Reducing Carbon Emissions for a Sustainable Supply Chain

Climate change is an existential threat to our way of life, with carbon dioxide emissions being the biggest contributor to a warming planet. Global supply chains produce large amounts of carbon—from CO2 created during manufacturing, through fossil fuels burned in transportation, to emissions from storage and distribution.

Governments and major corporations are taking notice. We’re seeing an increasing focus on legislation and enforcement, and major commitments from industry leaders to significantly reduce greenhouse gasses. Consumers are paying attention too. Activists are highlighting businesses and sectors contributing to climate change and encouraging consumers to boycott the worst offenders—customers are figuring environmental impact into their purchasing decisions.

As a business that relies on the supply chain, you need a strategy to deal with carbon emissions. From tracking the size of your carbon footprint to reducing the impact, taking action now is critical. We’ll briefly cover the overall impact of climate change, then focus on CO2 in the supply chain, laws and corporate commitments, and what you can do to sniff out and reduce your own carbon footprint.

It’s time to up your Green Supply Chain Management (GCSM) game.

Why the World Needs to Reduce CO2 Now

The carbon cycle has existed for millions of years, with life on earth naturally producing and absorbing CO2. Unfortunately, we started to tip the scales in the industrial revolution—burning fossil fuels that pump CO2 into the atmosphere faster than it can be recaptured. This increase in greenhouse gasses results in higher temperatures that have knock-on impacts—extreme weather, loss of productive land, climate refugees, increased economic disruption, and many other issues.

The last time carbon emissions were as high as they are now was over 3 million years ago when the world was several degrees warmer. Scientists know that back then this was due to increased volcanic and other activities and that now it’s due to human causes.

Although 2020 saw lower overall carbon emissions due to reduced demand caused by the pandemic, the overall, long-term trend shows we still need to do more. As a species, we must take action, and businesses need to lead in reducing CO2 output and the carbon footprint.

The Impact of CO2 Emissions on the Supply Chain

“The typical consumer company’s supply chain creates far greater social and environmental costs than its own operations, accounting for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources.” — McKinsey: Starting at the source: Sustainability in supply chains.

Supply chains aren’t just contributors to the carbon footprint of sourcing, manufacturing, and distributing products, they’re the main cause. According to a McKinsey report on consumer packaged goods (CPG) companies, more than 80 percent of the overall emissions come from getting a product from the source to the end customer as part of the supply chain.  

To meet climate targets, CPG supply chains must:

• Reduce emissions from 32 gigatons of CO2 to 15 gigatons over the next 30 years.
• Reduce emissions by 92 percent when measured against revenue.

Although CPG businesses will likely be impacted the most, the overall supply chain industry must also step up:

• Supply chain emissions are 5.5 times higher than a corporation’s direct emissions.
• Suppliers believe that CO2 and climate change risks could have a financial impact of more than $900 billion.

Data shows that the majority of CO2 emissions overall comes from:

• Electricity and heat (31 percent)
• Transportation (15 percent)
• Manufacturing (12 percent)
• Agriculture (11 percent)

The need to substantially reduce emissions is being driven by legislation and wanting to keep up in a competitive marketplace.

Laws, Conventions, and Agreements to Limit Carbon Emissions

There are multiple agreements and pieces of legislation around the world aimed at limiting CO2 production. Some of the main ones include:

• The Paris Climate Agreement that aims to significantly reduce CO2 emissions to limit global temperature increases to between 1.5 and 2 degrees Celsius.
• The European Green Deal aiming to make Europe carbon-neutral by 2050.
• DEFRA introducing carbon conversion factors in the UK for emissions.
• Global Reporting Initiative (GRI) standards, especially GRI 305: Emissions which sets a framework around reporting on sustainability. 
• Environmental Protection Agency (EPA) standards including cars and trucks and aircraft. 

We’ll also see new legislation come into effect, from individual states in the U.S. to new laws in China and standards in other parts of the world. Whether it’s a carbon tax, cap, and trade, or other methods, the need to reduce greenhouse gasses is a major driver for a new policy.

Corporate Commitments to Reducing The Carbon Footprint

Industry leaders recognize that carbon emissions and climate change aren’t just bad for the planet, they’re bad for business. With consumer perspectives evolving, and climate change regulations in place, more and more industry leaders are committing to reducing their emissions.

• The Ford Motor Company has already reduced its carbon emissions per car by 30 percent.
• Coca Cola will reduce its emissions by 25 percent by 2025.
• Amazon will be carbon neutral by 2040.
• Walmart will have zero emissions by 2040.
• Apple commits to be 100 percent carbon neutral for its supply chain and products by 2030.
• Microsoft will be carbon negative by 2030. 
• Toyota will remove carbon emissions from its operations and supply chains by 2050.

