Supply Chain Engagement: Whatever You Do… Don’t Segment by Geography

If I were to manage a supply chain program I would do things a bit differently. Before I get to that, I’m currently hearing two conflicting messages about supply chain engagement:

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1. Most supply chain engagement programs are struggling. Response rates are low, especially when the pool of companies being engaged rises and effort per supplier goes down.
2. There is interest from mid-size suppliers in multiple emerging markets, all of whom are citing demands from their key European customers.
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This hammers home a few messages for me:

• Manufacturing partners and material suppliers are recognising sustainability as part of the hyper-competitive battleground for a share of the wallet with their largest accounts. This dynamic holds true for certain materials globally, e.g., packaging, food ingredients, textiles, and chemicals.
• These companies are operationally complex, and will likely need sustainability data solutions that are unique to their needs, rather than a one-size-fits-all solution defined by any one customer (or even customer segment). What the requestor uses as an interface and what the supplier uses to generate their sustainability data in practice have very different success criteria.
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So, what would I do?

1. Understand what the best data management solutions look like for individual “archetypes”, promote those to others in that archetype, and ask all solution providers to prioritise interoperability (if they want to stay part of my recommendation program).
2. Segment suppliers based on the following categories, these segments will inform my “archetypes”:
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Quantitative categories (the hard facts)

1. Emissions Materiality. With secondary emissions data, identify which suppliers comprise most of your scope 3. In many cases, 90% of your emissions will come from less than 5% of your suppliers.
2. Supplier Category. An industry-aligned category that reflects procurement structure i.e. dairy suppliers. Prioritise based on how your procurement team purchases and the materiality of each category.
3. Spend. Rank suppliers based on how much you spend with them, and prioritise the largest spend categories.
4. Revenue. Assess how much your spending contributes to supplier revenue, and prioritise suppliers where you have large purchasing power. They should be more incentivised to engage.
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Qualitative categories (the gut feelings)

1. Strategic Importance. Prioritise based on the strategic importance of:
2. Sustainability. What is the supplier's current level of data maturity? Can they share corporate or product footprints already? Or do I want to engage laggards to pre-empt future asks?
3. Willingness. How prepared is the supplier to share information? Does someone in your organisation manage the relationship with this supplier already?
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You may’ve noticed that “Geography” is absent. Why? It’s not a meaningful segment. We’ve seen many examples e.g., packaging suppliers in emerging markets, that rank high for absolute emissions and have a high level of sustainability maturity vs smaller companies based in North America. If you’re segmenting by geography you run the risk of missing these key suppliers. So… be tactful!

I ran a webinar with Ilya on just this. Check out the video below if you’re interested in learning more.

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By Saif Hameed, CEO of Altruistiq

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Industry Insight: What’s on every CSO’s mind?

What do you hear when you invite 10 sustainability leaders from across the food/grocery value chain to dinner?

• Data is frustrating. A lot of companies are wondering whether efforts to get better data should be replaced with more focus on change.
• Green-hushing is a real thing. One of our guests candidly said they avoided talking about sustainability achievements for fear of getting interrogated about X, Y, or Z.
• US vs European stakeholders think differently. E.g European commercial teams are much happier signing off on an 80:20 beef-to-mushroom split in the burger patty.
• Engaged investors make a difference. When shareholders lean in to emphasise the importance of sustainability, it sends a company-wide signal (and helps retain talent).
• Scope 4 is real! Almost. For some companies, demonstrating the avoided impact on their customers is becoming an important part of the commercial narrative.

Looking forward to the next instalment of our supper club in Amsterdam in May! Get in touch if you’re interested in joining.

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Policy Pulse: Everything you Need to Know About SBTi's Carbon Credit Conundrum

The Science Based Targets Initiative (SBTi) pulled the corporate climate world into chaos as its board announced a sudden policy shift on carbon credits. Until now, SBTi called for emission reductions, only allowing the residual, hard-to abate emissions to be offset with carbon credits.
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Then, last week the SBTi board announced that carbon credits would be allowed to count as progress on Net Zero targets. This immediately divided the climate community. Not least SBTi itself, where a majority of staff penned an open letter in protest. This made it clear that the Board had acted unilaterally, bypassing the proper process to declare standards changes that neither stood in place nor were approved by the Technical Council.
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At the very least, this is a crisis within SBTi. Yet as a cornerstone of the corporate climate eco-system, this has deep ramifications for climate action as a whole.
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So what’s the debate?

