Understand, redesign, incentivise: Three steps to cut scope 3 in consumer and manufacturing

Unlike direct scope 1 and indirect scope 2 emissions, an organization’s indirect scope 3 emissions are often produced by suppliers, heavily influenced by product and service design, and impacted by customers and company policies. These emissions sit beyond the organisation’s direct sphere of influence and are therefore very difficult to control. Uncertainty around where these emissions are generated and how to measure them make it even harder to address the impact.

For consumer and manufacturing (C&M) companies, most scope 3 emissions typically come from the purchase of goods and services, transportation, waste generation, and product use and disposal – and are heavily influenced by the product design and its components. How can C&M companies address scope 3 and meet their time-bound targets? By understanding the sources of their scope 3 emissions, C&M organisations can redesign products and processes to cut carbon across the value chain and develop the right mechanisms to incentivise stakeholders to do the same.

Understand

Aligning with Science-Based Targets is the de facto way for organisations to show and demonstrate commitments to net zero, including scope 3. But setting these targets and realising them is challenging, especially given the lack of direct control over many scope 3 emissions sources. The most advanced organisations across industries typically use seven different levers to reduce emissions across relevant scope 3 upstream and downstream categories, including supplier engagement, procurement and sourcing, and investment strategy. However, not all levers are necessarily relevant for every organisation in every sector – including C&M.

The first and all-important step for C&M companies is working out where emissions come from and what causes them. This takes out the guesswork and points to specific, priority areas. Understanding the root cause of scope 3, such as purchased components or third-party shipping and logistics, starts with collecting emissions data from suppliers. Given the growing pressure on organisations to show strong climate credentials, this is to be expected, and suppliers should be ready to provide this information.

Gathering and analysing this data may require working with external partners, investing in new data management solutions, or accessing data science and analysis capabilities – but the investment is worth it. The insights gained from properly collected and collated supplier data pinpoint focus areas where the greatest impact can be made. When looking at specific products and services, performing a lifecycle assessment determines the emissions sources and wider environmental impacts, and helps to explore the ripple effects of changing specific areas such as components, ingredients, and materials. Technology such as blockchain (for example for supply chain emissions tracking) and digital twins (for product lifecycle assessment and exploration, for instance) can be useful for assessing wider system impact. Which changes will be most beneficial? These are the focus areas for redesign for C&M organisations.

Redesign

Once companies know where their biggest carbon impacts come from, and what changes will have the most impact, they can redesign products and processes with sustainability front of mind. Redesigning in this way – in other words, designing for sustainability – improves circularity and reduces waste across the supply chain through specific, evidence-based alterations. This might involve changing packaging options (such as the alterations made by shaving brand Gillette), altering the materials used to create a product, or redesigning products from scratch for future reusability.

Redesigning products and processes can be far more impactful when suppliers are brought on board. Coca-Cola, for example, is partnering with its suppliers to help minimize these external parties’ direct emissions – and therefore reduce the 90 percent of Coca-Cola’s own carbon footprint that comes from scope 3 emissions. The drinks maker aims to mitigate or remove these emissions by investing in other climate protection measures, including a new ‘green fleet’.

Incentivize

Improved sustainability is a top priority for many organisations but isn’t always enough of an incentive on its own. Organisations can incentivize value chain stakeholders to adopt more carbon-conscious policies, processes, and products in different ways. While approaches followed by companies in the C&M sector vary, some of the most common are designing targeted programmes; the use of contractual clauses with suppliers; the provision of technical advice, training, and awareness; and investing in decarbonisation (sometimes based on an internal carbon pricing scheme). Some companies are more pragmatic about incentivization and follow the principle that, if a supplier is unable to evidence a strong commitment to reducing its direct emissions, they are justified in looking elsewhere. As a last resort, an organization may even remove a supplier that fails to make the required changes – another powerful incentive.

Alongside supplier incentivisation, governments have a role to play in making sustainable choices more attractive through grants and subsidies. The Inflation Reduction Act 2022 is a leap in the right direction, incentivising organisations to transform energy systems to cleaner solutions. This reduces reliance on external utilities with potentially higher carbon footprints, with the ultimate goal of helping to curb scope 3 emissions in the United States. The Act extends the Investment Tax Credit and Production Tax Credit, allowing organisations to deduct a percentage of the cost of renewable energy systems from federal taxes.

So, while scope 3 emissions present a complex challenge for all organisations, particularly in consumer goods and manufacturing, there are ways to target high impact efforts. Identifying the source of emissions, re-designing products and processes, and taking advantage of incentives, organisations can make strategic shifts toward their Net Zero goals and develop truly sustainable supply chains.