Forbes has an extensive list of other companies and countries making commitments to reduce carbon emissions even further. 

This makes sense, as reducing the carbon footprint provides a competitive and marketplace advantage in several ways:

• Avoids fines associated with excessive carbon emissions in the supply chain.
• Reduces potential carbon taxes based on how much CO2 is produced.
• Enhances brands in the eyes of sustainably-minded consumers.
• Leads to efficiencies elsewhere in the supply chain.
• This means you can market your brand as being environmentally-conscious.

How You Can Reduce Your Supply Chain Carbon Footprint and Emissions

“More than three-quarters of the greenhouse gas (GHG) emissions associated with many industry sectors come from their supply chains. For that reason, a growing number of leading companies

are engaging their suppliers in managing GHG emissions. Over the past few years, these companies have incorporated systems for reducing GHG emissions into their own business practices and are now seeking ways to drive down emissions beyond their own operations.” — Environmental Protection Agency: Managing Supply Chain Greenhouse Gas Emissions. 

Wherever you’re positioned in the supply chain, there are actions you can take now to understand your carbon footprint and bring it down:

1. Understand the end-to-end supply chains that you’re involved with.
2. Identify the sources of carbon emissions in your supply chain.
3. Track and analyze how much carbon your upstream and downstream partners are creating.
4. Explore ways to reduce your own carbon footprint.

Understand the End-To-End Supply Chains That You’re Involved With 

Whether you’re a supplier, manufacturer, logistics provider, retailer, or brand, you’re involved in multiple complex supply chains. If you’re serious about reducing your CO2 emissions, you need to get the greatest amount of reduction in carbon for your investments in clean and renewable approaches.

This means mapping out your place in the supply chain, so you can make centralized changes that can apply across multiple networks. Identity your upstream and downstream partners, including the various handoffs and use this as a starting point.

Identify the Main Sources of Carbon Emissions in Your Supply Chain

Now that you understand your position in the supply chain, you need to figure out where the highest carbon emissions are coming from. Conduct an environmental audit of the supply chain, starting with how your business operates and moving on to your partners and the end-to-end network. This will help you identify key sources of CO2, which might include:

• Electricity and fossil fuels involved in extracting raw materials.
• CO2 emitted as part of the manufacturing process.
• Burning fossil fuels for transportation by land, sea, or air.
• Carbon footprints generated by storage facilities and distributors.
• Packaging of goods for onward distribution.

Track and Analyze Supply Chain Carbon Emissions

Once you know the biggest emissions contributors, you will need to measure and track the data. Establish ways to understand how much CO2 is being produced. This might be through well-educated estimates, or much more accurate – through active monitoring.

You can then store this emissions data in a centralized platform, allowing you to analyze improvements and changes over time, including detailed data analysis. In particular, you’ll want to look for:

• How your specific organization and its supply chain are creating or reducing carbon emissions.
• Trends outside normal ups and downs in the cycle, which might be caused by many areas such as partners making their own climate change commitments (reduction) or faulty equipment (increases).
• Opportunities to make investments to reduce CO2 production.
• Ways to report on carbon emissions and influence stakeholders in your organization.

Explore Ways to Reduce Your Own Carbon Footprint

Of course, carbon reduction efforts need to start within your own business. Although controlling carbon emissions will vary widely by your business niche, some areas to consider include:

• Electrifying vehicles to move away from burning fossil fuels for transportation.
• Buying electricity from renewable energy sources.
• Breaking down manufacturing, logistics, and other operations into their component parts.
• Examining and analyzing each part for its impact on your CO2 emissions and putting projects in place to reduce where practical.
• Investing in more efficient equipment and processes, including carbon capture and sequestration technology.
• Buying carbon offsets and working with partners in the supply chain to help drive them to minimize emissions.

Reducing emissions in your own business is an excellent starting point, but you can also use your examples to influence upstream and downstream supply chain partners. We found this paper from the Environmental Protection Agency to provide a solid and comprehensive approach to persuading suppliers to be very useful.

Ultimately, tracking and analyzing your own carbon emissions data, and taking solid steps to reduce your carbon footprint are critical. Not only will you meet regulations, but you’ll also position your business to compete better, enhance your reputation with consumers, and can act as a leader in your space.

Topo allows you to capture all of your supply chain information in one place, making it easy to track, analyse, and report on the things that matter.