In our last article, we looked at some of the challenges with scope 3 emissions reduction for companies in the food and agriculture sector. With complex supply chains consisting of often thousands of different suppliers spread across multiple tiers, the sector is a particularly difficult area to make meaningful reductions in scope 3. This doesn’t mean, however, that there aren’t ways to make significant reductions. This article will explore a few ways that companies can make a start on reducing their emissions and tackling scope 3.
Supplier Segmentation: Where to Begin?
Previously, we highlighted the importance of taking a commodity specific approach, looking at items such as soy, beef, and rice which contribute disproportionately to emissions.
Once these commodities have been identified, the key next step is to spend time looking at the larger suppliers, who are likely to be contributing the greatest to emissions. We recommend you start with an analysis of the suppliers involved in each high-emissions commodity that contribute the most based on overall sales volume. A second lens to apply is to consider each supplier’s ability to take action when it comes to reducing emissions. For example, it will be easier for a supplier that owns their own farms to make reductions, than it is for a distributor sourcing from multiple places.
Geography can also be considered as there may be some suppliers who will be forced to decarbonize due to local regulations and therefore do not require any further engagement to reduce their emissions. For example, the EU is putting regulations in place forcing companies to move away from products associated with deforestation. For these suppliers, their progress can be monitored through time to ensure they deliver on commitments, but active engagement will not be required.
Life-Cycle Assessment: Seeing the Full Picture
In addition to supplier segmentation, the Life Cycle Assessment (LCA) can be a useful tool to target emissions reductions as it allows you to understand where in the product lifecycle these emissions are generated. This is particularly informative for processed foods such as sugar, which tend to have multiple production steps.
Cradle to Gate vs. Cradle to Grave: Choosing the Right Scope
The first decision to make in an LCA is whether to perform a cradle to gate, or cradle to grave analysis. Cradle to gate analysis involves accounting for all the emissions from the raw materials right through to the factory or store gate (i.e when the product is shipped to the customer). Cradle to grave analysis takes this a step further, incorporating emissions during the use phase and end of life phase of the product. Given the seller often has limited control on the use phase with food products, a cradle to gate analysis is usually sufficient.
Uncovering Carbon Hotspots
Conducting a thorough LCA involves identifying the steps involved in producing a product in detail, and sourcing data at an appropriate level. For many commodities, software tools, such as our partner Terrascope, can provide a detailed LCA based on product origin and processing method information. Once the carbon intensive process steps have been identified, supplier data can be supplemented with emissions intensive steps to provide a detailed picture of the carbon reduction opportunities.
The advantage of taking an LCA approach is the ability to highlight the process steps that lead to carbon emissions. Where emissions from logistics, factories, or additional energy intensive process steps are found, there lies quick reduction opportunities through energy efficiency measures or renewable energy purchasing.
Strategic Supplier Engagement: Making the Collaboration Count
Once strategic suppliers have been identified, the process of working with them to reduce emissions can start. There are several relatively simple actions that companies can take to reduce emissions quickly, with limited financial investment from the supplier. These may even come with additional benefits.
Spotlight Case Study
For example, work completed by RESET in the rice industry has shown that by adopting a technique called Alternate Wetting and Drying (AWD), rice producers can cut carbon emissions by over 30%, with no impact on crop yield and a significant water saving. The technique involves letting rice paddies dry out before re-wetting them again, rather than constantly topping up water levels to keep them permanently flooded. The drying limits the growth of methane-emitting bacteria, cutting emissions. This technique also significantly limits water use, saving money, and reducing the reliance on water in the increasingly water-stressed locations where most rice is produced.
In starting this kind of program, companies should consider the benefits to the supplier in a longer-term partnership. These benefits could be financial but also could include the ability to market themselves as an innovator, reduce risk, and enable them to drive value with other customers, having mastered a new and novel technique. Companies may also want to offer preferential terms (e.g. purchase volume commitments) to suppliers who are able to achieve certain emissions reductions.
