Reducing value chain (Scope 3) emissions is one of the toughest challenges companies face on the road to net zero. Since these emissions occur outside the company’s direct operations, emission reduction work is tied to decisions, behaviors and ways of working that sit outside the company’s direct control, often with suppliers, customers or even the wider ecosystem.
While most larger companies are well aware of the source of their emissions, many struggle with finding the most effective levers to reach their Scope 3 targets. One way for organizations to better understand the tools at their disposal for reducing value chain emissions, is to start by breaking down the work into smaller decisions.
Breaking it down: what are we trying to achieve?
To begin with, let’s go back to the basics and underline what our Scope 3 is trying to influence: what are emissions made up of? For example, under the Scope 3 category of purchased goods and services (cat. 1), we know total emissions are the function of two decisions: a) the amount of goods or services the company uses, and b) the emission intensity (or carbon footprint) of those goods and services.
Now we can better analyze what actions will help tackle these emissions: either we reduce the amount of goods or services purchased and/or we purchase alternative, less emission intense goods and services, help the current supplier reduce their emissions, or buy from a different, less emission-intensive supplier. The actions we do take will likely be a blend of all of these, and prioritization will require considering how these actions fit in with other company goals.
Assemble the tools to achieve this work
Once we know the action we are aiming for, we can decide what tools will enable these actions.
For many manufacturing companies, reducing the amount of goods and services means finding ways to reduce product inputs. For this aim, product and materials RDI can help find ways to reduce material use, while circular and service-based business models can help reduce the overall amount of products produced.
Product and materials RDI can also help in finding new, less emission-intensive alternative materials to lower the emissions intensity of purchased goods. If alternative materials are not an option, supplier engagement will be a critical tool to lower emissions intensity of purchases.
Repeating this exercise throughout the company’s major emission categories will start to show patterns: the same tools can help reduce emissions from multiple sources. For the most common large emission categories - purchased goods and services, transportation and use of sold goods - some of the key tools that emerge are e.g. product and materials RDI, supplier engagement, circular and service-based business models, customer engagement on energy use, and aligning sales strategies with Scope 3 work.
Our toolbox is ready - how do we implement these tools?
Finally, we can focus on implementation. Having a state of the art toolbox with the latest hammers and drills will not amount to much without the right skills and people to put these tools to use. Organizing work around these tools may need to be approached on three levels:
Internal development: connecting Scope 3 decisions to the everyday work of functions across the organization.
Value chain collaboration: creating and enabling new low carbon solutions with e.g. industry peers, value chain partners, or universities and research institutes.
Venturing and venture clienting: creating new business relationships to source new low carbon solutions and capabilities.
Organizing for Scope 3 work will be an effort in itself, and requires the right buy-in, resources, engagement, incentives, skills and ways of working across internal and external stakeholders. Only then can the hard work of hammering through Scope 3 emission reductions effectively begin.
Scope 3 work is two-fold: concrete tools and meta level organizational efforts
As we have seen, breaking down the vague challenge of Scope 3 emission reductions into specific actions and decisions starts with four questions:
What makes up this category of emissions?
What are the actions we can take to reduce emissions?
What are the tools that can enable these actions?
How do we implement these tools?
While at first the level of granularity can seem redundant, starting with the right questions and building a structured approach can make Scope 3 work more tangible, strategic, and actionable. Taking a step back will help see the connection of this work to corporate strategy, the decisions of different functions, and which value chain partners are critical to success.
