How to Reduce the Carbon Footprint of Your Supply Chain
How do you reduce the carbon footprint of your supply chain? Find out the key steps you need to take to reduce your supply chain carbon footprint.
Due to rising natural gas and oil consumption, levels of CO2 were expected to hit 36.8 billion metric tons in 2019, according to estimates reported by Stanford University. While the rate of emissions is declining, researchers warn emissions could keep increasing for more than a decade unless energy, transportation and industry policies change dramatically worldwide.
More and more, companies are dedicating to sustainability. According to a 2019 survey by Business for Social Responsibility (BSR), 52% of companies surveyed cited climate change as a “very significant” sustainability focus. However, the level of self-reported integration of sustainability practices has only increased 1% since 2016.
One way companies can be more sustainable is to decrease the carbon footprint of their supply chains. In order to do so, companies will need to consider all stages of their supply chain and employ creative approaches to sustainability.
The environmental impact of supply chains
Supply chains have the greatest room for improvement to meet sustainability goals. According to McKinsey, the typical consumer company’s supply chain creates much greater social and environmental costs than its own operations. Supply chain impacts account for more than 80% of greenhouse gas emissions and more than 90% of the impact on air, land, water, biodiversity and geological resources.
The Sustainability Consortium (TSC), a nonprofit organisation dedicated to improving the sustainability of consumer products, found that less than one-fifth of the 1,700 respondents reported they have a comprehensive view of their supply chains’ sustainability performance. More than half reported being unable to determine sustainability issues in their supply chains. What is more, of the companies that report their greenhouse-gas emissions to CDP, a nonprofit organisation that promotes the disclosure of environmental impact data, only 25% say they engage their suppliers in efforts to reduce emissions.
Supply chain inefficiency affects more than emissions, environmental impacts and the planet. Companies are also seeing the effects of climate change on bottom lines and revenues. McKinsey reports that Unilever estimates that it loses some €300 million per year as worsening water scarcity and declining agricultural productivity lead to higher food costs.
Carbon emissions in supply chains
Because supply chains consume resources at a large scale, they are responsible for a disproportionately large share of the world’s carbon emissions. 2016 data from McKinsey and the CDP show greenhouse gas emissions from consumer packaged goods (CPG) companies are responsible for roughly 33 gigatons of CO2. The industry must remove about half of those emissions by 2050 to meet worldwide sustainability targets such as the Paris Agreement. By 2050, CPG companies will have to reduce their greenhouse gas emissions by 92% relative to revenues. According to CDP’s Supply Chain: Changing the Chain environmental report for 2019 and 2020, one gigaton (one billion metric tons) of emissions could potentially be saved if suppliers increase their renewables purchasing by 20%.
“The typical consumer company’s supply chain creates far greater social and environmental costs than its own operations, accounting for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources. Consumer companies can thus reduce those costs significantly by focusing on their supply chains.” -McKinsey, 2019
According to 2020 EPA data, the freight and transportation sector is responsible for the following U.S. emissions:
- More than half of nitrux oxides total emissions
- More than 30% of volatile organic compounds emissions
- Over 20% of particulate matter emissions
On a global scale, the top five sources of emissions are as follows (according to the Center for Climate and Energy Solutions):
- Electricity and heat (31%)
- Transportation (15%)
- Manufacturing (12%)
- Agriculture (11%)
- Forestry (6%)
Supply chains are too complex to generalise, and each business has different supply chain demands. For many businesses, freight is the largest source of emissions in their supply chains. For others, their manufacturing practices outweigh their shipping costs. Air transport is less common than ocean freight, but produces a much higher carbon footprint. Businesses must audit their supply chain carefully to get an accurate figure for their carbon footprint.
What makes a supply chain sustainable?
What makes a supply chain sustainable varies widely between companies, products and processes. Overall, it is important for companies to examine each stage of their supply chain and consider efficiencies that could be implemented. Unfortunately, that can be challenging for businesses that outsource, and the companies they work with are not fully transparent with their measurement and reporting. If you are working with a transparent company, important questions to ask them include:
- Are you maximising the space you use in containers, shipping vehicles and packaging?
- Are you considering the global impact when choosing partners for fulfilment, manufacturing and supply?
- Do they have sustainability goals that align with that of your organisation?
