Have you ever wondered where that eco-friendly product you love comes from? Or how your favorite brands are working behind the scenes to keep our planet green? A big part of this is supply chain sustainability. Major corporations are reducing their carbon footprints and pushing their suppliers to do the same.
Supply chain emissions, or Scope 3 emissions, often comprise the lion's share of a company’s carbon footprint and environmental impacts. Think of it as the hidden iceberg beneath the visible tip.
Addressing these emissions is crucial for any effective decarbonization strategy. Big names like Amazon, Ikea, and Patagonia are stepping up and setting rigorous standards for their supply chains. They’re not just talking the talk; they’re walking the walk — and dragging their suppliers along with them.
Where do Supply Chain Emissions Come From?
Supply chain emissions are often one of the largest components of a company’s overall emissions. A product passes several stages before reaching a customer, typically through third-party companies that source, manufacture, and transport its various components. These processes are part of a company’s supply chain and have associated sustainability impacts.
According to a Boston Consulting Group (BCG) and Carbon Disclosure Project (CDP) report in 2023, corporate supply chain emissions were 26 times greater than their direct Scope 1 and 2 emissions. Furthermore, consulting firm McKinsey found that supply chains account for 90% of a company’s impact on air, land, water, biodiversity, and geological resources.
This makes sense when you look at emissions rates for individual sectors, often core components of a product supply chain. The manufacturing and transportation sectors account for approximately 20% of global greenhouse gas emissions.
Cement and steel production are also important components of the construction supply chain, accounting for 8% and 11% of emissions, respectively. This is why green building certifications often target supply chain and embodied emissions in their certification standards.
Sustainable Supply Chains: Impact on Suppliers
When large corporations and entities commit to sustainability goals, their suppliers must also adopt sustainable practices to maintain business relationships. This ripple effect compels suppliers to innovate and reduce their carbon footprints, fostering a more sustainable supply chain ecosystem.
For instance, the U.S. government is taking action. While the SEC debated, but did not include Scope 3 in its recent ruling, the Federal Supplier Risk and Resilience Rule does. It introduced a rule requiring major federal suppliers to publicly disclose their greenhouse gas emissions. This is the first step of President Biden’s executive order calling for net-zero federal procurement by 2050. The federal government will use supplier emissions data to choose suppliers that can help them reach this decarbonization goal. Suppliers that fail to reduce their emissions may be overlooked for more sustainable competitors.
Companies Decarbonizing Their Supply Chains
Major corporations are also following the U.S. government's lead, prioritizing sustainability in their supply chains and setting benchmarks for others to follow. This is particularly relevant for the largest companies in the world, which have operations worldwide.
Amazon Supply Chain Sustainability
Amazon is the fifth-largest company and one of the world’s largest greenhouse gas emitters. It has offices in more than 30 countries. This includes the development of two highrise buildings in Nashville, Tennessee. These two buildings will provide office space for 5,000 employees and ground-floor retail space in the new Nashville Yards community. The project is designed with Amazon’s sustainability goals, including energy-efficient systems, sustainable materials, and green spaces.
This aligns with the company’s efforts to improve its supply chain sustainability, outlined in its regularly updated Supply Chain Standard. Suppliers are audited to ensure social and environmental standards are met. Issues identified during audits are flagged by severity, requiring immediate fixes or ongoing monitoring for gradual improvements. Also, Amazon recently announced it will require suppliers to disclose emissions data and develop emissions reduction goals starting in 2024.
Ikea Supply Chain Sustainability
Ikea has set a goal to be climate-positive by 2030, focusing on renewable energy and sustainable sourcing. Central to this effort is the IWAY program, Ikea’s required code of conduct for suppliers. The IWAY program mandates that suppliers adhere to strict environmental and social standards, including sustainable forestry, fair labor practices, and energy efficiency.
For example, 98% of the wood used in its products is Forest Stewardship Council-certified or recycled. This adheres to the IWAY Forestry Standard and ensures wood from suppliers comes from sustainably managed forests. Additionally, Ikea ensures suppliers adhere to IWAY by conducting supplier and sub-supplier audits. In 2023, Ikea conducted over 1,000 supplier audits. These efforts resulted in a 12.7% reduction in Scope 3 emissions from 2022 to 2023.
Patagonia Supply Chain Sustainability
Patagonia has long been a pioneer in sustainability, and its supply chain is a priority. Its supply chain accounts for 85% of its annual emissions, and it aims to have net-zero emissions across its supply chain by 2040.
This is governed by its Supply Chain Environmental Responsibility Program, which sets minimum mandatory environmental standards for its suppliers. Patagonia regularly audits suppliers to ensure compliance. Facilities that fail to meet the company’s standards are not approved to sell to the company.
This program has helped the company continually reduce its environmental impact and helped supplier facilities develop robust environmental systems that exceed legal requirements, such as wastewater and air emissions systems.
The Value of a Sustainable Supply Chain
Companies increasingly require their supply chains to adopt sustainable practices, impacting suppliers worldwide. These requirements drive innovation and decarbonization, helping to create a more sustainable business ecosystem. Suppliers must view sustainability as a long-term business strategy rather than just a compliance issue. It provides a competitive advantage that will grow in value as corporate and regulatory sustainability requirements increase in the coming decades.
At Emerald Built Environments, we understand how important sustainability is for suppliers and purchasers. We are sustainability consultants, and we use our deep knowledge of business sustainability to assist companies in achieving their sustainability goals and capitalizing on the competitive advantage sustainability offers. Learn how we can help your business drive sustainability throughout its operations.
