The costs of Scope 3

“Who’s going to pay for decarbonizing the supply chain?” was the title of a recent article on a supply chain website written by an experienced US journalist (and how very American of him to immediately zoom in on who would bear the costs!). According to the journalist, 75% of all emissions fall under Scope 3, i.e. are caused beyond the company itself.

Meanwhile, according to an estimate by consulting firm McKinsey, the global economy’s transition to ‘net zero’ emissions will annually cost an additional $3.5 trillion, equivalent to half the profits of all multinationals worldwide. Needless to say, that sounds like a dauntingly large sum of money – but given the high profits that many multinationals are still making, I actually think that’s a pretty fair percentage.

Fortunately, numerous leading manufacturers have already begun to make their products more sustainable. For years, the French multinational industrial electronics manufacturer Schneider Electric has been leading the way in making its own factories, offices and distribution centres more sustainable (Scopes 1 and 2). In 2021, the company embarked on a net zero roadmap for Scope 3, in a project 20 times bigger than for Scope 1. The company has 53,000 direct suppliers, so for now Schneider Electric is focusing on those with the highest risks.

Carbon calculator

During a recent presentation, Christophe Quiquempoix, who is responsible for sustainable procurement and outsourced manufacturing at Schneider Electric worldwide, commented on how many suppliers don’t actually know how to calculate their carbon footprint. His company has set up an impressive online platform to help them, providing training, relevant information and a carbon calculator. These efforts have already led to the use of more sustainable materials and packaging and a 13% reduction in emissions.

“Our Scope 1 footprint is actually one of the most significant Scope 3 emissions for our customers,” a supply chain executive from a French limestone quarry recently told me. Limestone is an essential raw material to improve the quality of certain products. The quarry is already paying more for its unavoidable emissions than for its operational production costs, and the company is doing all it can to reduce its carbon footprint.

Not a matter of paying

In other words, decarbonization is not simply a matter of paying. Business ecosystems will have to collectively decide where it makes most sense to invest in more sustainable products, processes and supply chains. After all, everyone in the world is ultimately footing this bill together.

Martijn Lofvers, Chief Trendwatcher Supply Chain Media
martijn.lofvers@supplychainmedia.nl