Leveraging technology to manage supply chain emission data

Companies face widespread difficulties to measure and manage Scope 3 emissions. Inefficiencies in data collection and reporting processes mobilize the same resources that could be deployed to decarbonization efforts. With the support of Vinnova’s Digitala Stambanan project, Combient Pure has conducted a study to explore the challenges and opportunities for better upstream emission data management in large industrial companies. The study is based on our interviews with 21 experts representing the procurement and sustainability functions of 15 companies from the Combient network.

Read our summary of the findings and download the full report below!

Diverse approaches for measuring upstream data

There is significant variance in how the Combient companies interviewed measure their upstream emissions: 

9 out of 15 companies base the calculations of their upstream emissions only on secondary emission factors, that is averages based on databases and other statistical generalizations, collected from public or proprietary sources. Some companies based their calculations solely on their spending per supplier or category, others opted to a various extent for activity-based calculations, where the unit of measurement is not a euro or a SEK but a kg of steel or a liter of fuel. These activity-based approaches are more accurate and specific, but also more expensive and complex to implement.

6 out 15 companies base their calculations at least partly on data collected from their suppliers. That may mean asking questions about their use of decarbonized electricity or of recycled metals, in order to apply more specific emission factors, or requesting the product footprint of the goods purchased from them. It is quite hard to reflect reductions in upstream Scope 3 emission reports without collecting and incorporating data from suppliers, so this was seen as a key measure of maturity in the approach to carbon calculations. The most mature organization collects not only data from their direct suppliers, but also from tier 2 or even tier 3 suppliers, where the real emission hotspots may lie. 

Why these differences in maturity? At least four factors may explain these disparities: 

  • Share of upstream emissions in total reported Scope 3 : companies where upstream is less than 30% of reported scope 3 emissions are less likely to engage with suppliers. 

  • Position in value chains: Part manufacturers purchasing raw materials are more likely to access good quality data than companies further down the value chain.

  • SBTi commitments and regulation: SBTi targets, CSRD and CBAM have pushed companies to direct attention to upstream emissions and include them in targets 

  • Business goals for upstream calculations: When companies are primarily calculating Scope 3 emissions for reporting purposes or for detecting emission hotspots, spend-based methods may be sufficient

Companies engaging with suppliers said it allowed them to capture reductions in emissions happening in their supply chains when they report their own Scope 3 emissions, while some companies who don’t realize they probably overestimated their carbon footprint. But engaging with suppliers is not trivial, as most suppliers lack accurate data, and the required validation of this data was seen as a daunting task.

Poor data and limited budgets

Most companies struggle with the availability and quality of their own internal data (missing weight information from procurement systems, sparsely populated bills of materials). Obtaining useful data from suppliers is also a common challenge, be it because suppliers don’t have data in the first place, because their data is wrong or unclear, or because they are reluctant to share it. 

Many companies reported organizational friction, with a lack of incentives to improve data quality or processes and a high degree of decentralization within their organizations that sometimes gets in the way of change management. 

The lack of resources was pointed out by most industrial companies interviewed, with too few employees performing too many manual tasks and too limited budgets to automate processes through in-house development or the adoption of third-party tools. 

Little appetite for third-party tools 

The adoption of third-party tools is quite limited, as two-thirds of the companies interviewed calculate their upstream Scope 3 emissions with tools developed in-house. This common denominator covers widely different realities though, from a collection of excels updated manually to fully automated processes built on databases, connected to data lakes and linked to BI reporting. 

It was noted that companies with a majority of downstream emissions are much less likely to use a third-party tool, due to software providers generally focusing more on upstream emissions. Besides, downstream emission calculations typically involve sales or delivery data, oftentimes deemed too confidential to be exported to a service provider. 

Some respondents explained the preference for in-house development by cultural reasons, such as a higher desire of control over the calculation process or a strong decentralization that make it harder to enforce the use of third-party tools across the organization. 

A significant number of respondents would have preferred using third-party tools, but they had not found suitable tools on the market or they did not have the budget to implement them - especially if that involved integrating to dozens of source systems. 

Embracing technology

Emission numbers that companies report, as well as the analyses and decisions that follow, will get increasingly scrutinized by clients, investors and regulators. As a result, emission data has to become as accurate, trustworthy, timely and auditable as financial data. This requires turning sustainability into a horizontal business challenge, with investments in people, increased collaboration between sustainability and procurement and the training and incentivization of all functions involved in collecting emission data. 

It is not only a matter of headcount however, and no Combient company should run their carbon accounting on a few spreadsheets. The carbon accounting market has been developing very quickly in recent years - if you have explored the market a few years ago, look again. The study provides a brief overview of the market and suggestions of selection criteria. When full carbon accounting platforms are not an option, third-parties can help with specific time-consuming sub-processes such as supplier engagement or emission factor matching. In any case, companies should strive to eliminate manual data entry and data manipulation in spreadsheets.

AI can help there too, in a first approach through simple, well-defined use cases such as first-level supplier data validation, anomaly detection or enrichment of internal data by a model train with relevant assets. Emission factor discovery or emission factor matching are also potential applications of AI. 

Engaging suppliers 

Circling back to the level of maturity of emission calculations: companies should start collecting emission data from their suppliers, piloting with small supplier cohorts. The right suppliers should be selected after a segmentation based on quantitative factors such as emissions materiality and spend to revenue ratio, but also qualitative attributes such as strategic importance and willingness to decarbonize. 

A small scale supplier engagement program should be built in a supplier-centric manner, that is in a way that minimizes the cost of data sharing for all parties. You will not be the only one requesting this data. Help suppliers build a business case for investing in collecting and measuring carbon data themselves and provide them something in return: financial rewards, benchmarks, co-branding opportunities or support in setting SBTi targets. 

It will get easier

Most companies interviewed have been developing their carbon accounting for a very short time, so accurate data will naturally get more readily available in the years to come. Data improvements will start at the beginning of value chains and propagate further up, a movement amplified by upcoming regulation such as CSRD and CBAM. A little bit further down the line, digital product passports will probably lead to public databases for primary carbon data.

Read the full report here!

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