November 14, 2022 | Supply Chain Strategy
Last year, COP26 put climate change front and center, with agreements on reducing coal-fired power generation, methane emissions and deforestation, and pledging more financing to help developing countries adapt to climate change.
This year, war and energy crises are part of the backdrop for COP27, which is expected to bring into sharp focus the need for companies to reduce their Scope 3 emissions . The Conference of the Parties is a key opportunity to move intentions to actions in the quest to reduce carbon emissions and limit global warming to a goal of 1.5 degree Celsius.
Mitigating and adapting to climate change’s effects will require enterprises to take action to reduce emissions arising from their supply chains, which make up a majority of a company’s carbon footprint. What can companies expect out of the COP27 in Sharm el-Sheikh, Egypt?
Data is central to any effort to measure, report and reduce Scope 3 emissions . Companies need data from external organizations, including their supply chain partners. Collecting data and ensuring it is complete, consistent and timely is essential to be able to understand it, set benchmarks and track progress against those metrics.
UN Secretary General António Guterres underscored the importance of data in remarks on the 2022 Adaptation Gap Report, saying “We need far better climate risk data and information. Vulnerable countries and communities need access to localized data and information on climate risks to inform adaptation actions.”
Just as countries vulnerable to climate change effects are looking for better data on climate risks and ways to mitigate them, customers are more and more looking for their suppliers to have a set path toward net-zero emissions .
Measuring, reporting and reducing Scope 3 emissions is therefore an opportunity for businesses to create value and deepen relationships with key partners to encourage them to take appropriate action to reduce emissions. It’s also a good opportunity for businesses to understand their supply chain beyond tier n – and not just for the purpose of reducing Scope 3 emissions, but also because legislation globally increasingly requires it.
Regulations governing the disclosure of climate risk data, including Scope 3 emissions, are expected to continue progressing from voluntary standards to requirements for large companies. In Europe, the Corporate Sustainability Reporting Directive is being finalized. In the U.S., the SEC’s proposal in March on climate-impact disclosures may face challenges, but there is an evolving trend toward greater regulation in this space that leading companies can get ahead of now.
Russia’s war in Ukraine has created disruptions and shortages for fertilizer, food and energy, driving short-term panic as countries scramble to mitigate the impact of lower oil and gas exports from Russia and Ukraine. In the long term, the shortages may accelerate countries’ transition to renewable energy, spurring decarbonization efforts. The International Energy Agency’s World Energy Outlook predicts investment of more than $2 trillion annually for global renewable energy by 2030.
Companies need to be prepared for renewed pressure to make progress on their Scope 3 emission reduction goals. While many enterprises have set targets, few of them are on track to meet them, meaning they will have to move faster and smarter to do so. That will require them to innovate in how they capture and analyze supply chain data and how they collaborate with suppliers.