Reducing Scope 3 Emissions is Key to Industrial Decarbonization
Industrial decarbonization is the phasing out of GHG emissions from industry without jeopardizing the sector’s essential contributions to overall economic prosperity and competitiveness. The reduction of greenhouse gas (GHG) emissions from manufacturing and its associated supply chain network begins with gaining an understanding of the emissions generated within the operations and across the value chain.
The Greenhouse Gas Protocol, a publication that sets international corporate standards for accounting for GHG emissions, breaks down a company’s total emissions into three scopes:
Scope 3 emissions may account for 80% of a company’s overall climate impact according to research by McKinsey. This scope covers emissions from upstream and downstream activities, including leased assets, investments and franchises that would otherwise be excluded from the company’s organizational boundary but that the company partially or wholly owns or controls. Thus, individual companies looking to report their overall emissions should ensure that an evaluation of their value chain’s footprint is included.
The Greenhouse Gas (GHG) Protocol standard divides scope 3 emissions into upstream and downstream emissions:
Scope 3 emissions, also known as value chain emissions, are indirect GHG emissions both upstream and downstream outside of a company’s scope 1 and 2 boundary. There are 15 different categories of scope 3 emissions — from the goods a company purchases to the disposal of the products it sells — but not every category may be applicable to all organizations. These often represent the majority of an organization’s total GHG emissions; it therefore presents manufacturers with the biggest opportunity to reduce their carbon footprint.
One of the highest impact areas is around reducing category one — purchased goods and services — as it includes emissions not otherwise included in the other categories of upstream scope 3 emissions. A reduction in this category is an important piece of Jabil’s overall strategy for reducing its value chain emissions. Jabil plans to set a specific scope 3 GHG reduction target after completing the mapping of its applicable scope 3 inventory. Jabil has set targets, in line with the scientific community’s recommendations for limiting global warming to 1.5 degrees Celsius, of reducing its scope 1 and 2 GHG emissions by 25% by 2025 and 50% by 2030, as outlined in our Climate Action strategy and 2021 Sustainability Report.
By collaborating with their suppliers, manufacturers can decrease their own carbon footprint while helping their supply chain partners achieve their climate action ambitions.
There are additional business drivers for a company to implement a decarbonization plan. A growing number of investors and customers are demanding that companies have a roadmap for achieving carbon neutrality as a condition for doing business. Many potential employees prefer to work for a company that are socially and environmentally responsible. There are also emerging legal requirements around greenhouse gas emission disclosures and mitigation. Companies with a well-developed strategy will be prepared to meet these requirements.
Strategies for Decarbonizing Manufacturing Through the Reduction of Scope 3 GHG Emissions
With the boundary of scope 3 GHG emissions including supply chain partners, product lifetime emissions and delivery to customers, consider these strategies — developed and implemented throughout our organization by Jabil’s ESG leaders — for reducing emissions:
1. Self-Assessment and Boundary-Setting: Accounting for GHG Emissions
Once you have sufficient data about your company’s impact on greenhouse gas emissions, you can begin to assess where you currently stand and prioritize where you need to go to decarbonize at an appropriate pace.
This self-assessment is one of the most crucial milestones for supply chain partners that lack maturity in carbon accounting. After all, you can’t set a goal to reduce your future emissions if you don’t have a precise calculation of your current emissions.
Many manufacturers face the initial hurdle of accurately calculating their carbon footprint. This process requires collaborating effectively with supply chain partners, customers, employees, and other stakeholders. After assessing your own emissions and engaging your vendors to understand theirs, you can use this clearer picture of your scope 3 emissions to begin the process of developing reduction strategies.
The collection of the data necessary to make this calculation requires a robust information system. Once an organization gains visibility into all of the data sources needed to compile the scope 3 emissions plan, automating the collection process through systems integration will speed up collection, improve data capture accuracy and provide a central repository for reporting and compliance activities. Connecting these measurements from end to end is crucial to obtaining a true picture of where your organization is and your suppliers are in your sustainability journeys. It is also key to real-time decision-making, which enables supply chain and logistics organizations to make more sustainable choices that help reduce GHG emissions.
