What is the role of accurate data in supply chain decarbonisation?

Blog by Purvish Shah, Lavanya Pawar
Published on February 9, 2023

A Juicy Story of Supply Chain Emissions

In 2009, PepsiCo partnered with Columbia Earth Institute to conduct a life cycle assessment (LCA) study of their flagship product, Tropicana. The objective of the study was to uncover insights into the company’s supply chain and identify areas for improvement. The findings of the LCA were surprising, as it was discovered that over 90% of emissions were generated from the use of fertilizers at the orange production site. This was contrary to the prevailing belief that the majority of emissions were within company boundaries, due to the use of fossil fuels.

This study allowed PepsiCo to take significant steps to reduce its carbon footprint by replacing the fertilizers used at its farms. However, this example only represents a small portion of the work that was required to engage with partners in the supply chain who had no direct communication with the company.

Riding the Wave of Market Forces

In the last decade, a lot of progress has been made in measuring supply chain sustainability, making it a critical component in the supply chain decarbonisation process. However, not every organization has the resources and influence of PepsiCo, and must rely on market forces to drive change in their supply chain. Fortunately, today’s market is putting pressure on organizations of all sizes to be more sustainable.

While relying on market forces for supply chain decarbonization, it is important to remember that these forces have a significant economic impact. Therefore, interventions cannot be based on averages that apply to all suppliers regardless of their sustainability efforts and geographic locations. For instance, two manufacturers using the same input materials but from suppliers located in different areas may require vastly different interventions for decarbonization. Additionally, if two suppliers for the same manufacturer are located in the same area but use different sources of energy, the manufacturer would have to incentivize one of them through green premiums or give preference to the one using renewable energy in their purchasing decisions.

Therefore, to effectively address the issue of decarbonization, there is a need for real data and actual supplier information, instead of relying on industry-average estimates.

Moving Beyond Estimates

Nearly 75% of the chemical industry’s emissions come from the supply chain, with almost 60% belonging to the raw materials purchased. Therefore, a significant portion of supply chain decarbonization efforts should focus on reducing emissions from raw material purchases.

Averaging methods, such as using average emission factors, can provide useful guidance for early screening and identifying priority areas. However, this is only the first step. When making decarbonisation efforts economically viable and identifying opportunities, real data and supplier engagement are necessary. To make informed green supply chain decisions, product specifications should include the product’s carbon footprint alongside other key indicators such as price and quality.

To make these decisions, accurate, supplier-specific data is necessary, taking into account the recycled raw materials used, source of energy, and other unique factors. As Tier-1 suppliers make purchasing decisions based on carbon footprint, this trend will continue down the supply chain, creating a feedback loop that emphasizes the need for accurate data.

Collecting accurate data from the supply chain is a crucial step, but the larger challenge lies in ensuring the data is collected in a consistent format and maintaining its quality across suppliers. Industry is finding ways to address this issue by standardising methodology for calculating product carbon footprint. Together for Sustainability is leading the way in this direction and released the TfS – PCF Guideline in November 2022.

Navigating the Data Mire with GHG Protocol

The GHG Protocol provides guidance on calculating Scope 3 emissions, and specifies two types of data that can be used for this calculation: primary and secondary data. Primary data, provided directly by suppliers or others, directly relates to specific activities in the company’s value chain. For example, PepsiCo used primary data to understand the real emissions of Tropicana and track its progress of supply chain decarbonisation.

On the other hand, secondary data includes industry averages from databases such as GaBi and EcoInvent, or other literature studies found online. The GHG Protocol’s decision tree highlights the key challenge for companies to use supplier-specific methods: ensuring that the data is available and of sufficient quality to meet business goals.

While many companies can successfully screen emissions using industry-average databases, the challenge arises when suppliers with limited resources to provide data make up a significant portion of the inventory. The 80-20 rule states that 80% of scope 3 emissions come from 20% of suppliers, but in many cases, this 20% can amount to more than 50 suppliers, making it a daunting task to track emissions from each one.

Balancing Specificity and Accuracy

When collecting data from suppliers, a tradeoff between specificity and accuracy arises. While the data collected may be specific to the product or service purchased, its accuracy depends on the reliability of the supplier’s data sources and the granularity of the data collected.

To ensure the data collected is accurate, significant effort is needed to verify that the allocation method used by the supplier aligns with industry standards. There is a risk that the data may not reflect the true emissions of the supply chain and therefore, it is important to have a robust process in place to ensure data quality.

Scope 3 Emissions Decision Tree

To tackle the complexities of supplier data, GHG Protocol has provided a decision tree to guide companies in making effective decarbonisation decisions. The top priority in the decision tree is given to the supplier-specific method, as this ensures the emissions data is reliable and accurate, creating a positive impact on the brand image.

By following the steps outlined in the GHG Protocol decision tree, companies can ensure they are making informed decisions that accurately reflect the emissions of their supply chain and contribute to the goal of reducing their carbon footprint.

Protecting Confidentiality of Supplier Data

As companies collect more detailed supplier-specific data to calculate their Scope 3 emissions, confidentiality becomes a top concern. This information can reflect important business information and may be misused if not handled appropriately. However, with the right measures in place, companies can ensure the accessibility of supplier-specific data for accurate emissions calculation while protecting confidentiality.

Building trust with suppliers is key to overcoming these challenges. This can be achieved by signing legal contracts and aligning internal data usage policies with supplier interests. It’s also important to remember that as more companies seek supplier-specific data, your organization can also request a similar legal agreement when sharing data as a supplier.

Enabling Accurate Supplier-Specific Data with Technology

Corporate sustainability teams aim to focus their efforts where the return on investment is high, but collecting supplier-specific data for Scope 3 emissions calculation can be time-consuming and costly. That’s where technology comes in to simplify the process.

Carboledger technology can be the solution for companies looking for a way to increase the use of supplier-specific data for Scope 3 emissions calculation. It is specifically designed to help companies overcome the challenge of managing big data from suppliers. With its innovative approach, it enables companies to access accurate and verified data, while also ensuring confidentiality and data protection.

Carboledger offers a cost-effective and efficient solution for companies looking to increase the use of supplier-specific data for Scope 3 emissions calculation. With its innovative approach, companies can access accurate and verified data, reduce the time and cost burden of engaging with suppliers, and move towards a more data-driven approach to sustainability.

Engage a third-party verification body to independently assess the accuracy and credibility of the company’s Scope 3 emissions inventory, providing added assurance to customers and stakeholders. Product-level emissions can also be verified externally to enhance customer relationships.