Credit By: CNBC
As global companies, including Amazon, Microsoft, Walmart, and Apple, intensify their efforts to reduce carbon emissions, they are shifting the sustainability burden onto their suppliers. Starting in 2024, Amazon will mandate that its suppliers disclose emissions data, set emissions reduction goals, and report progress. This move reflects a broader trend where consumers, investors, regulators, and governments are increasingly demanding eco-friendly practices. This article explores the cascading effect of these mandates on suppliers and the challenges they face in meeting sustainability requirements.
The Emissions Accountability Cascade
Three Levels of Emissions:
Businesses typically monitor emissions at three levels: Scope 1, which comes directly from their operations; Scope 2, originating from purchased energy like electricity; and Scope 3, linked to indirect sources such as supplier emissions and emissions from customers using their products. On average, Scope 3 emissions account for about 75% of all emissions in major industries.
Companies have more control over their suppliers concerning indirect emissions compared to other areas. For example, while a consumer goods company can’t dictate how consumers use their products, they can choose to collaborate with eco-conscious suppliers. The supply chain is an area where transparency and pressure will continue to rise, as companies can directly influence it.
The Evolution of Decarbonization Mandates
Salesforce and AstraZeneca:
Companies like Salesforce now require suppliers to disclose all three levels of emissions and deliver products and services on a carbon-neutral basis. AstraZeneca expects its suppliers to report emissions data annually and establish science-based goals.
While Amazon doesn’t directly include suppliers in its Scope 3 accounting, it is increasingly engaging suppliers in emissions reporting and goal setting, in line with industry trends. Amazon emphasizes that their supply chain partners must make operational changes to decarbonize their businesses to further reduce emissions.
Challenges for Smaller Suppliers
Many third-party sellers and smaller suppliers, despite their environmental consciousness, face resource limitations in tracking and reporting emissions. While 80% of small and medium-sized business owners prioritize emissions reduction, 63% lack the necessary skills and 43% face funding challenges.
Data Collection and Recordkeeping:
Tracking emissions data is a complex task, often requiring significant resources. Small business owners encounter extensive documentation and reporting requirements, which can be time-consuming and expensive.
Pressure for Change
Focus on the Bottom Line:
Small businesses often prioritize economic stability, job retention, and profit margins over sustainability efforts. This preference is more pronounced amid concerns about a potential recession, increased interest rates, weaker consumer demand, and labor market challenges.
Despite the current priorities, both large and small suppliers will soon have to embrace sustainability requirements. The procurement arm of the business community is starting to scrutinize supply chains and pose more pointed questions, fueled by investor and political pressure.
As companies strive to reduce emissions, the onus is shifting onto their suppliers, especially smaller ones. The growing focus on sustainability, coupled with mandates for emissions disclosure and goal-setting, presents challenges for suppliers who may lack resources and expertise. Nevertheless, this shift toward greater sustainability is inevitable, and companies that want to retain high-quality suppliers are likely to offer assistance to help their partners meet these requirements. Ultimately, suppliers must make independent decisions regarding their approach to sustainability, and the conversation on compliance will become increasingly critical. The future of business sustainability is interconnected, and the supply chain is at the forefront of this evolution.
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