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After COP26, Why Supply Chain Leaders Must Step up to Reduce Emissions

November 17, 2021

Contributor: Sarah Hippold

Gartner analysts weigh in on what follows the Glasgow Climate Pact.

On Sunday, November 14, 2021, the United Nations Climate Conference — commonly known as COP26 — concluded with the Glasgow Climate Pact as its final accord.

The Conference of the Parties (COP) meeting was marked by political wrangling and lobbying, but the central goal was to keep alive the hope of containing global warming at 1.5 degrees Celsius above pre-industrial levels, as outlined in the previous Paris Agreement. 

The takeaway for enterprises is that supply chains will come under scrutiny as they fall under scope 3 corporate value chain emissions of greenhouse gases (as opposed to direct and indirect emissions covered by scopes 1 and 2) . 

Register now: Sustainability Strategy to Action: Business Response to COP26

That’s why supply chain leaders must plan their next steps in the journey of climate change mitigation and adaptation. Gartner analysts Sarah Watt and Simon Bailey took a closer look at the results of COP26 and are here to answer your most important questions.

What are the main takeaways for supply chain leaders from the COP26 accord?

The Glasgow Climate Pact sets the direction for continued emissions reduction, but national commitments so far cannot keep us within a 1.5C warming scenario. 

This shifts the focus back to businesses to reduce emissions as part of mitigation strategies and to adapt to a changing climate. The spotlight on chief supply chain officers (CSCOs) is significant, because their operations account for the majority of emissions in the value chain. CSCOs need to double down on their efforts to reduce emissions.

They must also scan the portfolio for the risk of stranded assets and products under changing climate (and financing conditions) while looking for opportunities to provide solutions. Increasingly, financing — from loans to investments — will be tied to the organization’s performance on sustainability. This will require stronger governance and reporting. 

Download now: Supply Chain Sustainability Management & Strategy Report

Few organizations report on carbon emissions from their value chain in detail — or at all. What is the challenge?

Visibility to correctly calculate and allocate greenhouse gas emissions. Enterprises are experts at understanding their own emissions (scopes 1 and 2). However, collecting scope 3 data is problematic as you need visibility into data through multiple tiers of the supply chain. 

Once supply chains have the data, they then have to drive improvement. This can be especially difficult when working with mega-vendors, as the power dynamics in the relationship may mean that change is difficult to achieve. Some supply chain leaders are working on collaborative strategies to drive these improvements. 

Increasingly, we are also seeing technology being applied to enable data collection. Our recommendation is not to start by trying to collect all scope 3 data; focus instead on where the enterprise can have maximum impact and bring about positive change. 

Financing was discussed at COP26 as a means to help nations manage the impacts of climate change, and we are seeing new financial requirements such as TCFD. What is the impact for supply chain leaders? 

The Task Force on Climate-Related Financial Disclosures (TCFD) requires organizations to understand their climate-change risks and develop governance, strategies and targets to manage these risks. Due to the globalized nature of supply chains, many impacts from climate change will be felt here.

Explore: Sustainable Business Strategy for a Positive Social and Environmental Impact

What will COP26 mean for the cost of carbon?

After six years of haggling, countries finally agreed to the rules of Article 6 of the Paris Agreement, which govern trading of emission reduction units. The rules will improve accounting accuracy of carbon data for reporting in compliance carbon markets. What might this mean for supply chains? Let’s take the EU, which has a long-established Emissions Trading Scheme (ETS), as an example. The EU ETS carbon price has doubled this year — it stands at €65 post-COP26. Article 6, which covers 196 signatory countries, provides a robust framework for countries to exchange carbon credits. The EU has indicated it is investigating the option of a carbon border adjustment mechanism (CBAM) to ensure the cost does not create an uneven playing field.

What about net-zero pledges?

One of the prime aims of COP26 was to get enough Nationally Determined Contributions (NDCs) to keep the hope of 1.5C alive. Now, 137 countries have committed to net zero, although the timings of these commitments vary greatly, from some who have already achieved net zero to India, which is targeting 2070; others countries have yet to commit at all. Companies have made similar pledges. In the last nine months, we have seen the percentage of the 2,000 global largest companies with net-zero targets rise from 20% to 33%.

20% to 33%

In the last nine months, the percentage of the 2,000 global largest companies with net-zero targets rose from 20% to 33%.

The credibility of these pledges is also under scrutiny, so it is encouraging that the Science Based Targets initiative (SBTi) and the United Nations Global Compact announced that more than 1,045 companies representing more than $23 trillion in market capitalization have set 1.5°C-aligned science-based targets as part of a global campaign to rapidly scale corporate climate ambition.

All that is to say that the ambition is there, but action is key, and CSCOs will be critical in delivering the actions that turn pledges into reduced emissions.

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