ANALYST INSIGHT: The largest proportion of a company’s greenhouse gas emissions comes from its supply chain: the products and services purchased from suppliers, and the use and disposal of their products. Companies are therefore under increasing pressure to think beyond their operational emissions and cut all their supply chain (or Scope 3) emissions. 

Cutting Scope 3 emissions is challenging. It requires companies of all sizes across supply chains to take robust, measurable climate action. 

Here are three key ways to ensure successful supply chain emissions reductions for companies both large and small:

1. Encourage Suppliers of All Sizes to Set Science-Based Targets

Good baseline data helps identify emissions hotspots. Transparent reporting is vital to building credibility and accountability — the fourth ‘A’ of We Mean Business Coalition’s 4 A’s of Climate Leadership. So too is ensuring that all companies in the supply chain — whatever their size — roll up their sleeves and get on with the work of cutting emissions.

Large corporate entities could follow the example of the U.S. government, the world’s largest purchaser of goods and services, and start by requiring suppliers to set targets aligned with science-based decarbonization.  This is a potentially transformative step — and not just for meeting climate targets. Disclosing climate risks and taking action to cut emissions will also improve the resilience of supply chains and local communities.

But don’t confine action to the largest suppliers. Companies would do well to look beyond these companies to the thousands — if not millions — of SMEs (small and medium-sized enterprises) within corporate supply chains. Though individually their emissions don’t compare to the major players, cumulatively they will play a critical role in collective efforts to decarbonize and adapt our economies to climate-related impacts.

2. Connect SME Suppliers to Free Tools to Help Them Cut Emissions

Approximately 80% of a company’s Scope 3 emissions originate from suppliers with under 500 employees. SMEs make up around 90% of the world’s businesses and employ 70% of the workforce. They are at the heart of corporate supply chains and communities around the world — but until recently they’ve lacked the tools, resources, and incentives to decarbonize.  

The SME Climate Hub, founded by We Mean Business Coalition and other partners including Exponential Roadmap Initiative was set up to help SMEs decarbonize. The SME Climate Hub now has over 5,500 committed SMEs, who are using the platform to take climate action and build their resilience. 

Directing SME suppliers to the SME Climate Hub is one of the best ways for corporations to address their Scope 3 emissions. The initiative provides SMEs with free tools including a carbon calculator to help SMEs understand their baseline emissions, an annual reporting tool for public disclosure, and an educational course on climate action called Climate Fit. To access the full suite of resources, SMEs can make the SME Climate Commitment and commit to halve their emissions by 2030, publicly disclose their efforts yearly, and achieve net zero by 2050 or sooner.

3. Incentivize Supplier Climate Action

The SME Climate Hub’s recent survey of SMEs tells us that about 60% of surveyed businesses need additional funding, skills, and knowledge to take more robust climate action. SMEs have 101 competing demands, and even though 80% are motivated to build a business that prioritizes the planet, their first goal is to keep their doors open. 

Alongside providing the tools to help their supply chain companies decarbonize, corporations can create incentives for climate action so that it becomes a no-brainer — and some already have done so. 

For instance, Levi Strauss & Co launched its own initiative to expand access to working capital at a lower interest rate to suppliers who demonstrate progress in reducing greenhouse gas emissions. Other companies are designing programs specifically for SME suppliers. Gucci enables SMEs in its supply chain to access loans at favorable terms and conditions if the supplier improves the sustainability of its operations. IKEA offers SMEs in its supply chain support to convert to 100% renewable energy through financing on-site investments and enabling the purchase of renewable electricity.

While engaging with companies across the supply chain to cut Scope 3 emissions is challenging, we are constantly building up a better picture of the tactics that work. Get started by demanding businesses across your supply chain set targets and go from there. Support the SMEs in your supply chain by connecting them to the SME Climate Hub and create an enabling environment incentivizing supplier action. Together, we can drive change, and build a net zero future that leaves no business or community behind.