Decarbonizing your supply chain: 3 common challenges and how to overcome them

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While decarbonization isn’t new, organizations are now facing increasing pressure to take bigger, bolder concrete actions in their own operations and their extended ecosystems. Governments, investors, and customers expect more detail than ever before on a company’s decarbonization progress, with consequences for those at the beginning of their journey and those who are well on the way.

The good news is that some of the most common challenges to decarbonizing your company’s supply chain have surprisingly practical solutions.

Don’t do supply chain decarbonization alone

Decarbonizing the entire end-to-end value chain is a significant undertaking. Organizations can appreciate the sense of urgency to act and not know where to start. Decarbonizing your supply chain can also involve significant investments in time and money, so there is pressure from leaders, customers, and investors to get results and see value quickly.

Instead of trying to navigate this alone, the single most important action a company can take is to partner with a sustainability expert. By leveraging their experience, tools, and expertise, companies can move quicker, save money, and make a greater impact than they could on their own.

For example, renewable electricity procurement can be challenging for companies of all sizes. The Energize program—a collaborative effort by the pharmaceutical industry to increase access to decarbonization solutions for suppliers—has formed its first PPA buyers’ cohort of nine companies, aggregating 2 TWh of electricity demand in Europe and North America. The program has recruited 369 suppliers and 15 sponsoring companies. For some of them, this is the first time they have explored renewable energy procurement, which was made possible by the comprehensive support and guidance of Schneider Electric’s Sustainability Business.

Embed decarbonization into your business strategy

It’s not enough to have sustainability and decarbonization as mere programs. With this approach, companies can run the risk that the resources won’t be allocated, or investments made and traction will be lost. Instead, companies should ensure they’ve embedded sustainability and decarbonization in the business strategy at the highest level, so everyone understands how it contributes to business performance, giving it what it needs to be successful.

Schneider Electric has made ambitious sustainability targets aligned to the United Nation’s Sustainable Development Goals, with explicit goals for decarbonization. By 2025, we target to save 800 million tons of CO₂ emissions savings for our customers since 2018 and be net zero by 2030. And our Global Supply Chain decarbonization goals align with the company’s goals.

Some leaders may deal with more urgent challenges. With the rising cost of interest rates, many business leaders focus on managing costs. In a recent survey, Corporate ESG Reporting: The Landscape in 2022, conducted by Schneider Electric, c-level executives voted budget as the top challenge they face today. Many supply chain leaders are still navigating the effects of the last three years of crises and volatility and what it means for their supply chains in the future. Firefighting may have taken the focus and energy from larger-scale transformations, including decarbonization.

Companies can’t afford to take their eye off the long term, and pitting sustainability against growth is a false contest. When decarbonizing your supply chain, there are compelling business efficiency and cost savings to be had.

Two Schneider Electric smart factories, both recognized by the World Economic Forum, demonstrate what’s possible.

The Lexington, Kentucky plant uses digitized management tools to monitor energy consumption for all critical processes, including EcoStruxure Resource Advisor and EcoStruxure Power Monitoring Expert. This helped the plant achieve a 3.5% energy reduction yearly and $6 million in savings over the last several years.

Our smart factory in Wuxi, China uses digital twins to optimize heating and ventilation, reducing energy consumption by 32%—a significant cost saving.

Companies also need to include climate impact in strategic decision-making.

Build a community to make a bigger impact

According to Gartner, Scope 3 emissions—upstream and indirect emissions—often represent 90% or more of the total emissions from the entire value chain. They are also the hardest to measure and manage. For most companies, this means the best opportunity to drive end-to-end supply chain decarbonization will be in partnership with their suppliers.

That’s why setting clear decarbonization goals together with suppliers, with and including these as specific sourcing and purchasing criteria, is critical. But setting goals isn’t enough – companies and their suppliers need to work together to achieve the goals they set.

The Zero Carbon Project is Schneider Electric’s way we are doing just that. In partnership with our top 1,000 suppliers, we are helping them to cut 50% of their operational CO₂ emissions by 2025. We set a clear road map and built a digital community for all members, providing training, resources, guidance, and implementation support. By the end of 2022, the program has achieved a 10% CO₂ reduction among participating suppliers—an impressive achievement given 75% of them had never quantified carbon emissions and were new to the subject at the start of the project.

The Zero Carbon Project community supports each other by sharing learning and resources for what’s working, as well as helping everyone move faster no matter their sector or maturity. It also makes progress transparent and visible. Supply chain decarbonization is a challenge all companies face, and the time to act is now. Getting expert advice and support, strategic alignment, and addressing Scope 3 through community engagement are the critical steps companies must face. And of course, investing in digital technologies rapidly and at scale is the key enabler in turning the goals into a reality, turning this challenge into a business opportunity.