As with all supplier engagement programs, it’s key that sustainability teams are careful not to do too much, too fast, but to meet the supplier at their current knowledge level, with a view to gradually developing a long-term partnership.
Setting Procurement Commitments: Bold Moves, Big Challenges
Procurement commitments are becoming increasingly popular among leading brands and can lead to significant emission reductions. These commitments are gaining traction, particularly around deforestation-free products, with multiple industry leaders including Tesco and Unilever committing to zero deforestation by 2025. The Science-Based Targets Initiative (SBTi) is following their lead, making it mandatory for companies wanting their short-term targets approved, to commit to no deforestation in their supply chain by 2025.
While this can seem like a simple and quick way to make a large emissions reduction, companies should be aware of the complexity of implementing such a commitment, especially over a 2025 timeline.
The first challenge is dependent on how companies are sourcing products, it may be very difficult to verify if they are deforestation free. Companies sourcing from wholesalers may not have full transparency on the origins of the products they buy and therefore will have to invest significant resources in traceability initiatives.
The second challenge is even if companies have a high degree of transparency on product origins, it’s not always easy to convince suppliers to eliminate deforestation. For example, often the financial case for suppliers to cut down trees is far stronger than the case for them to farm more efficiently on existing land. To change this financial logic can be expensive. Tesco for example is investing US$11 million in a program to provide green financing to farmers in Brazil, to incentivize them to farm on non-deforested land.
When companies are willing to treat procurement commitments strategically, and make investments in meeting them, they can be a strong way to send a message through the supply chain. However, before committing, companies must be sure that they understand the implications for their business, and the brand impacts of setting and then walking back from this kind of pledge.
Understanding Carbon Credits: Offsetting and Insetting
Many companies in the agricultural sector are starting to explore carbon credits as a method to facilitate carbon reductions in the supply chain. While this can be a viable option at times, the market should be approached with caution.
The two main methods to apply carbon credits are offsetting and insetting.
Offsetting involves buying carbon credits from a project outside of your own value chain and allocating the emissions reductions against your own scope 3. Insetting in its simplest form involves directly investing in carbon reduction project within your value chain. These can either be attributed to your own carbon emissions or sold as credits (particularly useful if the project delivers carbon reductions for others buying from the same supplier). It should be noted, that insetting is in its infancy and there is currently no clearly aligned global definition of what constitutes insetting.
Offsetting is often tempting to companies who are offered a large number of credits at a low price by developers, but before investing, companies must develop a robust strategy. The carbon offset market is still not mature, and credits vary in quality, with some delivering robust emissions reductions, and others less-so. It is critical that companies set clear criteria to guide their purchasing around factors like additionality, vintage, and permanence. It is also worth noting that SBTi short-term targets do not allow offsets, which should encourage companies to explore in-value chain reductions in the short-term, unless offsets are preferred due to co-benefits like biodiversity promotion.
Inset programs are often more robust, because the company has direct control over the emissions reduction taking place. They can also provide a strong financial incentive for strategic suppliers to decarbonize their operations, particularly where they may be operating on a low margin. The insetting market is still new but has great long-term potential for pioneering companies looking to engage their suppliers.
Conclusion – A Long Term View for Meaningful Impact
In general, agricultural companies should focus on a strategic approach when driving value chain emissions reductions. The foundations are strong supplier segmentation and robust LCA data, allowing reduction initiatives to be targeted in the places where they will have the most impact.
Although blanket statements such as deforestation-free commitments may seem impactful at face-value, they are extremely difficult to implement and therefore may come with a high hidden workload. Although seemingly simple to implement, offset programs are also complex to do well, and high-quality carbon credits can be more expensive than in-value chain emissions reductions per kilogram of carbon removed.
Companies in the agricultural sector should remember that scope 3 emissions reduction is a long-term initiative, and it is worth spending the time establishing a robust strategy before committing to individual reduction actions.
In our next article we will look at this strategy phase in detail and analyze exactly how a company new to carbon can get started with scope 3 emissions reduction.