The Path to Net Zero Emission

« The Path to Net Zero Emissions » : Supply Chain is a game changer

Preamble:

The transition to a net-zero emissions economy is one of the most pressing challenges of our time. The Intergovernmental Panel on Climate Change (IPCC) has warned that we must take urgent action to reduce greenhouse gas emissions if we are to avoid the worst effects of climate change.

There are three key areas where we need to focus our efforts:

• Changing our ways of consuming things and using natural resources. This means reducing our demand for goods and services and making more sustainable choices when we do consume. For example, we can choose to buy products made from recycled materials, or that are produced more sustainably.

• Reducing waste. This will require a move towards a circular economy, in which materials are reused and recycled as much as possible for businesses, and consumers, a change in their behavior to consume less and waste less.

• Decarbonizing our activity. Industry, retail, and services are all concerned here. The supply chain sector accounts for a significant portion of global emissions, as is responsible for handling and transportation of goods and services around the world. To achieve net-zero emissions, we need to decarbonize the supply chain.

I will highlight 2 dates: 2030 and 2050 to make this article easier to understand. However, even if some other countries like China have decided to finalize their net zero program in 2060, these two dates are the most common for all.

1. Explaining the situation

Climate Change is a reality and global warming will cause catastrophic and irreversible damage to the Earth if we fail to curb the trend.

According to the United Nations, the world needs to reduce global emissions by 7.6% every year until 2030 in order to keep global warming below 1.5 degrees Celsius, which is the threshold beyond which climate change will inflict catastrophic and irreparable harm on the planet.

The Supply Chain sector is a game-changer in the transition to a net-zero emissions economy. It has the potential to reduce emissions by up to 40%.

8 sectors of the economy account for 50% of global emissions (food🌽, construction🏗️, fashion👗, FMCG🛒, electronics💻, automotive🚗, professional services, freight).

We need to focus on decarbonizing these top sectors.

2. What is the situation: IPCC Reports & Climate Fresk

Climate action begins with raising awareness and having a collective understanding of the challenges we face. It is crucial for individuals, businesses, and governments to acknowledge the reality of climate change and its potential impacts on our planet. By recognizing the need for action, we can start to prioritize sustainable practices and work towards mitigating the effects of climate change. This awareness serves as the foundation for driving positive change and fostering a global commitment to address the climate crisis.

The IPCC has played a crucial role in addressing climate change by providing policymakers with comprehensive assessments based on scientific research. It brings together scientists worldwide to analyze data and produce reports on the physical science, impacts, adaptation, and mitigation options related to climate change.

These reports influence international climate policies and contribute to global cooperation. By bridging the gap between science and policy, the IPCC raises awareness about the urgency of climate action and provides guidance on reducing greenhouse gas emissions and adapting to a changing climate. Its work informs decision-making and helps tackle the challenges posed by climate change.

The last IPCC report was released on March 20, 2023

The Synthesis Report finds that human influence on the climate system is clear, and that it is already affecting many weather and climate extremes in every region across the globe. The report also finds that limiting global warming to 1.5°C will require "rapid, far-reaching and unprecedented changes in all aspects of society."

The Synthesis Report is a sobering assessment of the state of the climate, but it also provides a roadmap for action. The report makes clear that we need to take action now to reduce greenhouse gas emissions and mitigate the impacts of climate change.

Here are some of the key findings of the Synthesis Report:

• Global surface temperature has increased by about 1.1°C since the pre-industrial period.

• The oceans have warmed, and sea level has risen.

• The Greenland and Antarctic ice sheets have lost mass.

• Extreme weather events have become more frequent and intense.

• The impacts of climate change are already being felt around the world, and they will become more severe in the future.

The Synthesis Report concludes that "human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history. Recent climate changes have had widespread impacts on human and natural systems."

The report also finds that "limiting global warming to 1.5°C will require rapid, far-reaching and unprecedented changes in all aspects of society."

The world is currently seeking to find a solution to the grave and intricate challenge posed by climate change as a result of the acts of humans, which comes at a time when the globe is facing the possibility of environmental damage in the near future. The current condition of affairs urges us to take strong action to address the problem of greenhouse gas (GHG) emissions and to make progress toward the achievement of the objective of reaching net-zero emissions by the year 2050.

This goal was set to coincide with the Paris Climate Agreement, which requires that all greenhouse gas emissions be reduced to zero by that year. Supply chain operations are responsible for more than 80 percent of all greenhouse gas emissions; in fact, they constitute one of the most significant contributors to greenhouse gas emissions.

