Supply Chain Scrutiny Drives Need for More Accurate Data

As the greening of the supply chain becomes even more sophisticated, media, consumers, shareholders and governments are increasingly pressuring organizations to actively measure and lower their carbon footprint. As a result, businesses are not only looking to reduce their own carbon footprint, they are examining the green credentials of existing and potential suppliers.

There is no disputing that managing supply chain emissions is critical to effectively addressing climate change. The Carbon Disclosure Project's (CDP) 2011 Supply Chain Report noted that more than 50 percent of an average corporation's carbon emissions are outside of its four walls. Requiring transparency in the supply chain is necessary to fully understanding a company's carbon footprint.

Many suppliers, however, are ill-equipped to identify, track and manage their emissions. Even manufacturers who are able to measure and report emissions still face challenges, especially when it comes to ensuring data accuracy. Suppliers often report a level of uncertainty in their emissions reporting due to gaps in data and measurement constraints. Several organizations, most notably the CDP, are working to address reporting and data accuracy hurdles by introducing standardized reporting processes and integrating data collection and verification services.

The CDP Supply Chain Program offers companies and their suppliers a practical scoring system, enabling industry benchmarking and removing existing complexities related to supplier carbon data collection. The CDP scoring project, established in 2008, is designed to give organizations an opportunity to explain their sustainability performance to supply chain members across a broad range of areas, such as strategy, governance and greenhouse gas (GHG) emissions management.

More than 50 brands, including Vodafone, PepsiCo and Walmart, participate in CDP Supply Chain today. For CDP Supply Chain members, the benefits of supplier scoring include a comparable metric for them to analyze and prioritize risk in their supply chain. In addition, it provides companies and suppliers the ability to highlight areas for improvement and share best practices among other suppliers and customers. According to the CDP's 2011 Supply Chain Report, the emissions of about 2,500 of the largest global corporations account for roughly 20-25 percent of the world's GHG emissions.

CDP members, and other organizations, are challenging their suppliers to establish emissions targets and measure on a quantitative basis, driving the need for accurate and reportable data. These organizations are developing scorecards, through the CDP or on their own, to manage supplier commitment. Companies should focus on key performance indicators (KPIs), such as reduction targets and progress and engagement with their own suppliers.

According to the CDP's 2011 Supply Chain Report, 80 percent of suppliers now report on Scopes 1 and 2 emissions. However, Scope 3 emissions still remain a challenge for most companies due to the lack of a reporting standard and the amount of resources required to collect and aggregate the data. Currently, only a third of suppliers in the CDP Supply Chain program engage with their own suppliers.

To fully understand the emissions associated with a company's goods, the expended energy across the supply chain must be identified. This extends from the item being manufactured to the energy used to get the product to its destination. The energy expended by internal facilities is the easiest to collect. As CDP Supply Chain members know, it can be difficult to gather emissions data from external suppliers. Companies must provide guidance on what is needed and should also encourage suppliers to work with their own suppliers to gather Scope 3 emissions data.

Companies also need to understand what they are shipping, where they are shipping it from and where it has traveled before arriving at its final destination. Energy is expended in goods organizations receive from a specific supplier and from commodities. Where it originates can often be difficult to determine depending on regional regulatory requirements. When developing a strategic plan about the emission sources you need to collect, it must include the places you receive supplies from.

FirstCarbon Solutions partnered with the CDP for its Supply Chain program and tasked with filtering through data to score nearly 1,300 suppliers of participating brands within the CDP. The goal of the project is to provide tangible insights, so participating brands can accurately assess which suppliers are performing well on carbon reduction, and which have work to do.

Although there has been significant improvement in supplier awareness and pressure, suppliers still need to do more in order to meet global requirements for carbon reduction. Organizations must find the balance between establishing minimum sustainability criteria and placing real press on suppliers. There is also the need for improved baseline data accuracy. Participating in CDP makes companies aware of their data gaps and defines carbon emissions.

Carbon reporting across the supply chain will continue to grow -- and in some cases will be expected. The time has come for organizations to prepare themselves and their suppliers with the right systems and processes to meet this challenge.