The data manufacturers need to measure and manage carbon emissions in their supply chains is arriving in 2022. How should they use it?
By Chad Loehr, Senior Director of Sustainability at project44
Companies are under relentless pressure to manage their greenhouse gas (GHG) emissions. Buying carbon offsets won’t cut it anymore. Investors, regulators and consumers are demanding accountability and measurable reductions. Sustainability is now a cost of doing business. Firms that neglect it expose themselves to cascading risks, arguably none greater than climate change itself.
Techniques for measuring and reducing emissions from owned sources and electricity generation are used widely. However, supply chains—by far the biggest source of emissions—remain opaque and unmanageable for most companies.
That will soon change. The supply chain visibility industry is rolling out the accurate, accessible data companies need to address this blind spot. The first of its kind, this data could be world-changing, quite literally. But that will depend on how companies use this new category of emissions visibility data.
Emissions visibility: too big to ignore
The Green House Gas Protocol, a widely accepted carbon accounting standard, describes three categories, or “scopes” of emissions. Scope 1 covers direct emissions from owned or controlled sources, while Scope 2 covers indirect emissions from the generation of electricity. Scope 3 encompasses indirect emissions from activities and assets not owned or controlled by the company—namely, supply chain emissions. For an average firm, supply chain emissions are estimated to account for up to 60% of total emissions and 90% of Scope 3.
Failure to address Scope 3 emissions would therefore doom global efforts to limit climate change to 2° C above pre-industrial levels. To date, though, firms have struggled to measure and manage what they don’t own. Most shipping is subcontracted out to independent carriers. So, at best, firms estimate carbon emissions based on generic data, like the average emissions generated by the average semi-truck on an average route from Miami to New York City. Averages just don’t reveal the levers for reducing emissions, beyond the obvious.
Sure, electrified transportation, cleaner fuels and hydrogen-powered container ships are coming—and will help—but not soon enough. If companies want to address their emissions (and regulators may leave no choice on the matter), they need emissions visibility into the supply chain, as it currently exists.
That data is almost here. It comes from calculating emissions at the shipment level, by ton kilometer, given the mode of transportation. For truckload, the vehicle, engine, fuel type, elevation change, speed, distance and weather factor into calculations. On the seas, a digital twin of every single vessel enables a calculation from each journey. By air, rail and barge, similar variables come into play. Scope 3 will no longer be an enigma.
From offsets to reductions
To recap, efforts to reduce Scope 3 supply chain-related emissions are constrained by a) the availability of and slow transition to zero-emissions transportation, and b) the accessibility and quality of emissions data. The supply chain visibility industry is solving b) this year, meaning that shippers will be able to act.
The question for companies should be this: How do we use that data? I’ll offer a few suggestions, strategic and operational, informed by my over 20 years working in logistics.
- Forecast emissions scenarios
Emission visibility data will enable shippers to forecast GHG output by transportation mode, route, carrier and more. Transportation managers will be able to evaluate the impact of their choices using historical, current and projected data. How, for example, do countries of import or export compare on emissions? Which sea lanes lend themselves to sustainability? For a given shipment, which mode and carrier minimize emissions? Right now, I suspect that most shippers have guesses but lack solid answers.
- Build sustainability into the procurement process.
The ability to forecast emissions opens new workflows, like emissions-based tendering. Rather than worry about emissions and offsets in retrospect, shippers will be able to tender loads based on cost, performance, service and emissions requirements. This workflow would occur in a supply chain visibility platform, integrated with an ERP or TMS system. Although powerful at the company level, the industrywide impact will be even greater. As sustainability becomes a KPI for companies, carriers and 3PLs will adopt it as well.
- Emissions reporting and branding
Ultimately, by recording emissions from every shipment, companies will be able to measure their Scope 3 supply chain emissions and how those change over time. This type of reporting meets the standards of the Global Logistics Emissions Council (GLEC) and therefore matches or surpasses standards set by investors and regulators. Companies will be able to estimate the carbon footprint of individual goods. There will be no hiding a poor track record of sustainability.
From cutting-edge to standardized information
Investors, regulators and consumers will continue to push for transparency and proactivity around sustainability. Companies that manage their Scope 3 supply chains emissions will set the bar for responsibility—and pressure competitors to clean up their act. With Scope 3 accounted for, sustainability could soon be captured in a standardized set of information, like a nutritional label, that informs purchasing decisions worldwide.
Once Scope 3 emissions are standard data, companies will feel the heat (figuratively). Good intentions won’t be enough. Good data will be the launchpad for credible action.
About Chad Loehr:
Chad Loehr is Sr Director of Sustainability where he is responsible for building project44’s global supply chain sustainability initiatives. Chad has extensive knowledge and experience with supply chain technology solutions having held leadership roles with ClearMetal and Infor Nexus. In addition, Chad has served in operational and senior program management positions with DHL and XPO Logistics.
project44 is on a mission to make supply chains work. As the supply chain connective tissue, project44 operates the world’s most trusted end-to-end visibility platform that tracks more than 1 billion shipments annually for over 1,000 of the leading brands, including top companies in manufacturing, automotive, retail, life sciences, food & beverage, and oil, chemical & gas. Using project44, shippers and carriers across the globe drive greater predictability, resiliency and sustainability.
The undisputed leader in the market, project44 was named the Leader in the Gartner Magic Quadrant, #1 in FreightWaves FreightTech 2021, the Customer’s Choice in Gartner Peer Insights Voice of the Customer report. project44 is headquartered in Chicago with a diverse team spanning 17 global offices. To learn more, visit www.project44.com.