How to reduce supply chain emissions through policy

Many companies with decarbonization targets start by reducing emissions from their own operations (Scope 1 and Scope 2 emissions). However, supply chain emissions (Scope 3) often account for a large percentage of a company’s greenhouse gas (GHG) footprint. These emissions are challenging to address for two reasons:

• Lack of accurate and complete data, making it difficult to determine where to focus reduction efforts.
• Limited control over supply chain activities, requiring partnership or engagement with many stakeholders.

Despite these challenges, companies can no longer afford to ignore Scope 3 emissions. Regulatory pressures are forcing businesses to calculate, disclose, and reduce Scope 3 emissions while managing their supply chains more effectively. Key recent regulations include:

• CSRD/CSDDD: Mandates disclosure of supply chain data and introduces supply chain due diligence requirements.
• CBAM: Obligates companies to understand emissions data from their suppliers to import certain products into the EU.
• CA regulations: Require disclosure of Scope 3 emissions.
• German Supply Chain Act: Regulates due diligence on human rights and environmental impacts within supply chains.

Beyond regulations, companies also face growing competitive and public pressures. Investors and customers increasingly expect robust supply chain management, and proactive companies are discovering that supply chain engagement can help mitigate climate-related risks and improve resilience.

So, how do companies engage with their supply chains? While there are numerous strategies to choose from, policy creation is an effective starting point, given the high level of control companies have in this area. Policies enable companies to set clear expectations for all stakeholders, laying a strong foundation for future supply chain engagement.

In a recent paper, the Science-Based Target initiative (SBTi) highlights several policy types that can help companies achieve supply chain sustainability.

Five Key Policies for Supply Chain Management

1. Procurement policies

Focus: Sourcing sustainable or low-carbon goods and services.

• Key implementation challenges: Procurement decisions often balance multiple factors, such as cost, supplier safety and reliability, and compatibility with existing operations. Prioritizing sustainability above all else may face internal resistance from key departments (e.g. engineering, legal, financing) and could negatively impact business operations.
• How to create a successful policy: Procurement policies should ensure that sustainability is considered in every procurement decision and that sustainable alternatives are procured where reasonable. For instance, a company could require contractors to consider low-carbon alternatives for key materials or prioritize rail shipping over truck transport when feasible.

2. Travel policies

Focus: Reducing emissions from business travel and employee commuting.

• Key implementation challenges: For business travel or commuting, companies may have limited ability to reduce travel or find sustainable alternatives, especially for airfare travel. For commuting in particular, companies may also have limited control over how employees travel to work.
• How to create a successful policy: Travel policies should prioritize sustainable travel alternatives where feasible. For example, business travel policies could require all employees to conduct virtual meetings in lieu of in-person discussions where practical or restrict flying for short-distance travel (in favor of rail or other low-carbon alternatives). For employee commuting, companies could consider hybrid work schedules where practical, or offer employees incentives to use low-carbon commuting options.

3. Design policies

Focus: Incorporating sustainability into product or service development.

• Key implementation challenges: Significantly changing the design guidelines of a company’s product or service to align with sustainability goals may require significant investment or time and effort and could even significantly change production or operations. These changes can impact multiple groups within the company.
• How to create a successful policy: Where possible, design guidelines should include emission reductions throughout the product/service lifecycle as a key consideration, alongside other key constraints like cost, safety, manufacturing feasibility, etc. Policies should avoid being prescriptive where possible and remain flexible enough to allow for creative solutions in design. For example, a company that produces small kitchen appliances might require that new designs use at least 50% less energy and are 100% recyclable, leaving the R&D group flexibility in how they meet those design guidelines.

4. Industry and political support policies

Focus: Advocating for climate action and engaging with industry groups.

• Key implementation challenges: Companies must balance competing stakeholder expectations, such as investor priorities, customer demands, and internal leadership views. Taking firm stances on regulations or industry coalitions could alienate certain groups. Additionally, companies may also hesitate to restrict lobbying or industry group participation, as it may limit company options in the future.
• How to create a successful policy: Policies should align with the company's brand and messaging, providing a clear and consistent story for all stakeholders. For example, if an electric vehicle company has positioned itself as a sustainable and clean form of transportation for the future, then supporting regulations phasing out fossil fuels and promoting clean transportation would align with this messaging. In addition to spelling out what companies will do (and won’t do), policies should include a narrative around why this policy is necessary, and employees should be trained on how this policy will support emission reduction efforts.

5. Other policies

Focus: Addressing specific areas of emissions or particular industry challenges.

• Key implementation challenges: Most sectors lack clear guidelines around supply chain management or policy development, and many companies don’t make all their policies public. This can make it challenging for companies to figure out what policies are needed and how to best implement them internally.
• How to create a successful policy: Companies should focus on policies that address material emission sources and embed sustainability into existing business practices. For instance, a company that uses a franchise model may develop a policy around energy efficiency requirements for new franchises. For sectors with clearer guidelines, companies should consider whether adopting best practice policies makes sense for their business. For example, companies in agriculture might set a “no deforestation” policy to reduce land conversion emissions.

What Should Companies Do to Get Started?

To reduce supply chain emissions, companies should start by assessing their current emissions and identifying key sources. For each key source, companies should look for opportunities to update current policies to support reductions in supply chain emissions. For sources where policies do not currently exist, companies may need to create new policies to promote sustainability.

Throughout the process, companies should aim to engage a variety of stakeholders (such as suppliers, customers, and/or impacted departments within the company) to ensure any policy changes not only support emissions reductions but also support current business operations and future growth. By embedding a commitment to emissions reduction within its policies, a company can lay a strong foundation for future engagement with its supply chain.

Not sure where to begin? Reach out to Ramboll for tailored guidance on supply chain emissions and policy development!