The SCOPE 3 Challenge – The Planet is not a competitive advantage

This article is provided by BRC Associate Member IBM.

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For a long time, the supply chain has been considered a trade secret by many organisations. Supply chains which were crafted around maximum output at minimum cost. However, there is a new threat to modern day supply chains - the threat of mass disruption posed by climate change.

Tried getting hold of Madagascan vanilla lately? If you have, you’ll know it’s a challenge. With the island facing its most acute drought for 40 years, accentuated by the effects of sandstorms, due to three consecutive years of failed rains, army worms and locusts. Last year saw less than 50% normal rainfall, devastating agricultural production during the main harvest, with losses of up to 60% in some of the most populated districts. This is just one of a plethora of examples of the very real climate-related sourcing issues happening in today’s market. ^[1]

Actions to monitor, measure, report on and drive down carbon emissions are critical to halting, and ideally reversing, climate change. The retail industry, contributing c. 215 MtCO2e (million tonnes CO2-equivalent) per year, has significant capacity and responsibility to reduce the UK’s carbon footprint. ^[2]

SCOPE 3 are the emissions created within an entity's supply chain that are out of the direct control of the entity doing the reporting. These can either be upstream of the entity (toward the farm, mine, etc.) or downstream (towards the consumer). This is where the greatest proportion of a retailer’s emissions come from, unfortunately, they are the hardest to identify and manage.

Why have the BRC teamed up with IBM to tackle upstream SCOPE 3 emissions (under Pathway 4)?

At its core SCOPE 3 is a complex data challenge, and IBM are world-leading experts in data & AI.

What’s holding us back?

SCOPE 3 emissions are a complex issue – made clear through our initial workshops with BRC-member retailers, and the work that IBM is already doing with key players in the CPG industry.

1. A Lack of Direction & Priority

In a sea of opportunities, it can be hard to agree where to start. Sustainability strategies can be very ambitious (which we welcome!) but often lack a clear roadmap for how the organisation will achieve them. This materialises as retailers committing to a hotch-potch of sustainability initiatives and presents a risk of greenwashing.

Sustainability targets, accountabilities and applicable performance management measures often aren’t cascaded to operational business teams who can drive material change. A recent study by IBM Institute for Business Value (IBV) and Oxford Economics surveyed 1,958 executives, across 32 countries worldwide. The study found that ‘while 86% of these companies had a sustainability strategy, only 35% had acted on that strategy’. ^[3]

2. Logistical Data Challenges & Supply Chain Engagement

Often the true complexity of today’s multi-tiered, global supply chains is unknown. This means, at a granular level, retailers don’t know WHO to request sustainability data from.

There is often also a lack of clarity, with the plurality, rapidity and volatility of emerging standards, requirements and legislation alongside variable carbon calculation methodologies, as to which data points are needed in order to complete ESG disclosures and demonstrate compliance. This means retailers don’t always know WHAT data to ask for.

To add to this, there is the challenge of HOW to get information from suppliers. Physically, N^th tier suppliers, accustomed to working with hand-written batch notes and working off-system, may not have access to the raw data or technology required by retailers. Culturally, suppliers face audit fatigue as they are bombarded with data requests, from many purchasing organisations, in varying formats.

Logically, there is a strong desire to leverage the many, albeit disparate, data sets in existence; the retailers ERP or PLM, supplier documentation, external databases (Sedex, Higg, EcoVadis), etc. The challenge is, how do we pull together this information to minimise duplication of effort, whilst maintaining security, accuracy and authenticity?

3. SCOPE 3 Data Aggregation & Reporting

Assuming we have gotten hold of the right data, from the right people, we then need to work with the data. Retailers need to structure the data in a logical form which facilitates efficient analysis, and dynamic reporting in line with external standards (SBTI, SASB, GRI, etc.). Many views of this data set are also needed – be it by product, supplier, batch, GEO, etc.