2. Using Software Systems and Data Management to Enable Decarbonization
To begin accounting for scope 3 GHG emissions, manufacturers need to create a digital foundation for data management and system optimization. This digital foundation allows the organization to provide consistent data to their partners within the supply chain and unburdens employees from entering manual data, eliminating the risk of errors in inputs. It also enables real-time comparisons, like deciding the most fuel-efficient delivery routes for shipping, which affects both upstream and downstream emissions.
Creating a digital foundation enables accuracy in:
Setting organizational boundaries
Accounting for upstream and downstream emissions
Modeling efficient supply chain routes
Improving product design
The process of decarbonization with supply chain partners
Once software systems are optimized and data management practices are in place, the process of supply chain optimization can begin. By optimizing supply chain planning and design, you are simultaneously working toward supply chain decarbonization.
Supply chain planning includes day-to-day decision-making about logistics, procurement, transportation and warehousing. Accurate and timely data make supply chain planning decisions more impactful, so it is crucial to make sure the digital foundation is built into the supply chain design.
Supply chain design takes a more comprehensive look at the organization’s entire digital network. Analyzing an end-to-end, quantitative snapshot of the company’s supply chain process helps leadership make the best decisions for the supply chain in the long term. By building sustainability into your supply chain equation, the system can provide a more holistic overview of the true cost of a product’s value chain — beyond the financial investment. A digital supply chain platform, like InControl, also allows for forecasting and modeling possible future scenarios, making supply chain planning more effective day-to-day. This provides the best opportunity for the organization to decarbonize the supply chain using data and other inputs from their software systems.
3. Collaborating with Supply Chain Partners to Decarbonize Manufacturing
Since indirect GHG emissions account for the majority of manufacturers’ climate impact, collaboration with supply chain partners is a key component of any decarbonization strategy.
“With supply-chain emissions on average 11.4 times higher than operational emissions,” Harvard Business Review notes, “large corporations cannot reach their net-zero goals without the action of their small- and medium-sized enterprise (SME) suppliers.”
Working with suppliers to help find a more energy-efficient way to transport goods or materials is a great strategy to address scope 3 emissions. It also has the added benefit of improving supply chain resilience, which strengthens a company’s ability to navigate unexpected supply chain disruptions with its existing capabilities.
Here are five ways in which supply chain partners can collaborate to cut emissions in a product’s value chain:
Identifying the most greenhouse gas-intensive operations and replacing the equipment drawing the most energy.
Developing power purchase agreements to make sure that power is coming from renewable energy and not from fossil fuels.
Collaborating where suppliers are under developed in the area of sustainability, provide coaching and guidance to them on how they can get started on a journey to reducing their own GHG emissions.
Working with suppliers to help find a more energy-efficient way to transport goods or materials.
Installing building management systems that can monitor power usage throughout a worksite and help keep it optimized.
Sustainability can even be baked in from the very beginning of a product’s lifecycle with the proper decisions by both manufacturers and suppliers.
4. Addressing Product Lifecycles as a Decarbonization Pathway
A company is responsible for the GHG emissions created by its products during their lifetime, so product design is a crucial aspect of decarbonization.
For example, if you are an automobile manufacturer, you are responsible for the emissions of your vehicles over 10 years, including fuel economy and corporate average emissions. You are also responsible for the end-of-life treatment of sold products, so creating recyclable and reusable products are also ways to reduce your scope 3 emissions. Easing the burden on raw materials during the production process is also a way to reduce emissions.
McKinsey research indicates that “a decarbonization pathway exercise suggested that 30% of total scope 3 emissions could be abated through relatively straightforward measures, such as product and logistics optimization and procurement of low-carbon energy by suppliers.”
Since optimizing product design can help address a considerable amount of industrial decarbonization, manufacturers and their supply chain partners should also focus on sustainable design principles like reclaiming materials and reusing products, thus reducing the burden on raw materials and natural resources.
5. Leadership Commitment and Change Enablement: Making People Part of Your Approach
Determining your carbon footprint can be costly in the short term. With high upfront costs and savings seen mainly in the long-term (once you set policies to improve energy efficiency), the role of organizational leadership is a crucial part of industrial decarbonization.
The goal of this process is to educate the workforce and promote cultural change. Employee buy-in is especially important since they will be executing these strategies, exploring ways to improve sustainability with key customers and suppliers, and contributing their know-how. An organization’s leadership also plays a crucial role in building and sustaining a culture of decarbonization, as they have the power to make emissions reduction a critical KPI in product design, organizational performance and more.
According to McKinsey, “Upskilling employees at scale, across different parts of the organization, will likely drive significant benefits. A well-informed sales force can communicate an organization’s low-carbon value proposition effectively to customers, for example. A skilled and knowledgeable procurement team can mobilize suppliers and secure access to renewable energy sources. Capability-building efforts can extend to suppliers and customers, too — especially if companies truly want to build the ecosystems and communities needed to support scope 3 emissions-reduction efforts.”
While the journey to industrial decarbonization can yield massive benefits for manufacturers (not to mention the planet), upfront costs are a big consideration. There are costs associated with every step, from digital transformation to improving data management to the cost of installing alternative energy sources on your property. In the long term, however, these investments come with major business advantages.
The Business Advantages of Reducing GHG Emissions and Decarbonizing Manufacturing
While the challenges of calculating and reducing GHG emissions throughout the supply chain are considerable, it is a necessary step for a company to reduce its total carbon footprint and ultimately remain competitive in the global market.
1. Making Costs More Predictable in the Short Term and Offsetting Carbon Taxes in the Long Term
Cost and carbon will go hand in hand as carbon taxes come to fruition. Already, the World Bank is tracking some type of carbon pricing initiative in 45 countries around the globe. With political pressure, environmental consciousness, and more regulations emerging every day, companies that were slow to get started on this are now motivated to get on board. One of the advantages of being ahead of the competition in the race to decarbonization is that you will begin to see offset energy costs in the short term and position yourself to offset carbon taxes in the long term.
2. Improving Product Design with a Circular Economy Model
At Jabil, we are taking a hard look at sustainable product design. Our knowledge and understanding of what goes into products and the total cost of a product continue to expand.
We want the ability to choose the least carbon-intensive inputs, but we also want to think about where they're going at the end of that product's life. Can we take it apart easily? Can we get it back into the value chain and reuse it?
Utilizing a circular economy model, we can reclaim components to bring back to a product or use them in other products. These considerations are essential elements of reducing both upstream and downstream scope 3 GHG emissions.
3. Preserving Natural Resources and Protecting the Environment
Using a circular economy model also helps preserve natural resources because the manufacturer is reusing components and is not emitting the greenhouse gases associated with the raw materials necessary to make a virgin product.
At Jabil, we have circular economy partnerships that help us recover precious metals from electronic, or e-waste, and put them back into the value chain. For customers, it's a value-added business from both an environmental and a cost standpoint.
4. Attracting Investors and Top Talent to Remain Competitive in the Global Market
From an investor's perspective, it's no longer optional to have an environmental social governance (ESG) program. Investors, customers and potential employees insist that you have certain practices in place and look at your ESG score before deciding to enter into business with your company.
Top talent also looks at decarbonization as a factor in determining where to work, making this another business advantage to decarbonization.
A Commitment to Industrial Decarbonization
A company’s decarbonization journey requires a commitment from organizational leaders to identify and mitigate scope 1 and 2 GHG emissions from its own operations, and partnerships across its supply chain to address the applicable upstream and downstream scope 3 emissions that would have the greatest impact.
As supply chains and waste from products accounting for up to 95% of a company’s overall greenhouse gas emissions, scope 3 emissions present the largest opportunity for reducing a company’s carbon footprint. However, the decarbonization process presents an additional set of challenges, specifically for companies that lack maturity in carbon accounting.
With a comprehensive strategy in place to transition to carbon neutrality, a company can help make a difference in the fight against climate change and also become more resilient, increase appeal for investors and customers, comply with emerging sustainability regulations, attract and retain top talent, and maintain a competitive position in the global market.
How can Jabil help you meet your sustainability goals? Contact us.
No matter how complex or demanding the project, we’re helping today’s eco-conscious innovators solve it. Get started with a trusted partner.