The Transformation of the Sustainable Supply Chain.

The Role of Transportation Scope 3 Emissions in Sustainable Supply Chains

Excutive summary

• Supply chain itself can drive sustainable practices to develop efficiencies, minimise waste and reduce costs and emissions.
• An important aspect in supply chain management, particularly in South Africa, is the concept of sustainability.
   

For every company in Africa, moving towards a more sustainable future is no longer a ‘nice-to-have’. It’s an imperative. And as the continent, and the world, moves towards climate neutrality, businesses must change now.                 
                                    

The pressure’s on, as recent figures from EY show. Customers are demanding sustainability, with 84% of consumers considering sustainability important in purchasing decisions. It’s an imperative for investors too, with 72% taking sustainability goals into account.
 

The problem for many businesses is that there are numerous facets to sustainability - decarbonisation, sustainable sourcing and alternative materials usage, renewable energy, green technology, being able to trace and track where their raw materials come from, resource efficiency and circular economy thinking, adhering to the various regulations and incentives – and relatively scarce internal skills available to manage and monitor it.
 

And as businesses look to build greater sustainability and resilience into their operations, they quickly realise that tackling their own activities is not enough. Sure, they’re saving energy, and making their internal processes more sustainable. But where do they source their raw materials? How sustainable are their suppliers? How often do they include sustainability factors in supplier evaluation criteria? How do they package their products? How many emissions are generated in the process of those products reaching their end customers?
 

In sustainability jargon, this is called 'scope 3' emissions i.e. the carbon generating activity that takes place outside the company itself. Scope 3 covers the entire value chain, with all activities at both the supplier and customer ends, and usually accounts for more than 60% of a company’s footprint. It has been common practice for companies to report on their Scope 1 and 2 emissions i.e. the emission that are under the direct control of the company and that occur within the boundaries of the company’s facility but, this is not enough to achieve net-zero by 2050. In fact, it’s impossible to be climate neutral without taking scope 3 into account.
 

As a result, many enterprises focus the bulk of their sustainability efforts on the supply chain. And for good reason. In a recent CPO Survey conducted by EY, sustainability is a massive focus area, but this isn’t translating to clear actionable priorities. Implementing sustainable initiatives across the supply chain benefits both the business and society, by driving significant environmental and social impacts. It’s a place where ‘doing well and doing good’ coincide neatly.
 

Question is, how does a business link its corporate sustainability goals to its supply chain goals? There are numerous ways. Companies can create a direct sustainability impact through how they execute distribution, for example: from the type of vehicles used to the truck capacity achieved. There are also indirect benefits, such as the way a company sets its sourcing strategy. The level of transparency in a business’ upstream supply chain clearly influences supplier behaviours, like reducing carbon emissions and halting exploitative labour practices.
 

But where do businesses start on the journey of embedding sustainability in their supply chains? We suggest a three-step approach.
 

Measure the impact

A life cycle approach is required to effectively measure scope 3 emissions. Upstream emissions including raw material supply and logistics, as well as, downstream emissions including outgoing freight and end-of-life treatment of the goods, must be considered. Therefore, companies must be able to measure not only their own footprint, but also that of their entire supply chain, to establish a baseline. For this to happen, though, businesses need good data from their suppliers and distributors, which is not always available. As a result, in estimating their emissions, companies sometimes build in margins of error that would never be accepted in financial reports. Greater transparency and data-sharing is key.
 

Set priorities and take action

Then it's time to set priorities. If a business has measured its impact properly, these priorities will immediately become clear. If raw materials account for 80% of their footprint, for example, they know where to start. Which materials are critical, and are there alternatives available? And then, it’s important to translate these priorities into clear, actionable items. What are they going to do in the next 90 days, six months, 18 months? One-way companies can visualise and coordinate priorities is to develop a roadmap that includes initiatives such as reducing energy consumption and increasing process efficiencies, switching to alternative energy and fuels, and investing in R&D for developing green technologies.
 

Develop strategic relationships            

This then helps companies with their third step, which is developing strategic relationships within their supply chain ecosystem. Instead of simply imposing targets throughout the supply chain that must be met, the more sustainable approach is to partner strategically with suppliers or customers to achieve certain goals together; to think about how they develop products and reduce the impact across the entire supply chain. This approach can lead to dramatic changes in the way businesses operate.
 

While building resilience to disruptions like trade wars or a pandemic offers, companies have the unique opportunity to build sustainability and to innovate. We find that for many businesses, sustainability can be a driver for improving their future chances of survival.
 

And that’s probably the single biggest factor in the success of a company’s efforts to build sustainability into its supply chain and operations: the ability to recognise that sustainability is not a tick-box exercise, but a fundamental competitive advantage, and a major driver of transformation initiatives.