement. If your goal includes decreasing supply chain emissions, incentivizing your suppliers to identify their reduction opportunities and implement decarbonization strategies will drive greater adoption. Even if your goal is to begin collecting primary data, you may want to include incentivization as part of your participation strategy. Suppliers field requests from many customers every year; providing an incentive to send you data may yield better results than simply asking.
Want to know more about designing an effective supplier education and incentivization strategy? Check out our blog on the subject.
Managing supplier data
One result of all that engagement will be data—and lots of it. Once you’ve collected emissions data from your suppliers, it has to go somewhere—this is where your data management system comes in. Important considerations include data privacy and confidentiality, the ability to track progress and trends over time, and whether your data platform will provide a dashboard to the suppliers themselves, so they can see how they’re performing against the goals you’ve set for them or their own emissions goals.
You have a variety of options when it comes to data management; check out this breakdown to see which might work best for your program.
Tracking supplier performance and progress toward your supplier engagement goals
An essential element of your supplier engagement program will be the ability to know how you—and your suppliers—are progressing toward achieving your goals. A data management system that includes dashboards that are visible to both you and your suppliers makes this easier, but even if you are manually tracking performance, it is worth checking in periodically with each supplier and sharing some information about progress.
Over time, you can develop supplier benchmarks as you understand what constitutes strong performance for supplier emissions reduction. You might even develop a scorecard so you can compare how responsive suppliers are, how deeply they engage with your efforts, and how much progress they make toward emissions reduction.
If your goal includes an SBT, you’ll need to track and report progress annually. If that SBT includes getting your suppliers to set their own SBTs, you will need to validate that their targets meet SBTi criteria, share the results of that validation with the supplier, and ensure that validated supplier SBTs are counted toward your commitment. Additional details can be found in the SBTi’s Supplier Engagement guidance.
Continuous improvement and evolution
Supplier engagement is not a one-and-done activity. Your company will need to collect data from suppliers annually; as you do so, your program will need to evolve as it reacts to changing supplier lists, new regulations, industry headwinds, and more. As you learn more about your suppliers and their ability to decarbonize, your engagement strategies should get more and more refined. Plus, you should aim to engage more and more suppliers every year, with an ultimate goal of achieving nearly 100 percent supply chain coverage.
