Climate change is one of the most pressing issues facing humanity today, with the potential to impact every aspect of our lives and the natural world around us. As we continue to grapple with the effects of global warming, there is growing recognition of the need to take action to reduce greenhouse gas emissions and transition to a more sustainable and low-carbon economy. Decarbonization has emerged as a key strategy in this effort, encompassing a wide range of policies, technologies, and behavioural changes aimed at reducing our collective carbon footprint and mitigating the impacts of climate change.

Companies, particularly end-use industries like oil and gas, steel, cement, aluminium, and industrial gases, which account for about 80% of global greenhouse gas emissions, are making significant efforts to reduce their carbon footprint as the world moves towards achieving net-zero targets. In order to do this, many businesses are largely concentrating on reducing their scope 1 and scope 2 emissions, which are related to manufacturing and logistics and supply chains, respectively. Since these regions have seen a large reduction, some businesses are now focusing on scope 3 emissions, which include emissions from their suppliers. Companies can adopt a holistic strategy to meeting their carbon reduction targets and contributing to a more sustainable future by engaging with their suppliers to help them become zero carbon.

Measures taken by end-user industries 

There are significant volumes of carbon dioxide emissions produced during the production and use of steel and cement, as well as during the extraction and processing of oil and gas. Energy-intensive aluminium production results in high greenhouse gas emissions. Strong greenhouse gases include industrial gases like methane and nitrogen, which are emitted during a number of industrial processes. Therefore, in order to meet decarbonization targets, these businesses are concentrating on reducing their carbon footprint using a number of strategies, like,

• Production techniques and resource transformation: Businesses can cut their carbon emissions by switching to more eco-friendly production techniques, utilising renewable energy sources, and utilising fewer fossil fuels in their daily operations. For instance, Vedanta Aluminium has committed to sourcing 380 MW of renewable energy to help control its emissions

• Utilising suppliers with high environmental, social, and governance (ESG) ratings can assist businesses in lowering their carbon footprint by ensuring that their suppliers are also pursuing decarbonization objectives. ExxonMobil, for instance, recently announced plans to achieve net-zero emissions by 2050 and invest $15 billion in new technologies to reduce emissions. 

• Using electric fleets: Companies can reduce their carbon emissions by switching to electric fleets for logistics and transportation. This may eventually help with cost reductions

• Localization of supply chains: Businesses can lower their carbon emissions related to transportation by localising their supplier chains. This can be accomplished by using locally produced raw materials and completed items, as well as by collaborating with local vendors.

Challenges:

It is predicted that this global movement towards achieving net-zero emissions would require over $2 trillion in capital investments by 2050. Energy disruptions in recent times have also had a significant impact on the ability of countries to move towards their net-zero goals. For instance, in October 2022, Germany had to re-open five coal-powered plants to tackle energy shortages amid the ongoing Russia-Ukraine war. 

Since scope 3 emissions make up more than 70% of the carbon footprint of large organisations, addressing them is essential to meeting net-zero ambitions. Companies’ limited ability to influence the supply chains of their suppliers presents a hurdle. It is vital that businesses develop sustainable procurement methods and reduce their carbon footprint in collaboration with their suppliers. Some of the ways procurement centres of excellence can support their companies’ decarbonization strategies include evaluating suppliers based on their ESG-related certifications and including decarbonization in supplier contracts. Digitising the supply chain to have a clear awareness of the tier 2 and tier 3 suppliers and their decarbonization initiatives is another method to have more visibility into it. 

Suggestions and ways forward:

By collaborating with suppliers towards net-zero goals, procurement centres of excellence (CoE) can be crucial in developing a company’s decarbonization plan. This strategy can drastically cut overall emissions, especially those under scope 3.

In order to make sure that suppliers are working towards the same objectives, CoEs might include decarbonization in supplier evaluation and contracts when holding tenders. They might prioritise suppliers who have ESG-related certifications and use sustainable buying methods. 

Moreover, digitising the supply chain can provide clear visibility into tier 2 and tier 3 suppliers and their decarbonization strategies. This approach can help CEOs identify and mitigate potential carbon emissions across the supply chain. Zoglix -a Moglix Company has been working with organisations to digitise their procurement and supply chain channels at a rapid yet sustainable pace.