Forum Institutional

A six-step guide to decarbonizing your supply chain 

To mitigate the effects of climate change, decarbonizing your supply chain can be one of the most impactful measures.

To mitigate the effects of climate change, decarbonizing your supply chain can be one of the most impactful measures. Image: Royal Philips

Sophie Bechu
Chief Operations Officer, Royal Philips
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This article is part of: World Economic Forum Annual Meeting

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  • To mitigate climate change, decarbonizing your supply chain can be one of the most impactful measures.
  • It’s time that organizations start to proactively implement a strategy of decarbonizing their supply chain, as well as their own operations.
  • Here are six steps that can be taken by organizations that are committed to multiplying their own efforts and decarbonizing the supply chain through supplier engagement.

Most businesses, NGOs and governments are now taking steps to make their operations carbon-neutral − buying electricity from renewable sources, supplementing it with roof-top solar, installing intelligent lighting and heating systems to reduce energy consumption, and buying sufficient carbon credits or investing in green initiatives to offset remaining emissions. But there’s still a lot more that can be done to mitigate climate change, decarbonizing the supply chain being one of the most impactful.

Have you read?

Unless you’re an energy-intensive heavy-industry player such as a steel manufacturer, chances are that greenhouse gas emissions from your operations are only one part of the emissions generated as a whole.

To address this imbalance, it’s time that organizations start to proactively implement a strategy of decarbonizing their supply chain, as well as their own operations.

By employing effective strategies for decarbonizing their supply chains, organizations may potentially increase their savings.
By employing effective strategies for decarbonizing their supply chains, organizations may potentially increase their savings.

Six steps to decarbonizing a supply chain

There are six steps that can be taken by organizations that are committed to multiplying their own efforts and decarbonizing the supply chain through supplier engagement:

1. Connect suppliers to CDP, the international not-for-profit environmental impact assessment organization. CDP will be able to provide insights into suppliers’ climate action maturity, enabling organizations to set expectations for their commitment to science-based targets and measure progress toward achieving them.

2. Leverage these data-driven insights when selecting preferred suppliers. Collecting verified data from suppliers on their emissions and climate maturity, and through accurate data-driven insights, buyers can select suppliers based on their climate action maturity.

3. Actively build supplier capability. Leverage the expertise of partner organizations like CDP, SME Climate Hub, or the World Business Council for Sustainable Development, to support suppliers in maturing their company approach to climate action.

4. Take a look for yourself. Organizations and their suppliers are essentially operating in the same industry, so it’s often relatively easy to identify opportunities for decarbonization during an on-site assessment. By visiting a supplier production facility in China, for example, energy efficiency opportunities can be easily identified to make cost-effective carbon reductions.

5. Incentivize suppliers. As a minimum, give suppliers recognition for their carbon reductions to support their brand. Going beyond that, improved payment terms can be offered to suppliers that take concrete steps on climate action.

6. Advocate for climate action. Do everything to make decarbonization ‘the new normal’, not just across your industry or sector, but across the industry as a whole, and together with a partner network. For example, team up with your partners to harmonize sustainable public procurement practices and advocate sustainable public procurement processes.

Beyond direct supply chain involvement

Here are two other high-impact considerations to green the value chain:

1. Establish Virtual Power Purchase Agreements (VPPAs) with suppliers that jointly commit to not only purchase renewable energy, but also to support funding for new renewable energy projects such as wind farms and solar farms, helping to ‘green the grid’.

2. Embrace the circular economy and encourage suppliers to do the same. Not only because it’s a powerful strategy to mitigate today’s unsustainable rate of natural resource extraction, but also because it can improve a business’s bottom line by maximizing life-time value. In the US and the Netherlands, Philips is now delivering on its commitment to take back and refurbish and/or remanufacture medical equipment, and reuse parts and materials to give them a second life.

Make supply chain decarbonization a requirement

And here’s a final thought – Every supplier will have their own supply chain in which it is entirely possible that a significant impact multiplier applies. If you can stimulate suppliers to adopt the same guiding principles in decarbonizing their own supply chains, it’s not difficult to do the math and appreciate what the ripple effect could be.

So be bold − set goals, drive and report progress, and team up to ensure supply chain sustainability becomes a condition for running a successful enterprise.

With UN Secretary-General António Guterres rightly describing the latest IPCC Working Group 1 climate report as a ‘Code Red for Humanity’, decarbonizing supply chains is no longer optional. It’s a must.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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Forum InstitutionalSupply Chains and Transportation
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