What does it mean to decarbonise the supply chain?
Decarbonising the supply chain means minimising carbon generation at every stage of the product and service level of the business’s value chain. Protecting the environment and ensuring the business’s climate commitment is essential to contributing to future net-zero carbon emissions. The environmental benefits of this process are significant, inspiring and motivating businesses to act.
What is the meaning of decarbonising for SMEs?
Decarbonising means reducing or eliminating carbon dioxide emissions associated with businesses and their operations. For SMEs (Small and Medium-sized Enterprises), this means adopting practices and technologies that minimise their carbon footprint. This can include energy efficiency improvements, investing in renewable energy sources, and changing to less carbon-intensive materials or processes.
The goal is to mitigate the effects of climate change while potentially reducing operational costs and meeting the growing consumer demand for environmentally responsible businesses. This presents a promising opportunity for SMEs to save costs and contribute to a sustainable future.
Why is supply chain decarbonising important for sustainable business practice?
Supply chains have a substantial environmental impact, with Scope 3 emissions occurring at every stage, from sourcing raw materials to manufacturing to distribution. A WRI study shows that in nearly two-thirds of all economic sectors, Scope 3 emissions represent more than 75% of their carbon emission footprint. In addition, as more consumers and enterprises prioritise sustainability, there is growing demand for low-carbon and carbon-neutral products. Decarbonising the supply chain allows businesses to meet this demand, gain a competitive edge, and ensure long-term resilience.
Supply chain decarbonisation can lead to cost savings and operational efficiencies for businesses. Businesses can lower operational costs and reduce environmental impact by optimising transportation, reducing waste, and adopting renewable energy sources. As is often the case than many realise, sustainable choices are frequently good business choices in traditional terms. Growing environmental concerns, sustainability legislation, and shifting consumer preferences exert significant pressure on businesses of all sizes to decarbonise their supply chain as an essential part of ensuring a sustainable future.
With the EU and governments worldwide formulating increasing legislation to reduce carbon emissions, businesses that proactively decarbonise their supply chains will be better positioned to comply with these regulations, avoiding potential fines and other penalties.
What are the challenges in decarbonising the supply chain?
Decarbonising the supply chain businesses may face challenges and complexities. The World Economic Forum’s study underscores the challenges of obtaining essential data, setting clear targets, and ensuring supplier compliance are hurdles for businesses. Complications arise from fragmented supplier networks, especially when emissions are deeply embedded. This often necessitates industry-wide collective action, underscoring the scale of the challenges. Businesses may face the following challenges to decarbonise the supply chain:
- Complexity in global supply scale: Global supply chains involve numerous stakeholders across different regions, making coordination tricky.
- Data issues: Limited transparency and inconsistent emissions data may hinder effective tracking and management.
- Technology and infrastructure: Many sectors need more technologies and infrastructure for decarbonisation.
- Cost involved: High upfront costs and potential competitive disadvantages can deter businesses from investing in low-carbon solutions.
- Regulatory uncertainty: Varying regulations and a lack of global standards create uncertainty for international operations.
- Supplier challenges: Smaller suppliers may need more resources or willingness to adopt decarbonisation measures.
- Market dynamics: Consumer demand and competitive pressures can slow the adoption of sustainable practices.
- Long payback: Decarbonisation often requires long-term investments, which can conflict with short-term financial goals.
- Cultural shift: A significant mindset change is needed within organisations to prioritise sustainability.
- Carbon leakage: There’s a risk that businesses may shift production to regions with weaker environmental regulations, undermining global efforts.
How can SMEs navigate the decarbonisation journey at the supply chain level?
In an era where environmental sustainability is more than a trend; it’s necessary, the journey towards decarbonising supply chains represents a significant challenge and opportunity for small and medium-sized enterprises (SMEs). As these businesses strive to align with global efforts to combat climate change, understanding the complexities of supply chain decarbonisation becomes paramount.
While daunting, this process offers SMEs a chance to innovate, improve efficiency, and enhance their market competitiveness. By understanding the steps involved and leveraging the right strategies, SMEs can embark on a transformative journey towards a greener, more sustainable future. Following these steps, businesses can enhance brand reputation, achieve long-term cost savings, and bolster resilience for sustainability in business operations.
- Understand the relevant legislation: Awareness and understanding of applicable local legislation (for example, CBAM of the EU) are crucial for SMEs within the supply chain to identify what they need to do to comply with relevant regulations.
- Understand and assess their emissions: SMEs must understand their carbon footprint and evaluate emissions across the supply chain, including sourcing, production, transportation, and distribution.
- Set clear goals: SMEs should set clear and achievable decarbonisation goals once the carbon footprint is assessed. These goals should be specific, measurable, and aligned with broader sustainability objectives and relevant legislation.
- Engaging and collaborating with suppliers: Partnership is critical in supply chain decarbonisation. SMEs should engage with their suppliers to understand their sustainability efforts and encourage them to reduce emissions. Collaborating with suppliers to establish net-zero supply chains would allow businesses to significantly increase their climate impact, drive emissions reductions in challenging sectors, and advance climate efforts in regions where they may be less of a priority.
- Optimising transportation and logistics: Transportation is a significant source of emissions in supply chains. SMEs can explore opportunities to optimise transportation routes, consolidate shipments, and switch to low-emission modes of transport, such as rail or sea freight. Additionally, investments in fuel-efficient or electric vehicles and adopting route optimisation software can further reduce emissions and transportation costs.
- Investing in emission calculation and data collection: It is essential to collect accurate data and calculate Scope 3 emissions appropriately and shareable. However, SMEs may lack the knowledge and resources to do this effectively. Therefore, investing in data collection and emission calculations may be necessary to educate existing staff, hire new people with appropriate expertise, and collaborate with service providers who can help with ESG data collection and emission calculations.
What are the benefits of decarbonising the supply chain for business?
There are many benefits to decarbonising the supply chains for businesses:
- Supply chain decarbonisation can lead to cost savings and business operational efficiencies.
- Businesses can lower operational costs and environmental impact by optimising transportation, reducing waste, and adopting renewable energy sources.
- Growing environmental concerns, sustainability legislation, and shifting consumer preferences exert significant pressure on businesses of all sizes to decarbonise their supply chain as an essential part of ensuring a sustainable future.
- With the EU and governments worldwide formulating increasing legislation to reduce carbon emissions, businesses that proactively decarbonise their supply chains will be better positioned to comply with these regulations, avoiding potential fines and other penalties.