You can act as a citizen, a consumer or a worker to change the World

But first, you need to understand more: Do you know The Climate Fresk? A game that changes your perception and helps you to understand the last IPCC reports.

The Climate Fresk is a French nonprofit organization founded in December 2018 whose aim is to raise public awareness about climate change. It proposes a collaborative and serious game based on 42 cards where the participants make a puzzle which summarizes the work of the Intergovernmental Panel on Climate Change.

It highlights the impact that individual actions have on the environment as well as the potential benefits of taking those actions. Nevertheless, acts taken by individuals alone will not be sufficient to halt climate change on their own. It is essential for citizens, businesses, and governments all over the world to work together to hasten the process of the world's transition to an existence free of carbon emissions.

3. Carbon Report Obligations

The Corporate Sustainability Reporting Directive (CSRD) is a new EU directive that was adopted in April 2021 and entered into force on January 5, 2025. It requires large companies and listed small and medium-sized enterprises (SMEs) to report on their sustainability performance in a more comprehensive and transparent way.

The CSRD builds on the previous Non-Financial Reporting Directive (NFRD), but it goes much further in terms of the scope of reporting, the level of detail required, and the assurance requirements. For example, the CSRD requires companies to report on a wider range of sustainability topics, including climate change, human rights, and social inclusion. It also requires companies to use a consistent set of reporting standards, which will be developed by the European Financial Reporting Advisory Group (EFRAG).

There is no equivalent to the CSRD in North America, Australia, or Asia. However, there are a number of different sustainability reporting frameworks that are used in these regions. For example, in the United States, the Sustainability Accounting Standards Board (SASB) has developed a set of sustainability reporting standards that are used by many companies. In Canada, the Global Reporting Initiative (GRI) is the most widely used sustainability reporting framework.

The CSRD is a significant step forward in the global effort to promote sustainability reporting. It is expected to have a major impact on the way that companies in the EU report on their sustainability performance. It is also likely to lead to the development of similar sustainability reporting requirements in other parts of the world.

4. Acceptable Standards for GHG and Initiatives around Carbon Footprint

Businesses are required to assess their emissions in accordance with these criteria on a regular basis to keep track of their progress towards decarbonization. Because greenhouse gas emissions are the result of a variety of supply chain activities, such as transportation, production, and distribution, achieving this goal may prove difficult for supply networks. As a result, the responsibility for greenhouse gas emissions is shared by not only the producers but also the consumers, suppliers, and distributors of the product.

• GHG Protocol: The Greenhouse Gas Protocol is a widely recognized and utilized framework for measuring and managing GHG emissions. It was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). The GHG Protocol provides a standardized approach for organizations to measure and report their emissions, enabling consistent and transparent reporting across sectors and regions. It consists of three scopes: Scope 1 (direct emissions from owned or controlled sources), Scope 2(indirect emissions from purchased electricity, heat, or steam), and Scope 3 (indirect emissions from the value chain). The GHG Protocol has become a key reference for companies and governments in setting emission reduction targets and implementing climate strategies.

• IFRS 2: International Financial Reporting Standard 2 (IFRS 2) is an accounting standard developed by the International Accounting Standards Board (IASB). It specifically addresses the accounting treatment of share-based payment transactions, such as employee stock options or equity-based compensation plans. While IFRS 2 does not directly focus on GHG emissions, it can have implications for reporting and disclosure of emissions-related costs and liabilities. If a company offers equity-based compensation plans that include carbon credits or other environmental performance targets, IFRS 2 would govern how these transactions are accounted for and reported in financial statements. This helps ensure transparency and consistency in financial reporting related to environmental initiatives.

In summary, the GHG Protocol is a framework for measuring and reporting GHG emissions, providing a standardized approach for organizations, while IFRS 2 is an accounting standard governing the treatment of share-based payment transactions, which can have implications for the reporting of emissions-related costs and liabilities.

Both frameworks contribute to transparency and consistency in reporting and are indispensable instruments for combating climate change and promoting sustainable practices.

5. Why Decarbonized Supply Chain is a game changer?

The end-to-end perspective has come to dominate the discussion, and an increasing number of businesses are disclosing and addressing emissions throughout their entire supply chain.

Supply chains often span across different locations, which means that actions taken to reduce Scope 3 emissions can have a positive impact on the climate in countries where there is less regulatory pressure to address these emissions. The reason for this is that business continues to be a global activity.