The carbon calculators and factors currently leveraged by retailers bring their own issues. Too often these calculators are too generic, providing carbon values at product, rather than component, level. Without appropriate calculation factors, sustainable changes to supply chain processes and sources are not recognised in performance reporting.

4. Managing Reputational Risk

Throughout this process, retailers need sustainability data to be transferred, stored and accessed securely. Current sustainability performance needs to be accurately and efficiently analysed to identify and mitigate immediate risks of non-conformance. Retailers also need a mechanism to forecast potential future risk areas, allowing targeted auditing and corrective action to be taken.

What’s driving us forward?

Demands to improve sustainability performance are coming in thick and fast – from consumers, government, investors, and beyond. What’s clear is that being ahead of the curve opens retailers up to interesting opportunities.

1. Minimise Risk – to operations, revenue & brand

Climate change is introducing a progressive, unrelenting risk to supply chains. Whether that be the farming of grains, the sourcing of timber or the shipping of goods.

In the wake of recent and emerging ESG legislature, organisations are facing punitive, potential percentage of global revenue fines for non-conformance. ESG considerations have even driven some insurers to limit coverage or investments in certain sectors. ^[4]

In today’s era of social media and cancel-culture, managing the sustainability of the brand can be as critical as managing the continuity of supply. The good news is that working to shore up the sustainability of your supply chain, can yield improvements to quality and reliability, whilst reducing waste.

2. Differentiate through new products & services

Several brands have used sustainability as an opportunity to diversify their offerings and appeal to purpose-driven consumers.

A recent study performed by the IBM Institute for Business Value (IBV), in association with the National Retail Federation (NRF), surveyed more than 19,000 respondents across 28 countries. It found that today, consumers across age groups are looking for brands and retailers to help them shop more sustainably. ^[5] In fact, purpose-driven consumers—those who prioritise brands that align with their values and lifestyles—now make up the largest consumer segment across all product categories. These consumers who spend more, buy more, and are more impulsive shoppers, act as strong brand ambassadors – so they’re worth targeting!

3. Attract investors

As well as attracting new customers, strong ESG performance opens up organisations to additional sources of investment. For reference, 91% of banks, 24 global credit rating agencies, 71% of fixed income investors and over 90% of insures consider ESG performance in their decision-making. ^[6] How are they doing this? At least 10% of investors source their ESG information from corporate disclosures, such as those completed via CDP. ^[7]

4. Increase efficiency of auditing & disclosure across ESG pillars

With stakeholders keen to get visibility of corporate disclosures, retailers are seeking out opportunities to streamline this process. Emerging technologies offer the capability to draw on disparate data sets, to produce standardised reports which meet regulatory requirements. By expediting the disclosure process, retailers can make supply chain auditing more targeted, and free up Sustainability SMEs to actually work on Sustainable change projects.

Another key point is that work to improve performance in one ESG pillar, in this case environmental emissions, can expedite improvement in other pillars, such as human rights. These potential economies of scale for sustainability change shouldn’t be overlooked.

5. Avoid unnecessary spending on fines, taxes & levies

In addition to increasing income through green customers and investors, retailers can also avoid unnecessary outgoings on environmental taxes, levies, and fines through demonstrating compliance. ^[8] Sustainability presents opportunity for retailers to maintain competitive product prices, and protect precious margins, especially with today’s cost of living crisis.

The Path to Clarity & Control

Having validated the driving and limiting factors faced by BRC retailers targeting SCOPE 3 in collaborative workshops, IBM distilled a framework of sustainability capabilities and solutions to address this complex data challenge.

In the coming months of the IBM-BRC Pathway 4 engagement, IBM plan to co-create an MVP prototype solution with a subset of our retailers, focusing on a common raw material (such as cotton). In doing so we intend to learn more about which datasets and technologies will best support Retailers in addressing the SCOPE-3 challenge and beyond.

To learn more about this MVP or to discuss IBM’s Sustainability services feel free to contact me directly: