Scope 3 emissions encompass indirect greenhouse gas emissions that occur throughout a company’s value chain. Unlike Scope 1 and Scope 2 emissions, which are direct emissions from owned or controlled sources, Scope 3 emissions involve a web of complexities tied to the entire supply chain. This complexity poses challenges for businesses aiming to measure, manage and reduce their overall carbon footprint.
Amidst these challenges, there is a burgeoning recognition of supply chain financing as a catalyst for sustainability, which experts explored during the recent BNP Paribas Sustainable Future Forum in Paris and London.
Regulators and standard-setters worldwide are increasingly requiring companies to report on their Scope 3 emissions, and methodologies are developing at pace to improve the accuracy and effectiveness of this information. Katie House, Director, Global Credit Research – Sustainability, MetLife Investment Management sheds light on regulatory shifts, noting: “On the regulation side of things, in the last two to three years, we’ve seen a focus on moving disclosures from nice to have to required.”
❝ On the regulation side of things, in the last two to three years, we’ve seen a focus on moving disclosures from nice to have to required. ❞
Companies are grappling with the intricacies of Scope 3, navigating a triple threat of challenges — data accuracy, supply chain engagement, and the imperative to support suppliers in sustainable practices.
Gathering accurate and comprehensive data across the entire supply chain remains a formidable challenge. Companies often face difficulties in obtaining reliable information from suppliers, logistics partners and other stakeholders.
Innovation
Embracing circular economy principles, such as product life extension, recycling and waste reduction, can contribute to Scope 3 emission reductions. Companies are exploring innovative ways to redesign products and processes for sustainability.
Chris Dearing, Group Sustainability Director at Coats, commented on the work they have done to innovate in their sector: “So we’ve invested a lot in innovation with development of new innovation and sustainability hubs where we work collaboratively with customers, customer brands and with suppliers to innovate new materials. Examples of recent developments are our recycled polyester threads branded as EcoVerde, and our new EcoCycle range of threads which facilitate garment disassembly and enable circularity of garments at end of life.”
❝ So we’ve invested a lot in innovation with development of new innovation and sustainability hubs where we work collaboratively with customers, customer brands and with suppliers to innovate new materials. ❞
At a global level in terms of Scope 3, Decathlon is committed to reducing its carbon footprint by 20% by 2026. Mehdy Sueur, Group Chief Financial Officer for Environment, points out that innovation is key to improve their supply chain: “Scope 3 is mainly the impact of our products. And when we are talking about the products, this is how we process the products: so we are talking about the energy, the raw materials, and inside the energy we have electricity and thermal energy as well.”
❝ Scope 3 is mainly the impact of our products. And when we are talking about the products, this is how we process the products: so we are talking about the energy, the raw materials, and inside the energy we have electricity and thermal energy as well. ❞
Supplier engagement for decarbonisation
Emissions reduction targets require collaboration with suppliers and partners. Establishing transparent communication and commitment to sustainability goals can be hindered by conflicting priorities and varying levels of sustainability maturity among stakeholders.
Antoine Bateman, Sustainability Director at Ardian, remarked: “It’s important to create dialogue within the supply chain and to put in place mechanisms that will provide small and midsize companies with the ways to implement such a strategy.” He notes: “As a world-leading private investment house, we have a diversified portfolio organised around a limited number of strategic sectors so we can basically benefit from economies of scales to support portfolio companies in their transition.” This highlights the potential for shared economies of scale, enabling a more impactful and widespread implementation of sustainable practices across various industries.
❝ It’s important to create dialogue within the supply chain and to put in place mechanisms that will provide small and midsize companies with the ways to implement such a strategy. ❞
Implementing robust supplier engagement initiatives fosters collaboration and encourages suppliers to adopt sustainable practices. This involves setting clear expectations, providing support, and incentivising suppliers to align with environmental objectives. Sylvain Guyoton, Chief Rating Officer at Ecovadis, confirmed this view during SFF Paris: “If you don’t engage your suppliers to decarbonise and improve, you will have problems to decarbonise your own product.”
❝ If you don’t engage your suppliers to decarbonise and improve, you will have problems to decarbonise your own product. ❞
Decathlon focuses on supplier engagement as a key part of its Scope 3 approach. Sueur notes: “We identify that the measuring is really important, so we also have targets in terms of part of the suppliers that measure their emissions, and then part of the suppliers committed with SBTI commitments”. He goes further to explain: “And after that we accompany the supplier to exit from coal and develop renewable energy.”
The role of financing
Financing is seen as a crucial enabler for sustainable initiatives, and there is growing importance of supply chain finance too. James Chamberlayne, Sustainable Finance Program Director, CDP, commented: “Sustainable Supply Chain Financing is starting to take shape and not only is it proving to be a growth opportunity, it is a key mechanism to support companies with their transitions. Further collaboration is needed between the financial system and the real economy that could take Scope 3 to the next level.”
❝ Sustainable Supply Chain Financing is starting to take shape and not only is it proving to be a growth opportunity, it is a key mechanism to support companies with their transitions. Further collaboration is needed between the financial system and the real economy that could take Scope 3 to the next level. ❞
More broadly, supply chain finance could play a role for smaller companies to overcome budgetary constraints and incentivise sustainability efforts throughout the supply chain.
Across a broad spectrum of sustainable finance innovations, the Bank has been actively supporting clients on circular economy approaches. Key examples include:
- L’Oréal inaugural sustainability-linked bond (SLB) which included a target to recycle or bio-base 50% of its plastics packaging by 2025;
- H&M SLB targeting a share increase of recycled materials used to 30%;
- Marks and Spencer sustainability-linked loan (SLL) with a target on removing disposable plastics from its packaging portfolio.
In conclusion, navigating the challenges of Scope 3 emissions requires a multi-faceted approach. Innovations in technology, circular economy practices, and robust financing mechanisms play pivotal roles in steering businesses toward a more sustainable future. As the spotlight on Scope 3 intensifies, companies that proactively address these challenges and embrace innovative solutions will not only reduce their environmental impact but also position themselves as leaders in the global push for sustainability.