From the perspective of risk management, sustainability is becoming a deal breaker. In fact, organizations that aren’t sustainable are being increasingly cut off from resources and opportunities (access to global markets, credit, and favorable insurance premiums; the ability to recruit qualified, motivated human resources; the opportunity to bid on public and private projects and to tap into certified supply chains).
But to truly grasp what a sustainable ESG corporate profile consists of, we first need to draw a distinction between different kinds of emissions.
- Scope 1: Direct emissions from fossil fuels (for heating, operating fleet vehicles, or from gas leaks from heating/cooling systems).
- Scope 2: Indirect emissions from generating the power, heat, or steam that the company consumes; these are accrued by the user, even if they are generated by the supplier.
- Scope 3: Indirect emissions from sources that are not directly under the company’s control, but are the indirect result of the company’s activities.
The pool of suppliers and the entire supply chain represent the context for substantiating the sustainable choices that the company has already implemented internally, and for developing and promoting practices that safeguard people and the community, the environment and corporate governance, with respect for all stakeholders.
Procurement is responsible for profiling suppliers, with an attentive eye to risk factors that could undermine the supplier relationship. This assessment is done both when selecting new partners and managing current ones. Various methods are used to measure ESG sustainability and to model supplier behavior, to include introducing rewards for characteristics and performances which were once seen as non-essential, in contrast to traditional considerations like cost, quality and service.
The objective of our research is to survey and analyze sustainability management practices along the supply chain. We focused on Scope 3 emission containment programs in particular. Here are the specific questions we posed:
- What approaches are used to measure supplier sustainability?
- What are the main factors that companies consider when measuring sustainability?
- What are the control mechanisms (certifications, auditing)?
- What is the position of the company with regard to Corporate Sustainability Due Diligence (CSDD)?
- What actions can encourage suppliers to improve their sustainability performance?
- What kinds of suppliers are impacted by Scope 3?
- How can suppliers do better on Scope 3 emissions, in terms of aims and actions?
- What models are used to calculate GHG emissions?
Our aim, and it was a challenging one in relation to company activities, was to find out exactly how companies are monitoring and managing sustainability along their supply chains, and what practices they are using to address Scope 3 emissions reductions. The approaches we found converge both in terms of positioning with regard to the underlying determinants of typical choices, and relative to direct intervention by CPOs in companies that are members of the Procurement Lab.