Business Case for Investing in Supplier Engagement to Address Scope 3 Emissions

In a world where over 70% of corporate emissions originate from the supply chain, CFOs are under increasing pressure to open their budgets for supplier engagement. As 2030 looms, the question isn't just about meeting sustainability goals—it's about ensuring financial stability, investor confidence, and brand reputation in a rapidly changing landscape. Dive in to understand why now is the pivotal moment to invest in supplier collaboration and innovation.

The urgency to address Scope 3 emissions intensifies as we approach the midpoint of the decade. Regulatory bodies, investors, and consumers are demanding transparency and action. This business case underscores the financial, reputational, and strategic imperatives for CFOs to prioritize investment in supplier engagement, with a special focus on the role of procurement.

1. The Role of Procurement in Scaling Supplier Collaboration:

• Procurement teams are uniquely positioned to drive supplier collaboration and innovation programs. By investing in procurement, businesses can effectively engage with suppliers, especially those with the highest emissions.
• Prioritizing suppliers based on their emissions and the importance of their spend categories to the business ensures targeted and impactful engagement.
• For spend categories that are crucial to the business but have limited decarbonization options, procurement teams can drive innovation by collaborating with suppliers to explore new solutions.

2. Regulatory Pressures:

• The SEC, ISSB, and EU's CSRD mandate comprehensive sustainability disclosures, emphasizing the importance of supplier engagement in achieving sustainability targets.

3. Financial Implications:

• Investors are increasingly diverting funds to companies demonstrating genuine commitment to sustainability.
• Companies that fail to address Scope 3 emissions risk financial penalties and increased operational costs.

4. Real-world Examples: Apple and Beyond Value Chain Mitigation:

• Apple's call to its supply chain to decarbonize by 2030 showcases the ripple effect major corporations can have.
• The "Beyond Value Chain Mitigation" approach emphasizes businesses investing in mitigation activities outside their immediate operations.

5. The Cost of Inaction:

• Audits are becoming more stringent, exposing companies with unaddressed Scope 3 emissions.
• Share price costs, investor pullbacks, and negative press are real threats for companies lagging in their sustainability efforts.

6. Broader Societal Impact and Opportunities:

• Companies need to invest in projects that drive systemic change, influencing industries, communities, and nations.

7. The Path Forward:

• Achieving societal net-zero requires collaboration between companies, governments, NGOs, and other stakeholders.
• The SBTi's guidance on going beyond value chain mitigation serves as a roadmap for businesses to amplify their impact.

Evonik's Strategic Investment in Rhamnolipids: A Case Study in Supplier Innovation

Evonik, a global specialty chemicals leader, is at the forefront of sustainable innovation with its recent announcement of constructing the world's first industrial-scale production plant for bio-based and fully biodegradable rhamnolipids. These environmentally-friendly biosurfactants are pivotal as active ingredients in products like shower gels and detergents.

This strategic initiative by Evonik accentuates the essence of supplier engagement and innovation. Their collaboration with consumer goods titan Unilever not only bolsters Evonik's market stance but also champions the overarching objective of sustainability. Produced by fermenting sugar, rhamnolipids negate the need for conventional fossil carbon and tropical fats in surfactant production. Their biodegradability combined with skin-friendly attributes positions them as a sustainable yet effective alternative.

This Evonik-Unilever alliance epitomizes the transformative potential of supplier engagement in fostering sustainable innovation, underscoring the tangible benefits of collaborative endeavors in addressing environmental challenges.

Conclusion:
The time to act is now. By investing in procurement and focusing on supplier engagement and projects beyond their value chain, companies can position themselves as leaders in sustainability. As Apple's CEO, Tim Cook, aptly stated, "Climate action at Apple doesn’t stop at our doors, and in this work, we’re determined to be a ripple in the pond that creates a bigger change."