Scope 3 emissions: The competitive edge companies are missing

The terrible scenes in Southern California last month were only the latest proof that the climate crisis is intensifying, and the destruction it is causing is growing. Temperatures are rising and weather patterns are growing more extreme. Even affluent parts of the world are finding themselves unprepared for natural disasters caused by climate change-making the damages everyday more expensive as well as deadly.

Despite this, global leaders are pulling back. The recent years have seen significant political shifts across the Western world, driven by a cocktail of various factors. The result: leaders have deprioritised climate action, with some major economies delaying or diluting their net-zero targets and others nearly abandoning them. This issue, that by its universal nature should be the most bipartisan of all bipartisan issues, has been lumped in with a cluster of other views and policies and has therefore become a victim of my-side bias.

Businesses cannot afford to retreat to this issue. Corporate inaction on emissions, particularly Scope 3 emissions, which refer to value chain emissions and make up the lion’s share of a business’s emissions, comes at a steep cost: operational inefficiencies, lost productivity and higher energy costs, as well as increased cost of capital (versus green finance). In those jurisdictions that have stuck to their guns and implemented robust climate policies, companies that drag their feet will be subject to tough financial penalties, and the highest performing companies, in terms of emissions reduction, can have the lowest cost of capital, thanks to green finance.

It is because Scope 3 emissions are the most difficult to address that many businesses avoid tackling them. But they are also the biggest emissions category, and for that reason they must be dealt with. Even setting aside the climate imperative, they should be at the top of every business’s agenda, as they hold the greatest potential for impact and long-term savings.

Decarbonising supply chains – the largest part of the value chain – offers a myriad of benefits. First, it improves efficiency and reduces waste: mapping the supply chain highlights  ‘links’ where activities are wasteful, carbon is emitted unnecessarily and productivity is low when it could be high. It lowers the cost of materials as life-cycle analyses (LCAs) pinpoint opportunities to reduce waste and cut expenses throughout a product’s lifespan. A close work with suppliers on the identified areas of improvement has brought tremendous benefits to companies around the world. At Apple, supplier collaboration has saved over 2 billion kWh of electricity – and avoided nearly 1.7 million metric tons of carbon emissions.

Engaging suppliers on emissions also fosters stronger, more valuable partnerships. Suppliers aligned with a company’s climate goals become strategic allies, helping to give that company a competitive edge. Supplier development programmes, such as JAC’s Supplier Engagement Programme, which assesses and develops suppliers based on capability and maturity, helps suppliers  identify areas of improvement and create action plans, driving innovation in product design, reducing manufacturing cost and delivering enhanced product functionality.

As mentioned earlier on climate policy, while some jurisdictions mandate that companies decarbonise, others ask forfull sustainability disclosures. The EU’s Corporate Sustainability Reporting Directive (CSRD) requires eligible companies to be completely transparent with regard to their sustainability performance, and non-compliance brings legal and financial, as well as reputational, risks.

We can’t know yet how the new EU Omnibus Simplification Package will change current EU regulations, including the EU Taxonomy, Corporate Sustainability Reporting Directive, and the Corporate Sustainability Due Diligence Directive, but the EU’s plan is to make sustainability rules simpler – not weaker. A leaked copy of the European Commission’s Competitive Compass for the EU stated that the Commission would ‘aim to achieve the agreed policy objectives in the simplest, most targeted and least burdensome way’.

Businesses must act. Despite public commitments, FTSE 100 supply chain emissions rose by 62 million tonnes last year. That points to the scale of the challenge, but it also provides opportunities to businesses so inclined to take them. High-carbon supply chains are fragile and costly. Decarbonisation strengthens operations against climate risks and resource shortages. Companies that act now will not just stay compliant: they will save money, reduce waste, increase productivity, strengthen their reputation, and position themselves as leaders. Inaction, on the other hand, means falling behind. As the climate crisis grows in severity, climate policy will get tougher – and fines and legal penalties more serious.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.