From Risk to Opportunity: Integrating Supply Chain Emissions Management into Financial Decision-Making 

In today’s world, where environmental sustainability is a key priority, companies face increasing pressure to reduce their carbon footprint and contribute to the global decarbonisation efforts.

 
One critical aspect of emissions reduction is managing supply chain emissions (scope three emissions), which can account for a significant portion of a company’s overall carbon footprint.   

Here, Mauro Cozzi, CEO at Emitwise, the leading scope three carbon management platform, explores the importance of integrating supply chain emissions management into financial decision-making and how companies can achieve sustainable growth as a result.  
 

The Significance of Supply Chain Emissions

 
Supply chain emissions represent a substantial portion of a company’s carbon footprint, often exceeding 70 percent and reaching up to 90 percent for companies operating in sectors such as manufacturing and retail.  

This reality underscores the need for businesses to prioritise emissions reductions in their supply chains to achieve their decarbonisation targets effectively. Companies committed to decarbonisation must engage suppliers at every stage of their sustainability journey to drive meaningful change.  

The integration of supply chain emissions management into financial decision-making is crucial for companies aiming to address the risks associated with climate change and transform them into opportunities for sustainable growth. Let’s explore the risks and opportunities that businesses must be aware of in the context of emissions management.  
 

Identify Risks and Opportunities

 
Regulatory Compliance 
 

• The landscape of environmental regulations is rapidly evolving, with governments implementing stricter emissions standards and reporting requirements. It is essential that companies identify potential compliance risks and ensure they meet the necessary regulatory obligations to avoid detrimental brand reputation. Hefty fines are likely only around the corner – so it is better for businesses to get ahead of the game.  

• The Corporate Sustainability Reporting Directive (CSRD) is soon set to make reporting on scope three emissions mandatory for thousands of companies in Europe.  

 
Reputation and Competitive Landscapes  
 

• In today’s environmentally conscious society, stakeholders, including customers, investors, and the general public, place great importance on a company’s sustainability performance. Failure to manage supply chain emissions effectively can result in reputational damage, leading to customer loss, negative publicity, and diminished brand value.  
• On the other hand, informed procurement decisions that use suppliers with strong environmental credentials reflect well on brands.   
• Taking a proactive approach to managing supply chain emissions can differentiate companies in the market. By demonstrating a commitment to sustainability, companies can attract environmentally conscious customers, investors, and business partners. This can lead to increased market share and enhanced competitiveness in a rapidly evolving business landscape.  

• Plus, sustainable procurement fosters a more resilient supply chain ecosystem. 

 
Innovation and Efficiency  
 

• Managing supply chain emissions often requires exploring innovative solutions and technologies. By integrating emissions data into financial decision-making, companies can identify opportunities for operational efficiencies, such as energy-saving measures, waste reduction, and process optimisation. These initiatives not only reduce emissions but also lead to cost savings and improved resource utilisation.  

 
Enhance Investor Confidence  
 

• Investors are increasingly demanding transparent and reliable information on companies’ environmental performance. Integrating supply chain emissions data into financial decision-making provides robust evidence of a company’s commitment to sustainability, ultimately enhancing investor confidence.  

Implementing Supply Chain Emissions Management

 
Having covered the why; when it comes to managing supply chain emissions, let’s now look at what businesses do to start the process.  

Companies must understand the alignment between their reduction goals and their suppliers’ ambitions. Companies must seek to obtain a comprehensive inventory of their scope one, two, and three emissions – and for this automation is the name of the game.  

Comprehensive supply chain data can be utilised by the C-suite, procurement, and sustainability  teams to make informed decarbonisation decisions  – empowering companies to proactively address supply chain emissions and collaborate with suppliers, driving meaningful change toward a sustainable future.  
 

Practical Steps and Guidance

 
Step one – understanding supplier climate ambitions and emissions data maturity  
 
To being the process, companies must first understand their suppliers’ climate ambitions and the current maturity of their emissions data, aligning them with their own sustainability goals. This step helps identify emissions hotspots at both the supplier and industry levels, enabling targeted and prioritised engagement with suppliers.  
 
Barriers to overcome: 
 
Accessing information – gathering the necessary data requires leveraging sustainability reports and data from reporting bodies. Adopting technology capable of efficiently scraping and formatting this information is essential for identifying critical hotspots.  
 
Step two – engaging material suppliers based on carbon-intensive spending  
 
Companies should prioritise engagement with their most material suppliers, those they have significant financial transactions with and who have high carbon-intensive operations. These suppliers are more likely to collaborate due to financial incentives and existing strong relationships, allowing companies to collect detailed data on emissions, reduction targets, and progress.  
 
Barriers to overcome: 
 
Time and resources – engaging multiple suppliers can be time-consuming, involving multiple stakeholders. Developing templates and formal escalation processes can streamline the engagement.  
 
Data management – managing the data collected from suppliers requires a structured system.  
 
Supplier fatigue – suppliers may grow weary of repeated requires for information. Simplifying the data-sharing process can encourage participation.  

Lack of supplier emission data – a signification portion of the supplier base may not have calculated their emissions. To speed things along, solutions for baseline calculations, as offered with Emitwise, should be offered.  
 
Step three – improving carbon accounting with supplier-specific emission factors 
 
Using the data gathered from suppliers, companies can enhance the accuracy of their carbon accounting. Quality-assured and audited data allows the calculation of supplier-specific emission factors, replacing industry-level ones in carbon accounting. Benchmarking suppliers against each other helps identify areas for scope three decarbonisation efforts and empowers procurement teams to incorporate emissions grading into supplier selection processes.  
 
Barriers to overcome: 
 
Ensuring data quality – supplier-provided data may not always be accurate; hence, a data quality assessment is necessary. Understanding the level of uncertainty in emissions factors is critical for increasing accuracy in carbon accounting.  

Defining goals – clear objectives must be established for using the supplier-specific data to develop collaborative decarbonisation programmes, benefitting participating suppliers.  
 

A Final Word

 
Integrating supply chain emissions management into financial decision-making helps companies address climate-related risks and capitalise on opportunities for sustainable growth. By identifying and mitigating risks, driving innovation, and enhancing competitiveness, companies can align their financial strategies with sustainability goals, contributing to a more sustainable future.  
 
For more information about Emitwise and managing supply chain emissions visit https://emitwise.com/