From the course: ESG and Procurement: How to Decarbonize Your Supply Base

Understanding ESG (environmental, social, and governance) in procurement

From the course: ESG and Procurement: How to Decarbonize Your Supply Base

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Understanding ESG (environmental, social, and governance) in procurement

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- ESG is an enormous topic. On this short course, we'll be focusing on the E of ESG: environmental aspects, and specifically climate change, arguably the most profound risk facing us. Actions to mitigate climate change, such as by reducing greenhouse gas emissions, or GHG, sometimes referred to as your carbon footprint, are nowadays some of the leading metrics by which companies are measured and assessed by external parties, including you and me. Now, that's not to say that other environmental elements such as deforestation and water scarcity or that social and governance aspects are of lower importance. A failure to address each element is also detrimental to our planet and people. It's just that I wouldn't be doing the topic or you any justice if I was to squeeze this vast subject into this course. But before we get stuck into the main course content, I want to explain one of the principle components of GHG emission reduction, as I'll refer to it a lot in subsequent videos. I promise there won't be too much theory to which you'll be subjected. The terminology that's been adopted across industry to identify the source of GHG emissions is as follows: scope 1 emissions: these are the direct emissions created as a result of operating your company facilities such as factories and offices, as well as your company vehicles. Your company has ownership of these emissions. Then there are scope 2 emissions. These are indirect emissions that are created from generating the energy that you buy to run your operations. Your company also has ownership of these emissions. And then finally we have scope 3 emissions. These are also indirect emissions, but these take place in your upstream and downstream supply chains. Your company doesn't have ownership of these, and that's where a huge challenge exists. Let's focus on the sources of upstream scope 3 emissions. These are in your purchased goods, services and capital equipment, inbound transportation and distribution, and also supplier employee commuting. You may have noticed that scope 3 emissions cover a vast majority of your carbon footprint, and these are the emissions that you don't have any direct control over. In fact, for most companies, up to 90% of their total emissions are in scope 3, whereas energy-intensive industries, like steelmaking, or one that might surprise you, data centers, have most of their emissions in scope 1 and 2. Beyond your immediate suppliers, you have no direct commercial relationship with a majority of the entities responsible for your overall emissions. They're mainly incurred further upstream within your supplier's supply base. So you can see that as well as taking internal actions to address scope 1 and 2 emissions at least, to impact your scope 3 emissions, you'll also need to engage, influence, and cooperate with suppliers too. Scope 3 is where the real challenge lies, and this is what we'll cover in detail. Now that you understand the different definitions for emission scopes, let's keep the momentum going. See you in the next video.

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