This article is provided by BRC Associate Member CarbonCloud.
Emissions data from the supply chain is the thorniest sustainability issue for retailers. Upstream Scope 3 data is a problem every retailer has identified but no one has crossed over fully to complete digital twins. The roadblocks are spread out throughout the road to primary data but retailers geared with conviction, change management experience, and the right digital infrastructure can trace the climate impact of their supply chain in 4 steps.
Why is supply chain emissions data important?
No retailer will doubt the significance of primary data from the supply chain but every retailer joins the quest with different, legitimate motives. Scope 3 primary data is the sustainability holy grail of this decade for what it does as well as what it signals.
Primary emissions data from a retailer’s supply chain signals sustainability maturity and leadership. When the entire industry is admitting to the challenge of obtaining it, retailers with primary data on their radar are signaling a leading position in the race for emissions reductions.
Primary emissions data is key to unlocking reduction incentives and opportunities beyond the industry average. A retailer with primary data along the supply chain of its products can quickly:
- Prioritize reduction initiatives.
- Act effectively on procurement strategies.
- Reduce climate change mitigation costs.
The faster and more effectively a company can move on to reductions, the quicker its assortment can claim the competitive advantage of “lowest emissions” against competitors.
Finally, overlooking Scope 3 primary data is a triple-natured risk: Reputational, financial, operational. Failing to address climate risks in and from the food supply chain, particularly agriculture, impacts the investors’ perception of the longevity of the retailer and leaves its operations vulnerable to the effects of climate change. Sitting out Scope 3 emissions management and reporting is a market signal that the company leaves these risks unaddressed and is more vulnerable to financial losses.
ESG and retail executives are well aware of this. A retailer sustainability report without a plan or targets for Scope 3 data collection and reductions is a rarity. However, plans and claims in themselves have been discloses for a few years not and Scope 3 emissions not only remain largely unmapped but they keep increasing. What’s stopping the plans from materializing?
What are the roadblocks in Scope 3 data collection?
The answer to this question is complex enough to mobilize academic research. The 2023 study Supply-chain data sharing for scope 3 emissions published in Nature from A. Stenzel and I. Waichman ventured a thorough problem identification that highlighted three main obstacles and corresponding solutions to obtaining supply chain emissions data.
The regulatory obstacle outlined in the study is not the top-of-mind lack of standardisation a seasoned sustainability expert would expect. Stenzel and Weichman explain that data ownership and competition regulations, which are critical in other contexts, manifest as roadblocks to sharing emissions data along the supply chain. Such regulations immobilize players who are willing to be transparent with their data but lawfully disabled.
Regulators, already moving in the right direction with mandatory climate disclosures, can optimize bills and legislations to facilitate a transparent view of corporate emissions. Stenzel and Weichman recommend mandating Scope 3 disclosures with prescriptions on supply chain data quality and incentives for first movers. In addition, the study recommends removing regulatory barriers to data sharing or restructuring existing laws to account for emissions data sharing.
2. DATA HARMONISATION & INTEROPERABILITY
Stenzel and Weichman confirm what sustainability experts have long known and advocated to solve: A lack of harmonisation in measuring emissions. As the study explains, there is room for interpretation and a call for decisions in existing standards resulting in unharmonised, incomparable metrics. Nevertheless, the authors add that, even if measurement standardisation is solved, the roadblock will persist:
(…) even if all firms along a supply chain agree to a certain calculation standard, they still face a lack of action interoperability. Current data exchange is realized with high manual efforts and surveys or spreadsheets leading to high costs (…)
—Stenzel & Weichman, 2023
The lack of digital infrastructure in the supply chain for emissions information exchange is a subsequent obstacle for retailers in mapping out emissions fully and holistically. As the study points out, the current pathway of surveys, spreadsheets and manual information exchange is not only a costly alternative, but an insufficient solution.
A digital infrastructure with networked capabilities and a consistent measurement framework is a catalyst in overcoming the obstacles of harmonisation and information exchange. Stenzel and Weichman also recommend to private-public partnerships or private coalitions to consolidate existing frameworks in a consistent measuring approach that removes room for interpretation. However, these initiatives are moving too slowly to provide a solution in time and so far, have exacerbated the “wait and see” response.
Suppliers have clear-cut data privacy requirements from a Scope 3 digital infrastructure. The study presents interesting results from a relevant survey:
- 57% of German executives are anxious about core data and trade secrets being exposed and identify this concern as an obstacle to sharing data.
- 59% of the respondents also stated that lacking visibility of who can access their data is a “very big” or “rather big” obstacle in sharing their data.
The result is evident in the market. Suppliers are concerned about the privacy of their data, exacerbating the data collection challenge in retailers and consumer-facing companies.
One clarification is critical: The information vendors are requesting is emission metrics, i.e. the climate footprint of products. Sensitive data such as recipes, production capacity, routes and other trade secrets indeed improve the accuracy of carbon footprints. However, as long as suppliers are performing the measurements on a private end, with the same measuring approach and in the same digital infrastructure, this sensitive data can be used for the final calculation provided but remain private.
The study adds that that the digital infrastructure must enable data owners to set limitations on their data usage and protect the data input and measurement analysis while enabling accountability.
Overcoming the roadblocks in 4 steps
Stenzel and Weichman’s study approaches Scope 3 data from a systemic perspective as any study should do. However, translating systemic solutions into transformative action is a matter of operative business. Retailers progressively taking the following four steps can complete their emissions map with primary data and quickly move on to meeting their targets.