The backlash against the initial announcement was two-fold:

• It saps climate ambition. Buying carbon credits is far easier than the hard work of value chain decarbonisation. Offsetting does not fix the underlying emissions problem, so allowing it to count as progress makes targets less meaningful.
• Damaging trust in the system. The sudden announcement and bypassing of standard procedure make it harder to trust consistent guidance from SBTi. Especially in its role as an arbiter of high-ambition targets that are meant to follow climate science.
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On the flip side, the carbon credits side of the debate sees that easier SBTi targets can have benefits:
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• More engagement with SBTs. Scope 3 is difficult, so businesses are struggling to achieve their near-term targets, or are put off of setting SBTs at all. Then making targets easier to achieve is helpful if it encourages more companies to act more quickly.
• Scaling up of the carbon market. Many worthy carbon credit projects deserve investment now. Less carbon in the atmosphere is good no matter how it is achieved, so scaling up an easier route to climate impact is better than no action at all.

For this change to be positive, the decrease in ambition must increase the level of action. This could transpire, but when in any other industry or regulation has this ever been the case?

What does this mean for business?

Companies are likely observing the SBTi saga with confused feelings. Either annoyed that the coalition for ambitious climate action has been weakened, or relieved that their sustainability strategies can be easier to achieve.

The common ground will be confusion - what on Earth is happening next with SBTi?
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Details will take time, but the following is clear:

• Credits are not yet counted towards target progress. No changes have been made yet. Changes will have to go through the usual route of consultation and governance.
• Net Zero guidance will be updated. SBTi is revising its Corporate Net Zero standard this year, some changes should be expected.
• Any use of credits will be limited. If SBTi does allow offsets in targets, their use is for Scope 3 only and subject to ‘guardrails’. This is likely for a limited share of emissions and with specific restrictions on credit types.
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The board announcement may not be implemented, and if it is details would wait until consultation in July. So in the meantime, the best course of action is to continue with emission reductions.
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How should carbon credits fit into the picture with SBTi? Our view is that:

• Now is the time to RAISE climate ambition. A year of heat records and continuing emission rises means future targets can only become steeper over time. Net Zero targets have to be set right to stand for decades, so now is not the time to be dropping ambition.
• The limited pie of sustainability budgets should be directed to action. Giving companies the option to count offsets will end up diverting budget away from emissions reduction initiatives. We need to direct limited finance to the source of the emissions problem.
• High quality carbon credits should be part of corporate climate action. But this is additional to action on emissions reduction targets. If SBTi is to take a stance that scales the carbon market, it should be to require companies to set short-term targets to offset their residual emissions.
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Learn more

• Reuters - Climate target group in turmoil over carbon offsetting plan
• SBTi board press release
• SBTi staff letter

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By Dan Enzer, Senior Sustainability Research Associate at Altruistiq

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Other news:

• European court rules human rights violated by climate inaction. A group of 2,000 older Swiss women have won the first-ever climate case victory in the European Court of Human Rights. The court said Switzerland's efforts to meet its emission reduction targets had been “woefully inadequate”. It is the first time the powerful court has ruled on global warming.
• India’s top court expands right to life to include ‘adverse effects of climate change’ in landmark ruling. The ruling recognises that climate change threatens “constitutional guarantees of equality and health”.
• Deforestation declines in Brazil and Colombia. Political shifts in both nations have had a significant impact on tree felling, with large reductions occurring over 2023. Brazilian Amazon deforestation decreased by 39% and Colombian primary forest loss decreased by ~50%, vs last year. However, “increased tree felling and fires in Bolivia, Laos and Nicaragua wiped out many of these gains”.

Related Resources:

• A Guide to Supply Chain Engagement, Guide
• Sustainability Data: Driving Engagement and Making Claims, Podcast
• Scope 3: How to Scale a Successful Supply Chain Program, Video

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