The three pillars of sustainability
According to the Environmental Protection Agency (EPA) there are three main pillars of sustainability. Each pillar houses six subsections related to the pillars. When examining your supply chain practices, it may be helpful to consider these elements:
- Ecosystem Services: Protect, sustain and restore the health of critical natural habitats and ecosystems
- Green Engineering and Chemistry: Reuse or recycle chemicals, treat chemicals to render them less hazardous and dispose of chemicals properly
- Air Quality: Attain and maintain air quality standards and reduce the risk from toxic air pollutants
- Water Quality: Reduce exposure to contaminants in drinking water (including protecting source waters), in fish and shellfish and in recreational waters
- Stressors: Reduce effects by stressors such as pollutants, greenhouse gas emissions and genetically modified organisms to the ecosystem
- Resource Integrity: Reduce adverse effects by reducing waste generation, increased recycling and ensuring proper waste management
- Environmental Justice: Protect health of communities overburdened by pollution by empowering them to take action to improve their health and environment
- Human Health: Protect, sustain and improve human health
- Participation: Use open and transparent processes that engage relevant stakeholders
- Education: Enhance the education about sustainability of the general public, stakeholders and potentially affected groups
- Resource Security: Protect, maintain and restore access to basic resources
- Sustainable Communities: Promote the development, planning, building or modification of communities to make them more sustainable
- Jobs: Create or maintain current and future jobs
- Incentives: Generate incentives that work with human nature to encourage sustainable practices
- Supply and Demand: Promote price or quantity changes that alter economic growth, environmental health and social prosperity
- Natural Resource Accounting: Incorporate natural capital depreciation in accounting indices and ecosystem services in cost benefit analysis
- Costs: Positively impact costs of processes, services, and products
- Prices: Promote a cost structure that accounts for externalities to production
All three pillars should be taken into account when promoting a green supply chain. From reducing emissions to engaging stakeholders to taking into account natural resources in cost benefit analysis a truly green supply chain should consider all these factors.
Steps to reduce your supply chain’s carbon footprint
There are a number of ways to reduce your supply chain’s carbon footprint ranging from how you manage shipping and handling to what materials you use in packaging. Some factors to consider include:
- Space utilisation
- Materials management
- Strategic analysis
Step 1: Space utilisation
When shipping your product from manufacturing centers in Asia to distribution centers in the U.S. and Europe, you should consider two factors: how much excess space is in your packaging and cube utilisation.
Research by Forbes finds that shipping containers sailing across the oceans from Asia are 24% empty. This means that every year some 61 million TEUs of containers are shipped unnecessarily, costing tens of billions of dollars and emitting approximately 122 million tons of carbon dioxide into the atmosphere. To reduce the amount of air you are shipping be sure to check cube utilisation of your packaging. When considering cube utilisation, ask yourself “Is the packaging actually the right fit for the product that we are shipping?”
Step 2: Consider materials
While corrugated packaging is more sustainable than plastic (emissions from plastics production and incineration could account to 56 gigatons of carbon between now and 2050, according to Carroll Muffett, head of the Center for International Environmental Law), not all corrugated packaging is the same. While it may seem like an easy way to cut costs, using sub-par corrugated board can lead to packages being damaged in transit, and many more problems throughout your supply chain. This then requires repackaging, requiring more material and creating a larger carbon footprint than if you had just used appropriate materials from the beginning.
One of the key benefits of working with Managed Packaging is the knowledge of available materials in Southeast Asia and how they perform in the environments throughout your supply chain. Materials expertise can inform material use reduction and other packaging efficiencies that yield cost savings.
Step 3: Measure and analyse
The first step to improve the carbon footprint of your supply chain is to measure and analyse the information, because the data that comes from this information should inform your future goals. As mentioned, only 25% of companies say they engage their suppliers in efforts to reduce emissions. To manage your carbon footprint, be sure you are measuring the impact of different steps in your supply chain to see where efficiencies can be created. It may be as easy as repacking a product or as complex as looking for new logistics.
Take control of your supply chain’s carbon footprint
Nations around the world are pushing to reduce greenhouse gas emissions in the coming years. Companies that adopt sustainable practices in their supply chains and beyond will be leaders in the growing sustainable economy. To learn more about how to reduce your company’s carbon footprint, download our eBook, “Designing a Sustainable Packaging Program.”