Step 1: Get the right digital infrastructure
The singular solution that will enable a company in the food industry to defeat the roadblocks is the right digital infrastructure. Retailers building a Scope 3 data collection approach require a digital system that ticks every item on this list:
- Has a unified measurement approach
- Enables automated supplier engagement
- Automates emissions information exchange
- Is prepared to replace generic data with primary data from the supply chain
Finding the system that not only says but technically performs all the above is a quest in itself. CarbonCloud aims to limit this quest as it was developed and optimised to solve exactly the upstream Scope 3 data challenge. The fact that retailers are assigning the same significance to the supply chain emissions data challenge is a positive synergy that the food system will rapidly reach a solution.
In short, what the food system needs is climate intelligence. Much like business intelligence, a climate intelligence platform for the food supply chain will give retailers the data exchange infrastructure and analytics for data-driven decisions along the supply chain.
Step 2: Inform suppliers with clarity
The process of informing your suppliers is separate from the operational data collection from suppliers. The digital infrastructure should and must take this load, not just for saving resources for retailers but for successfully completing the transformation of the supplier infrastructure. The process should be as automated as possible for every party involved. This step is all about communicating change management: Priming suppliers to ensure their engagement with automatic data collection.
At this stage, it is key to set clear expectations and provide reassurance to suppliers. Inform them about:
- Your organization’s determination to collect primary emissions data from the supply chain
- The benefits for both from this collaborative work
- Rewards and repercussions
- The transformation timeline
- How and where they can provide their data
- The metrics they need to provide
- How their data privacy is ensured
It is important to keep in mind that retailer Tier 1 suppliers will need to roll out the same process to subsequent tiers, so crystallizing the determination and the benefits of this work is critical. As the Stenzel and Weichman study showed, reassuring suppliers about the ownership of their data and the security of their trade secrets is also key to alleviating their doubts. Once Tier 1 suppliers are primed, the data collection automation can be rolled out with the right conditions for success.
Step 3: Prioritize risks and suppliers
Even when the destination is the same, the journey matters. There are two approaches to prioritizing primary data from the supply chain: Prioritizing high-risk commodities or supplier tiers. Both are valid and helpful but the choice for every retailer is unique choice and it determines successful scalability and ultimately business transformation.
This approach is valid in ensuring the completion of primary data collection across your supply chain, and more effectively mitigates dropout risks. With the Tier 1 supplier approach, the data collection automation rolls out to suppliers in direct contact. Along with this request, the retailer also passes along the data collection torch to suppliers to continue the loop until the beginning of the supply chain, the farm.
The benefit of this approach is increased oversight of the process, enabled by direct communication channels and short feedback loops. As a result, a retailer can manage the traction of the data collection process, and if needed speed it up.
The trade-off is that localized emissions hotspots may appear later, as the process is linear across the supplier tiers. In addition, retailers have less control further down the supplier tiers and rely on the accountability of Tier 1 suppliers to propagate the work.
To counteract this potential downside, retailers can leverage direct communication channels to further strengthen Step 2 and ensure that the operational shift is crystal clear and enforced with actions.
This approach is suitable for retailers eager to start with targeted reduction initiatives as quickly as possible and in possession of a Scope 3 screening. With the high-risk commodity approach, the data collection automation starts with the commodities of the highest climate impact, aiming for primary data from the deep end of the supply chain of selected commodities. In other words, instead of increasing data resolution throughout the entire assortment portfolio, retailers zoom in to high-impact commodities with higher definition.
The benefit of this approach is faster reduction insights. Retailers following high-risk commodities to the deep end will be able to kickstart impactful reduction initiatives along these paths in parallel to the data collection work.
The trade-off of focusing on high-risk commodities is that it requires a preliminary low-resolution image of the supply chain emissions for the entire assortment. This low-res emissions map ensures that the resources allocation is data-driven and not randomly allotted. In addition, managing two parallel climate priorities requires a high level of climate maturity, both from the retailer and the suppliers involved.
To counteract this tradeoff, a digital infrastructure that performs the low-res assessment as well as the technical capabilities to replace generic data with primary data will save time and costs and ensure data-driven change management. CarbonCloud has a plug-and-play solution for portfolio-wide assessments of thousands of products with the infrastructure to scale to primary data.
Step 4: Propagate the work – Incentives and penalties
Step 2, informing suppliers about the operative change with clarity will get a retailer as far as its direct channels. Casting data collection further down the supply chain depends on actions from the retailer and Tier 1 suppliers. Once primary data collection from Tier 1 suppliers is complete, the emissions map has sufficient definition for data-driven supply chain and procurement transformation.
Incentivising suppliers who improve their performance or propagate the data collection work further down their supply chain is a retailer’s strongest propeller. Retailers can share their infrastructure, reward suppliers who continue the data collection process to subsequent tiers, financially support reduction initiatives, encourage adoption of new technologies, and transform their portfolio to a climate-best-in-class assortment.
Suppliers unresponsive to incentives and resistant to data collection or emissions reduction measures will require counteractive measures. Discontinuing suppliers that hinder the retailer from reaching business goals is the strongest index that climate goals are core business. Moreover, suppliers resisting this business transformation are riskier business partners as their business survival is already in question.
With a transformative process on the roll, it is important to keep eyes on the prize: Emissions reductions. It is the reason why primary data from the supply chain is business-critical and where it adds the largest value. Emissions data is a competitive advantage for suppliers as well. The cost- and time-savings with the right digital infrastructure make leading the low-emissions market for food a double-win situation for the entire supply system.