Greater transparency in supply chains has become a business imperative. The SEC’s proposed mandatory climate disclosure act creates accountability and non-financial reporting obligations to shed light on the activities of companies. And while it doesn’t prescribe the percent emissions reduction, it’s a step towards transparency with a framework defined by a federal driver. Add the market pressure in terms of reputation and social accountability and there’s no question as to why companies are scrambling to figure it out. If you have to be transparent about things that may not look good, your activities may signal a higher risk to stakeholders, and you’ll start making changes.
The opportunity in Scope 3
A business's supply chain's overall carbon impact is substantially more significant than your Scope 1 and 2 emissions. Largely, Scope 3 accounts for a majority of emissions and can be a variety of things. In fact, there are 15 different categories of Scope 3. And the further downstream you go in the value chain, the more complex accounting becomes because you’re accounting for the amount of emissions generated by interrelated activities between your actions and your vendors.
Narrowing in on where to start depends on your focus as a sustainable and profitable company. What are your corporate goals? Your ESG goals have to roll up to your corporate strategy and vision. Based on your business model, you need to find a way to incorporate a consistent methodology into how you evaluate your deals, investments, projects, suppliers, etc. It’s a paradigm change for how you do business and award business. You make headway by starting early in the process.
Strategies to reduce emissions
There are many approaches to reducing emissions and they all come with their own set of complexities. On one hand, you have offsets — many companies use technology, satellite imagery and data to precisely measure them. Thoughtworks paired with Tradewater, a mission-based company that develops projects to prevent greenhouse gas emissions, to build one of the world’s first fractionalized carbon offset marketplaces. Using the data embedded in Tradewater’s carbon calculators, consumers can purchase carbon offset credits as low as a gram. In 2021, Tradewater reached 5,100,000 tons of CO2e destroyed through its operations in the United States, Ghana and the Dominican Republic.
Businesses can also focus on how to avoid emissions in the first place — this is the primary approach Thoughtworks takes with our clients. We help them apply decision science to determine the most effective path to reduce emissions in their supply chains while staying competitive. We start by mapping out the organization onto a mathematical model supported by relevant data and insights, then we leverage machine learning to suggest, compare and optimize potential future scenarios. We call this Strategy: Augmented. It enables business and sustainability leaders to partner in building an informed, sustainable roadmap that incorporates quick wins and longer-term strategic initiatives to accelerate progress towards net zero. And these models can show that profitability and sustainability can coexist.
The digital supply chain
We also bring the digital supply chain into the decarbonization discourse. As society’s dependence on IT infrastructure grows, so does our IT carbon footprint. And while technology can be part of the problem, it can also power solutions to measure and mitigate your emissions. Of course, calculating emissions is an important first step, but taking the actions to mitigate them can be more challenging. To that end, Thoughtworks has built an open-source solution, Cloud Carbon Footprint (CCF), to help organizations measure the carbon impact of their cloud use across public cloud providers. The offering also helps users establish their on-premise emissions baseline for comparisons when considering migration to the cloud. You have to start somewhere, and there’s so much potential to make small changes with cloud computing that can add up to make a significant lasting impact. Giving software engineers and practitioners visibility enables them to set a baseline, identifying which levers they can pull within their IT infrastructure. For example, shifting compute load to another region using cleaner energy or deleting unused storage space can potentially make a difference both sustainably and financially.. This new space, called FinOps, offers practitioners with an operational framework and supports dynamic cultural shifts that bring technology, finance and business together to drive financial accountability and accelerates business value realization through cloud transformation.
Now is the time for action
While technology is not a magic bullet that will solve climate change, it can make a useful difference in how organizations plan, optimize, execute and report progress on sustainability initiatives. So, even though disclosure of Scope 3 emissions isn’t included in the SEC proposed rule (unless you make a commitment), whether you are a tech company or retail or financial services, Scope 3 often accounts for the majority of emissions and can offer significant reduction opportunities.
It’s time to stop talking about sustainability. Instead, to deal with the enormity of the task, we must do something. Measuring carbon emissions comprehensively across verticals is a great first step. We may not reach the lofty goals we aspire to in our lifetimes, but we have the opportunity and responsibility to lay the foundation for real change.
Thomson Reuter’s Responsible Business USA (April 2022). Our panel discussed how businesses are deploying the latest innovations in technology to deliver greater transparency in supply chains. We shared practical insights on how to report on your Scope 3 emissions and suggestions on how to increase transparency and traceability across the supply chain.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.