Climate change poses significant business risks to retailers. Changing consumer sentiments, investor expectations and government regulations will require businesses to fundamentally change their operations, procurement practices and product mixes to adapt to the low-carbon economy.
Retailers face a complex challenge in reducing their carbon footprint because Scope 3 emissions — generated by a company’s value chain — account for more than 90 percent of a retailer’s greenhouse gas output. This outsourced emissions profile means their risk exposure is intrinsically tied to the sustainability of their suppliers and products. Retailers can’t sit back and wait for their vendors to reduce emissions; they must actively participate in the decarbonization effort.
Many companies rely on industry averages to quantify their Scope 3 emissions. These estimates are an excellent starting point but aren’t actionable. Utilizing supplier-level and product-specific data should be the long-term goal of every organization because it enables meaningful climate action and risk mitigation.
Why is Granular Data Imperative to Decarbonization?
Supplier- and product-level data gives retailers precise levers to reduce emissions. Industry averages provide a baseline understanding of carbon emissions, but they can obscure the true footprint of individual suppliers and products. Granular primary data creates more accurate and actionable insights.
With this information, retailers can engage key suppliers to advance their decarbonization efforts or refine procurement practices to increase the share of lower-carbon products sold. These are examples of targeted decarbonization efforts that will make the biggest impact on their Scope 3 emissions.
How Can Retailers Obtain Supplier- and Product-Specific Data?
Complex global supply chains make the prospect of gathering supplier-specific data daunting. However, retailers don’t need information from every single value chain entity to begin strategizing. The following steps kick-start the data collection process:
1. Identify data targets.
Companies can use internal accounting numbers and industry averages to illuminate the categories that are likely the most significant emissions sources, including the largest suppliers by spend, vendors with emissions-intensive processes, or energy-intensive or waste-heavy products. These suppliers and products will often offer the biggest opportunity for impactful reductions and should be the first target for data collection.
2. Obtain data.
With more primary data in hand, retailers can confirm their most significant risks and build actionable reduction plans. Supplier- and product-specific data can be gathered in several ways, including:
- directly engaging vendors;
- reviewing public databases and ESG reports; and
- accessing data submitted to the CDP, the Responsible Business Alliance, and other industry bodies.
3.Take action.
Retailers should identify specific actions that can reduce Scope 3 emissions. Strategies could include:
- Supporting suppliers in reduction efforts.
- Shifting away from energy- or carbon-intensive products.
- Contracting with more sustainable suppliers.
- Nearshoring warehouses.
- Optimizing the supply chain and transportation.
- Working with vendors to change product design or materials.
- Reducing product packaging.
Government regulations and consumer and investor expectations will demand robust Scope 3 emissions data. California has already passed a stringent emissions reporting law, and the U.S. Securities and Exchange Commission is poised to release its own requirements. And from a market demand perspective, 84 percent of consumers say poor environmental practices will alienate them from a brand or company.
It’s time to go beyond just estimating and reporting emissions. Retailers need supplier- and product-level data to drive ambitious climate action. Data collection and decarbonization is an incremental process, but every step forward makes a difference. Retailers must act now to build a sustainable long-term business and create a better future for our planet.
Tim Weiss is co-founder and CEO of Optera, a provider of enterprise emissions management software.
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