In the first article in this series, I suggested that the focus on Scope 3 emissions has so far largely failed in terms of real and positive outcomes, in that we are not seeing an economy-wide reduction in greenhouse gas emissions. One of the reasons for this is that much of the material, advice and thinking about Scope 3 is written by tech providers, consultants or sustainability experts who do not understand one of the most fundamental issues in procurement. So the typical Scope 3 guidance says something like this.
Step 1 – Get information about all your spend and all your suppliers. Well, straight away many organisations run into problems with the accuracy and timeliness of their spend information, but we’ll leave that for now.
Step 2 - Identify where the biggest sources of Scope 3 emissions are likely to be. If you have the spend data, then there are tools which can probably help you achieve this step.
Step 3 – Contact your suppliers (at least for those most significant areas). Tell them that you want information and data about their emissions in the context of whatever they provide you.
Step 4 – Demand action. Require your suppliers to sign some sort of commitment to reduce emissions, or share an emissions reduction plan with you, or promise to sacrifice their first born if they don’t achieve a 90% reduction in their own emissions by 2030.
Step 5 – Do something collaborative with suppliers who account for your biggest scope 3 numbers, or perhaps offer to educate them. Tell them how they could run their business better in terms of emissions, using your own vast knowledge and experience.
Step 6 - Stand back and wait for next years’ data that will show a massive reduction in emissions.
Apologies for a drop of sarcasm intruding there, but most procurement people can understand the problem with this approach immediately.
For 90% of organisations, across 90% of their spend, the buyer holds little or no supply chain power and has no levers to incentivise or force the supplier into taking any action that it isn’t already taking.
When we think about it, it is obvious that a Unilever or Toyota should approach emissions reduction differently to a mid-sized organisation – perhaps a UK university, or a $100m turnover clothing manufacturer. Then when we get down to really small organisations, the situation is different again. And this is where we have largely ignored the basic procurement principle – that of power in the supply chain. The guru on this topic was Professor Andrew Cox, and whilst some academics and commentators have suggested that his thinking is outdated (they point to the success of more collaborative approach in some industries), buyer / seller relationships are always underpinned by power and who holds it.
Power is not purely a matter of size; a small firm can hold considerable power over a large customer if for instance they provide a key component or are the only ones who know how a key bit of software works that is core to the buyer’s business. But a small buyer rarely holds power over a large supplier. However even the largest firms, who are also the largest emitters in general, might change course or increase their focus on emissions if their ten biggest customers all demanded similar actions. And to be clear, the approach outlined above is not unreasonable for the very largest organisations who do have influence over many of their suppliers.
Therefore we need to acknowledge that different organisations need to take different approaches in terms of Scope 3, approaches that are appropriate for their own situation.
The blanket approach does not work for most. The best response you can hope for from the vast majority of suppliers if you do make contact is for them to say, “this is what we’re already doing on emissions, we hope you like it”. That achieves nothing really, there has been no incremental benefit to the planet and its people in terms of emissions, we have just wasted our own time and that of our supplier. How many requests for emissions data are Amazon Web Services, BP or Siemens getting I wonder, most from customers who spend a totally insignificant amount with them?
In many cases, the buyer will simply get nothing back from the supplier. So then what do you do? Well, you can threaten to move your business away from the supplier. But we come back to power. If you don’t have it, then even if you can move your business, presumably it will disadvantage your organisation - you chose this supplier for a good reason, I assume. There may not even be a suitable alternative.
To conclude, if we are going to design better approaches to addressing Scope 3, we need to recognise that power plays a big role in all this. Advice and guidance to organisations needs to be much more segmented and nuanced, and it is simply a waste of time and effort for most organisations to try and engage across their entire supplier base.
However, there are still positive steps even smaller organisations can take in terms of emissions, and I’ll come back to those in a future article.