With the demand for Scope 3 emissions reduction and reporting rising, Timothy Holman, head of energy consultancy at TEAM Energy, explores the widening group of stakeholders tasked with reducing these emissions, outlining concrete ways this new group can effectively engage suppliers to make a change.
It’s well known that scope 3 emissions are the biggest source of emissions from almost any organisation. Indirect emissions up and downstream from an organisation’s supply chain average around 75% of an organisations total greenhouse gas (GHG) emissions, but in some sectors can reach as high be almost 100%.
However, what’s perhaps a lot less well understood is that a growing number of new stakeholders are being brought into the process of addressing this emissions scope. What was once the remit of a sustainability manager, possibly operating with a small budget and few institutional pressures, has become a priority that draws in energy managers, facilities managers, accountants, the senior management team, boardroom, and – unavoidably – suppliers.
The cross-functional interest in scope 3 emissions is primarily a consequence of the growing pressures to reduce them, and the complexity of that goal. With it comes the need for effective engagement summed up by Pia Heidenmark Cook, former CSO of IKEA, who says that sustainability professionals must work through other people.
The demand for reporting and reduction
In the UK, the Streamlined Energy and Carbon Reporting (SECR) guidelines ‘strongly encourage’ that companies with over 250 employees, £36 million in turnover, or an £18 million balance sheet report on their scope 3 emissions. This is especially the case if they are considered ‘a material source of emissions’ – meaning they represent a significant portion of the company’s carbon footprint.
In the near future, scope 3 reporting may become mandatory in the UK if the government endorses the International Sustainability Standards Board (ISSB) standards. This would lead to the establishment of the first two UK Sustainability Reporting Standards (SRS), likely requiring organisations to report on their material scope 3 emissions. The government had indicated that consultation on these standards would begin in Q1 2025, however an official announcement has not yet been made.
Regulatory obligations aside, customers and investors are also placing demands on organisations to report and reduce their scope 3 emissions. More now than ever, customers are making conscious and sustainable purchasing decisions. According to BNP Paribas’s latest research, institutional investors continue to prioritise environmental, social and governance (ESG) investments, with 87% saying that their ESG and sustainability objectives remain unchanged, and 46% reporting they’ll be investing in low-carbon assets while divesting from carbon-intensive ones.
Working through and with others
Other organisations lie at the heart of the scope 3 challenge. The upstream emissions in scope 3 are made up mainly of other organisation’s scope 1 and 2 emissions – for example, from the extraction, production, and transportation of any products or materials, or the energy a supplier uses. There are many sources of downstream emissions too, including emissions associated with waste, leased assets like property and even the emissions produced when a sold product is used.
Effectively engaging suppliers and customers, then, is the primary way those responsible within an organisation can bring down their scope 3 emissions. Making a substantial change within your own business can already be a huge undertaking; effectively overhauling another organisation is harder. The changes must address infrastructure, assets, and processes that can be expensive to update. And, on the face of it, this can seem like a near-impossible task.
However, what we’ve experienced over many years of working with organisations to reduce their scope 3 emissions is that, in context and with the right approach and planning, engaging suppliers is easier than it may first seem.
Considerations for effective engagement with suppliers
First of all, the demand to reduce emissions is not out of the blue. The writing is on the wall, and it has been for a long time now. Suppliers should be aware of this and hopefully have initiatives in place to reduce their scope 1 and 2 emissions. What’s more, under SECR, scope 1 and 2 emissions reporting is mandatory. Therefore, it’s likely that the suppliers you need to engage – if they’re in the UK – will already be obliged to report on their emissions which you both share. If they also supply the Public sector, including the NHS, they would also need to have a Carbon Reduction Plan in place showing how they will reduce their emissions to net zero. Those outside of the UK may also be obliged by some other regulation or voluntary framework. Either way, the need for supplies to reduce their scope 1 and 2 emissions is firmly already here; the groundwork has, in a sense, already been laid.
On top of this, it’s crucial to engage suppliers in the right way, using a combination of incentives and presenting the right business case for any changes you may need them to make. A standout example of this is in energy efficiency, and switching to renewable energy suppliers. Encouraging suppliers to improve the efficiency of their operations to reduce their energy use can be supported by a clear payback analysis, highlighting improved return on investments (ROI) and cost savings that speak directly to suppliers’ bottom lines. Upgrading to energy efficient lighting systems, adjusting HVAC tolerances, or improving insulation can all be accompanied by a clear ROI. So too can using only ‘green’ electricity from a new supplier, or even owning renewable generation assets to produce their own clean energy. What’s more, for many organisations, energy efficiency measures and switching suppliers can be some of the most effective ways to reduce carbon emissions.
The promise of decarbonisation measures is not lost on business leaders, so any proposals that can also appeal to their business sense will likely not fall on deaf ears. PwC’s Annual Global CEO Survey found that sustainability investments were six times more likely to increase revenue than decrease it, and most CEOs see sustainability as an opportunity and not a cost – the appetite is there.
Where the cost of energy efficiency measures or even investing in renewable generation assets is prohibitive for suppliers, organisations may be in a position to engage in a discussion about carbon insetting within their supply chain. It may be possible to invest directly in measures that reduce supplier emissions; partially funding any proposed changes removes a significant barrier to decarbonisation.
It’s crucial to point out that there should be a plan behind any specific proposal. Anyone hoping to get buy in from their suppliers – or even internal stakeholders – will find the process easier with a clear and actionable programme. However well-meaning, a wish-list of half-baked ambitions without a plan simply won’t be effective. Many organisations will already have to comply with regulations including SECR, which has no requirement for any action plan, or Energy Savings Opportunity Scheme (ESOS), which includes only energy saving action plans that focus on the organisation’s own activities. To get suppliers to decarbonise you need a carbon reduction strategy that includes a focus on them – the suppliers – and how they can reduce emissions with appropriate support.
Lastly, it should go without saying that switching to suppliers who are reducing their carbon emissions is an option. Often this can be the easiest option, depending on the product or service you receive. And ultimately, for suppliers, this prospect is what creates the competitive pressure that will ensure whole industries decarbonise the length of their supply chains.
Shared benefits
Tackling Scope 3 emissions demands collaboration, planning, and clarity. It’s a matter of shared responsibility and shared benefits. By engaging suppliers with targeted incentives, shared goals, and actionable plans, organisations can unlock meaningful carbon reductions. The path forward lies in building partnerships that deliver shared environmental and economic value across the supply chain.
