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To effectively address climate change, companies must look beyond their own operations and reduce emissions throughout their entire value chain. This includes eliminating emissions from their suppliers and how their products are used by customers.
However, a major challenge lies in the fact that companies lack direct control over their suppliers’ operations. Smaller suppliers often have fewer incentives to take action. To bridge this gap, some of the world’s largest companies are taking initiative by providing their smaller suppliers with the necessary tools and resources to decarbonize. As governments begin requiring companies to address their value chain emissions, known as scope 3 emissions, more companies will need to tackle this challenge. For those not already engaged, it’s crucial to pay attention to the programs paving the way.
In July, Amazon launched a program called “Sustainability Exchange” to empower suppliers with the means to measure and reduce their emissions. In September, a consortium of major automakers, including Ford Motor Company and General Motors, announced a partnership with the consulting arm of Edison International to assist suppliers in adopting renewable energy. Additionally, since 2021, Walmart has collaborated with HSBC to offer suppliers favorable financing options for decarbonization initiatives.
Schneider Electric, a French digital automation and energy management firm, has built a business around decarbonizing supply chains. Schneider has partnered with large companies like Walmart to collaborate with their suppliers. In 2021, the company introduced a sector-specific program targeting the pharmaceutical industry—the first aimed at decarbonizing an entire industry. This initiative, which has expanded to encompass mining and semiconductors, includes educational programs alongside concrete decarbonization product offerings. Major companies encourage their suppliers to participate and provide financial support. Currently, the company is actively working with over 2,200 suppliers. “They’re hearing from their customers, that gets them to the table and to participate,” says John Powers, vice president of global cleantech and renewables at Schneider Electric.
Underlying these efforts is the fundamental truth that value chain pollution accounts for the majority of emissions for companies in most sectors. An analysis from the Carbon Disclosure Project revealed that, on average, scope 3 emissions constitute 75% of corporate emissions. In certain industries, such as agricultural commodities or financial services, scope three emissions represent .
However, suppliers may not have the capacity—or even the desire—to make the same bold commitments as the larger companies that purchase their products. Suppliers are inherently smaller firms, they tend to have less cash available, and they often operate with smaller profit margins. Perhaps most importantly, these companies frequently lack the technical expertise in measuring and ultimately reducing emissions.
Conversely, many of their corporate customers have deeper financial resources—and are facing investor, consumer, and regulatory pressure to decarbonize. For instance, thousands of multinational American companies will soon be required to comply with the European Union’s , which includes comprehensive scope three requirements.
Supplier climate programs can take various forms, but they all begin by assisting companies in understanding the fundamentals of climate, clean energy, and decarbonization. Amazon shares case studies and playbooks. Schneider offers suppliers a series of webinars with different languages and specifications for different geographies. These efforts have begun to yield results. In September, companies within Schneider’s pharmaceutical supplier coalition announced that they had collaborated on a joint renewable electricity purchase, one of seven cohorts formed by the company to acquire clean power. Earlier this year, Walmart reported that its Project Gigaton had achieved its goal of assisting suppliers in avoiding 1 gigaton of emissions six years ahead of schedule.
These programs are destined to become increasingly significant over time. For one, the alternative approach to addressing scope three emissions involves engaging in offsetting—schemes where companies pay to reduce carbon elsewhere, often but not always, by preserving nature. Climate advocates and regulators have viewed offsetting with in recent years, and supplier engagement offers an alternative.
Furthermore, there’s a possibility that some large companies will transition from simply encouraging their suppliers to decarbonize to actually mandating it. “Most of our sponsors have been using the carrot approach to date,” says Powers. “But some are looking at these 2030 goals, which is right around the corner, and saying maybe we need to use more of a stick.”
Amidst political uncertainty, and concerns that momentum on climate policy may be stalled, the consistent push to decarbonize serves as a reassuring reminder that climate action is ongoing.