Episode 39: Science-based Targets: How to Meet Supplier GHG Requirements
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New regulations as well as commitments and requirements from large companies are pushing suppliers to set science-based targets. In this episode, Tad and Julianna discuss an overview of science-based targets, the new regulations and what they mean for companies, the growing number of companies that are beginning to require their suppliers to set science-based targets by 2025, how suppliers can start taking inventory of their GHG emissions, the importance of training your sourcing and procurement teams, the benefits of measuring and reducing your Scope 3 emissions, the number of team members you will need internally to gather the data necessary for setting science-based targets, and how to know when to outsource and ask for help.
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We are seeing more requirements coming out from a regulatory perspective, as well as from large companies requiring their suppliers to Set science-based targets. Can you talk a little bit more about these market drivers?
“All this activity around sustainability started when big financial companies and investors began challenging publicly traded companies to start reporting and understanding their greenhouse gas emissions. There's been a big movement now with quite a few different regulations. California for example, has come out with 3 regulations recently:
Senate Bill 55, the Climate Corporate Data Accountability Act, requires companies that have a revenue of over $1,000,000,000 to report Scope 1, 2, and 3 emissions.
Senate Bill 261, the Climate-related Financial Risk Act, requires companies to disclose any kind of financial or climate risk they might have.
Assembly Bill 1305, the Voluntary Carbon Market Disclosures Act, requires companies claiming to be carbon neutral to complete third-party verification or assurance on any claims they make.
There are also federal acquisition regulations that require any suppliers to the federal government to report emissions. If a company has a revenue of over fifty million dollars a year, they would have to report Scopes 1, 2, and 3 and set science-based targets.”
We understand that there are bigger companies that are requiring their suppliers to set science-based targets. Can you give an example of what some of these companies are requiring of their suppliers?
“These companies are now required to assess and disclose Scopes 1,2, and 3 emissions by 2025 and commit to setting near-term targets aligned with the 1.5-degree pathway for science-based targets initiative. This would include making a public commitment to reducing waste and energy, re-using materials and manufacturing, and committing to switch to at least 80% renewable power by 2030.
Scope 1 is one of the biggest challenges for any company that's trying to reduce their GHG emissions and we have to remember that the suppliers Scope 1 and 2 are going to be a large companies Scope 3. Suppliers are now being asked to switch to renewable electricity or carbon-free electricity. They're also being asked to look at changing the way they burn fuel on their site, for example switching to green heat which could be hydrogen or electrified processes.
So now, not only do suppliers have to worry about doing their own Scopes 1, 2, and 3, but they need to push it down to their supply chain as well. This is huge and is going to really push the envelope for many of these suppliers. This is why we're doing the podcast today to get people up to speed on what these requirements are.”
Say I'm a supplier. How do I even get started with this?
“If you are a supplier, the first thing to do is complete your greenhouse gas emissions inventory for Scope 1 and 2 in your operations. These operations would include manufacturing, distribution centers, offices, etc. The next thing you need to do is analyze your expenses and start thinking about your own Scope 3 by doing what we call hotspot analysis.
The best way for any supplier to understand this is to get trained on it because you're going to have to report it. This can be done on different platforms. The big companies might require that you report on CDP, Ecovadis, or they might have their own software that you'll have to report to. With the right guidance and training, you can streamline the process and get the help you need.”
Is there anything else that a supplier could do?
“The first and most important thing you'd want to do is work with your sourcing and procurement teams. You'd want to train them immediately on what Scope 3 is, and their role in setting up a supplier engagement strategy. This is an important step and we've got a great training program developed to help the sourcing and procurement teams get up to speed, support, and help drive this.
You can do your initial assessments and your measurements very quickly, but this is a multi-year project. It takes time and it's not going to happen overnight. The fact that these pharmaceutical companies are requiring disclosure and setting near-term science-based targets by 2025 is pretty ambitious. So the time to start is now. That initial reporting can be done first and then you can take a little more time to set the science-based targets and to understand your suppliers. But getting everyone trained and up to speed should happen as soon as possible.”
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