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How Procurement Can Drive Impact for Reducing Supply Chain Emissions

March 29, 2024

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Reducing and reporting on supply chain carbon emissions are growing priorities for many organizations today, especially due to new regulations. As companies strive to adapt strategies for sustainability, procurement professionals are key to making an impact.

In this blog post, we will explore the importance of mitigating supply chain emissions risks and highlight facts and solutions procurement leaders should know to drive meaningful change.

The Scrutiny on Supply Chain Emissions Grows

Scope 3 emissions, which encompass the indirect emissions associated with a company’s value chain, including the supply chain, are an emerging focus area for regulators around the world. Mandatory carbon emissions reporting is law in 40 countries, and Scope 3 emissions are a priority because up to 90% of an organization’s carbon footprint comes from its supply chain.

What’s more, European laws like the Corporate Sustainability Due Diligence Directive (CSDDD) and Carbon Border Adjustment Mechanism (CBAM) apply to many large non-EU companies that trade with the region. Compliance with CBAM, which went into effect late last year, is especially critical for businesses involved in supplying cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Failure to comply could mean fines up to $50 per ton of unreported or incorrectly reported embedded emissions.

“This issue is urgent right now for companies that are importing into Europe, because of the CBAM regulation, and fees which will start to be applied from 2026 onwards” said Erika Peters, SVP, ESG Lead and Head of Corporate Markets at Exiger. “The time is now to establish the processes to measure and comply and minimize cost.”

The Power in Procurement

Procurement professionals hold a unique spot within organizations, as they are responsible for sourcing and selecting suppliers. This places them in a prime position to drive sustainability initiatives and influence the reduction of supply chain emissions. By making decisions about who they do business with and implementing internal procedures aligned with sustainability goals, procurement professionals can bring about significant change.

“The folks in procurement are really in the best place to bring a company from a strategy outlook to an action that brings results,” said Peters. “They can start setting up internal procedures to ask all suppliers the key questions to ensure they align with corporate goals to reduce carbon emissions.”

“The folks in procurement are really in the best place to bring a company from a strategy outlook to an action that brings results.”

Erika Peters, SVP, ESG Lead and Head of Corporate Markets at Exiger

Take Advantage of the Contract Process

The contracting process presents an opportunity for procurement professionals to integrate sustainability goals into supplier relationships. By engaging in conversations with prospective suppliers about carbon emissions and setting targets for reduction during the contract process, procurement pros can lead the way. This approach not only aligns with sustainability objectives but also fosters stronger partnerships with suppliers committed to reducing their carbon footprint.

“For companies that are really trying to make a difference, I think this contract conversation can be a win-win,” Peters said. “Not only is that new supplier getting you to invest more in them, but they may negotiate for an investment to advance emissions reductions, like a solar upgrade. That extra cost could then pay off over time with a long-lasting supplier relationship, as well as a sales campaign to other buyers who need a lower carbon emission process.”

She added that suppliers who get rejected in the contract process due to inaccuracy or inaction on carbon emissions may take it as motivation to change course.

A Common Risk to Monitor

The compliance task requires procurement leaders to collect large amounts of data that is accurate and timely. Without access to reliable information, it becomes difficult to make informed decisions and take effective action.

“I think the risk is partly about timing, being able to make good actionable decisions quickly and not delay operations while waiting for estimates or other data,” said Peters. “The other part is about getting flawed or biased information from suppliers, or having them misinterpret what you’re asking for.”

These challenges in gathering information — and then validating accuracy — can compound the emissions accounting process. Procurement professionals may not have complete control over strategic decisions, so collaborating with trusted partners is also essential.

“There’s a communication that has to occur between the sustainability teams and the procurement teams that I’m not sure a lot of companies have established today,” she said.

Get Results with Multi-Tier Supply Chain Visibility

To effectively mitigate supply chain emissions, procurement professionals must prioritize ESG (Environmental, Social, and Governance) due diligence. This involves gaining supply chain transparency and understanding the flow of goods and raw materials throughout the value chain and assessing the information from an ESG focused lens. By focusing on the product itself, rather than just the company, procurement professionals can identify areas for improvement and gain accurate supply chain carbon emission calculations.

Getting item-level visibility in the supply chain is critical. This includes detail about how products and components are made and where they’re sourced, as different parts of the world have varying environmental regulations. An item made in Germany, for example, may have a very different carbon emissions footprint than the same item made in Vietnam.

A solution specializing in supply chain transparency and carbon emission calculations — two core strengths of the Exiger and Muir AI partnership — can provide valuable, verifiable intel in a matter of clicks. Powered by AI and data analytics, the capabilities of this partnership enable procurement professionals to make informed decisions based on accurate calculations and industry-accepted factors. What would ordinarily require significant manual research can be done within minutes using 1Exiger’s easy-to-use interface.

Companies that work with Exiger and Muir AI to tackle supply chain emissions can choose from three approaches that involve varying degrees of validating supplier inputs, procurement log data, and product information to get the most accurate calculations for emissions reporting.

The end-to-end supply chain visibility with 1Exiger includes due diligence and third-party risk management capabilities to help your business achieve sustainability goals and comply with many ESG-related regulations. It can also deliver strategic benefits, like identifying high-impact interventions and direct-buy opportunities to reduce carbon emissions and reduce costs.

As the urgency to address climate change grows, procurement professionals can be champions in mitigating supply chain emissions risks. By doing so, they can not only drive positive environmental impact but also contribute to the long-term success and resilience of their organizations.

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