Decarbonizing supply chains has the potential to be a game-changer for climate action on a global scale. Companies can address substantially larger emission volumes through their supply chains, particularly in customer-facing sectors where their direct emission footprint is relatively low.

Decarbonizing supply chains has a lot of advantages beyond only aiding in climate change mitigation. Among these are:

- Business energy expenses can be reduced and new jobs can be created in the renewable energy sector if supply chains are decarbonized.

- Decarbonizing supply chains has numerous societal benefits, including cleaner air, better public health, and the preservation of natural habitats.

- Businesses who take steps to decarbonize their supply chains may see an uptick in their reputation and client base, as well as a decrease in the likelihood that they will run afoul of any applicable regulations.

6. The TOP 8 sectors

According to research conducted by BCG and WEF in 2021, most greenhouse gas emissions caused by supply chains are attributable to eight sectors of the economy.

The eight industries enumerated here are the food industry, the building industry, the fashion industry, the industry for fast-moving consumer goods (FMCG), the electronic industry, the automotive industry, and the freight sector.

Concerning decarbonization, these industries are home to subindustries that generate a substantial quantity of emissions and face their unique challenges.

For instance, agriculture and livestock industries account for the overwhelming majority of global greenhouse gas emissions. The food industry accounts for roughly 10 percent of these emissions. Both the development of novel protein sources, such as plant-based meat, and the reduction of food waste can contribute to a decrease in the amount of emissions produced by this industry.

In most cases, the sources of emissions in the construction sector are the materials themselves, such as cement and steel, that are used in the construction of buildings. Businesses should prioritize the utilization of low-carbon products, reduce waste, and deploy heating and cooling systems that have a high-efficiency rating to lessen their influence on the environment. Along the same lines, emissions of greenhouse gases caused by transportation account for around 30 percent of the total produced by the automotive industry. It is feasible to contribute to the reduction of emissions by increasing the efficiency of logistics operations, boosting the use of public transportation and electric vehicles, and increasing the number of people who drive electric vehicles.

7. Innovation and the Achievability of Long-Term Goals

The introduction of new technologies can be a considerable help in the battle against the emission of greenhouse gases.

Innovation plays a crucial role in achieving the goals of net-zero emissions by 2030 and 2050. Here are some ways in which innovation can contribute:

⁃ Technological Advancements: Innovation can drive the development and deployment of new technologies that enable cleaner and more sustainable energy production. This includes advancements in renewable energy sources such as solar, wind, and geothermal, as well as energy storage solutions. Breakthroughs in energy efficiency technologies can also help reduce energy consumption and emissions across various sectors.

⁃ Low-Carbon Transportation: Innovation in the transportation sector is vital for achieving net-zero emissions. This includes the development of electric vehicles (EVs), improved battery technologies, and the expansion of charging infrastructure. Additionally, innovations in alternative fuels, such as hydrogen and biofuels, can help decarbonize aviation, shipping, and long-haul transportation.

⁃ Carbon Capture and Storage (CCS): Innovative solutions in CCS technologies can capture and store carbon dioxide emissions from industrial processes and power generation. This can help mitigate emissions from hard-to-abate sectors such as cement, steel, and chemicals, which are crucial for achieving net-zero goals.

⁃ Circular Economy: Innovation can drive the transition to a circular economy, where resources are used more efficiently and waste is minimized. This involves innovative approaches to recycling, reusing, and repurposing materials, reducing the need for raw material extraction and minimizing emissions associated with production and disposal.

⁃ Sustainable Agriculture and Land Use: Innovations in agriculture can contribute to reducing emissions from deforestation, land degradation, and unsustainable farming practices. This includes precision agriculture techniques, regenerative farming practices, and the development of sustainable land management strategies.

⁃ Digitalization and Data Analytics: Innovation in digital technologies and data analytics can optimize energy systems, improve supply chain efficiency, and enable smarter decision-making. This includes the use of artificial intelligence, internet of things (IoT), and big data analytics to optimize energy consumption, reduce waste, and identify emission reduction opportunities.

In summary, innovation across various sectors, from energy to transportation, can drive the development and deployment of new technologies and practices that are essential for achieving the ambitious net-zero emissions goals by 2030 and 2050. Through continuous innovation, we can accelerate the transition to a sustainable, low-carbon future.

8. Things to Consider With Regard to Prices

The cost of lowering emissions of greenhouse gases is something that needs to be considered. It's possible that efforts to cut carbon emissions could result in greater production costs, which will, in the end, be passed on to customers.

