For many companies that produce physical products, supply chains are one of the largest sources of greenhouse gas emissions and environmental impact. Such industries ranging from apparel and consumer goods to electronics and food, invest in supply chain transparency, supplier engagement, and carbon accounting to calculate their Scope 3 emissions, achieve climate targets, and reduce business risks.
However, what many physical products companies may not understand is that their indirect emissions (regarding supply chain emissions) can be 5 to 25 times higher than their direct emissions. So, how can finance, supply chain, and substantiality teams approach supply chain carbon calculations, emissions reduction, and reporting?
We’ve created this short guide with information your company can use to reduce supply chain carbon emissions and reporting.
What are supply chain emissions?
The definition of supply chain emissions is extremely important in carbon accounting, as well as how to categorise supply chain emissions. It can be confusing and challenging even for experienced sustainability professionals. So, here’s a definition of supply chain emissions to make it more clear for your organisation.
In carbon accounting terms, a company has upstream and downstream supply chains. The upstream supply chain is the value chain that creates your products, including:
Purchased goods & services: includes the extraction, production, and transportation of materials and services that go into making your products.
Capital goods: the extraction, production, and transportation of capital goods purchased or acquired by your business. Capital goods can include machinery, equipment, vehicles, and tools used to make finished products.
Upstream transportation & distribution: the transportation of goods and materials in vehicles not owned or controlled by the company.
Upstream leased assets: leased assets from your upstream supply chain can include a rented factory or facility.
Waste: generated from operations, including supply chain waste.
Business travel: emissions from travel by employees for business purposes.
Employee commuting: emissions created by travel due to employees commuting to and from work.
On the other hand, the downstream supply chain includes products going from your business to customers, all the way to the product’s end of lifecycle, including:
Downstream transportation & distribution: transportation of goods and materials in vehicles not owned or controlled by the company and not included in the accounting for the upstream supply chain.
Processing of sold products: processing of any intermediate products sold.
End-of-life treatment of sold products: waste disposal and treatment of products sold by your organisation at the end of their lifecycle.
Downstream leased assets: leased downstream assets, such as a rented warehouse or distribution centre.
Franchises: emission from any franchise (if applicable).
Investments: any investment-related, indirect emissions in a company’s supply chain.
The sum of your upstream emissions plus your downstream emissions equals the total carbon footprint of your supply chain.
Carbon Accounting of supply chain emissions
This may all sound extremely complicated so far. However, carbon accounting of supply chain emissions is similar to financial accounting. Financial accounting adds up income and expenses into a budget; carbon accounting works in a similar way. Your company’s emissions are its carbon inventory, which can be reduced or netted against carbon improvements of offsets.
Here’s the equation for carbon accounting of supply chain emissions:
Upstream carbon emissions + downstream carbon emissions = total Scope 3 greenhouse gas emissions
That’s all there is to it! Of course, there are also supply chain carbon accounting boundaries to consider. These help you determine how to calculate supply chain emissions.
How to calculate supply chain emissions
The first method to calculate supply chain emissions is the spend-based carbon accounting estimate. This accounting method takes the financial value of a purchased good or service and multiplies it by an emission factor (the amount of emissions produced per unit or monetary value of the goods) to calculate an estimate of emissions.
There’s no universal source of emissions factor; these will be obtained from government agencies, academic research, company reports, and third-party standards organisations.
You need three data sources to calculate spend-based emissions: your purchases, your suppliers, and the corresponding emission factors. This data usually comes from your accounting department.
The spend-based method is a straightforward starting point that gives organisations an initial view of where their largest emission areas may lie.
The second calculation method is an average data carbon accounting estimate. This method is similar to the spend-based method; however, rather than using financial data, this method relies on material weight data. It offers more detail than spend-based estimates and helps build a clearer picture of supply chain emissions.
The most accurate supply chain carbon accounting method is the supplier-specific method. This method collects product-level “cradle to gate” greenhouse gas data from each supplier using sustainability surveys and data collection workflows.
This approach requires deeper engagement with suppliers, but it brings them into the journey and demonstrates the benefits of collaboration. The data must be gathered and then it’s necessary to identify the right emissions factor and convert the activity to carbon emissions.
Gathering this data can take time, and there may be gaps. In that case, a hybrid emissions calculation approach can be used, combining supplier-specific and activity-based data with averages to fill in the blanks.
Improving supply chain transparency & emissions accounting maturity
Each supply chain is different, and every company starts at a different point in its sustainability journey. If you’re calculating your supply chain’s footprint for the first time, Planet Mark recommends starting with the spend-based estimate. It provides a clear baseline, and as resources and supplier engagement grow, we guide members to progress towards more accurate, supplier-driven data.
There are many technology tools available that can support this journey, from spend-based calculators to supplier engagement tools and data services. Through our Certification Programme, Planet Mark helps members apply these tools effectively, building accuracy and consistency as they mature.
Summing it up
Each method has merit on the journey to net zero. Incremental change and ongoing improvement are possible with focus and the right support. Measuring and starting to manage your supply chain carbon footprint not only reduces climate risk but also strengthens long-term resilience.
If you’re just starting out and need some assistance with supply chain emissions calculations, it may be beneficial to talk to one of our experts about your best next step. As part of our Certification Programme, we support businesses to measure and manage supply chain emissions with confidence.
For additional guidance, you can also explore our free Sustainable Procurement toolkit designed to help organisations take practical steps to reduce supply chain emissions.