Companies don't reduce emissions due to costs and lack of regulation. This argument is weakening. About two-fifths of supply chain emissions may be avoided & eliminating a large portion of emissions is cheap.

Surprisingly, the costs of deep decarbonization across supply lines are low and will only cause prices for end users to go up by 1-4%.

How is this? Mathematical examples assist. A medium-sized (€30k) family car's steel is the second-biggest source of upstream emissions, after aluminum. Zero-carbon steel production is costly. Steel accounts for less than €1k of the car's ultimate sales price, so the mark-up would still be less than 1%.

9. Initiatives Taken on a Global Scale

Sustainable transportation:

Volvo Trucks has introduced a new electric truck that can travel up to 240 miles on a single charge. The truck is designed for urban deliveries, and it is expected to reduce emissions by up to 100%

UPS has committed to using 100% electric vehicles by 2040. The company has already begun to deploy electric vehicles in its fleet, and it is working to develop new charging infrastructure to support its fleet.

The city of Copenhagen has implemented a number of measures to reduce traffic emissions, including a congestion charge, a bike-sharing program, and a network of pedestrian and bicycle paths. The city has also committed to becoming carbon neutral by 2025.

Artificial intelligence (AI):

Amazon is using AI to optimize its supply chain. The company is using AI to track inventory levels, route deliveries, and predict demand. This has helped Amazon to reduce its emissions by 2%.

Walmart is using AI to reduce food waste. The company is using AI to track food spoilage and identify products that are nearing their expiration date. This has helped Walmart to reduce food waste by 15%.

The World Economic Forum is using AI to track greenhouse gas emissions. The organization is using AI to collect data on emissions from a variety of sources, including companies, governments, and individuals. This data is used to track progress towards the 2030 goals for decarbonization.

IT tools and technology:

Carbon Trust is a company that provides IT tools and technology to help companies reduce their emissions. The company's software helps companies to track their emissions, offset their emissions, and improve their energy efficiency.

ClearlyTrace is a company that provides blockchain technology to help companies track the environmental impact of their products. The company's platform allows companies to track the use of materials, energy, and water in their products, from the source to the end user.

The Sustainable Apparel Coalition is a group of companies that are working to make the apparel industry more sustainable. The coalition has developed a tool called Higg Index, which helps companies to measure and track their environmental impact.

Circular supply chains:

IKEA is a company that is working to adopt circular supply chains. The company is using recycled materials in its products, and it is working to design products that are easier to disassemble and recycle.

The Ellen MacArthur Foundation is a foundation that is working to promote circular economy. The foundation has developed a tool called the Circularity Gap Report, which tracks the progress of the circular economy.

The city of San Francisco is working to adopt circular supply chains for food. The city is working to reduce food waste, and it is also working to promote the use of local food.

Recycling supply:

China is the world's largest producer of recycled materials. The country has a highly developed recycling industry, and it is able to recycle a significant portion of its waste.

The United States is the second-largest producer of recycled materials. The country has a growing recycling industry, but it still has a long way to go to reach China's level of recycling.

Germany is a country that is leading the way in recycling. The country has a high recycling rate, and it is also working to develop new technologies to improve recycling.

These are just a few examples of the trends that are being used to reduce GHG emissions. By adopting these trends, companies can reduce their environmental impact and help to mitigate climate change.

These success stories have to be highlighted and that kind of initiatives could inspire and drive change.

Conclusion:

Supply chain decarbonization is an essential part of the fight against climate change. By taking action to reduce the emissions from our supply chains, we can help to create a more sustainable future for all.

Together, we can make a difference:

Understand the climate change.

Involve, Explain and Train your teams.

Measure your Footprint.

Act now.

If you are interested in learning more about supply chain decarbonization, there are a number of resources available online. The World Economic Forum has a comprehensive report on the topic, and the Global Fashion Agenda has a toolkit for businesses that are looking to decarbonize their supply chains.

I hope this article has given you a better understanding of the importance of supply chain decarbonization. If you are a business owner or a decision-maker, I encourage you to take action to reduce the emissions from your supply chain.

Acknowledgements:

I would like to thanks Jean-Baptiste Mounier, Annie Ricard and Frédéric Lino for their help to write this article.

Sources:

IFRS/GHG Protocol difference

WEF booklet (https://www3.weforum.org/docs/WEF_Net_Zero_Challenge_The_Supply_Chain_Opportunity_2021.pdf)