With the effects of climate change being increasingly felt around the world, many corporations are doubling down on their commitment to reduce their carbon footprint. The Greenhouse Gas (GHG) Protocol categorises carbon emission into three scopes. Scope 3 refers to indirect emissions from activities in a firm’s value chain, such as business travel, waste disposal, and emissions from securing supplies in the upstream and distribution in the downstream. 

While Scope 3 makes up the majority of an organisation’s carbon footprint and should therefore require the most attention, the reality is that most firms focus their efforts on the first two scopes. This disparity can be seen in Deloitte’s 2022 Sustainability Action Report, where 61% and 76% of executives surveyed were prepared to disclose Scope 1 and Scope 2 GHG emissions respectively, but only 37% were prepared to disclose their Scope 3 emissions.  

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At the Climate Governance Singapore (CGS)’s training series organised by SMU’s Sim Kee Boon Institute of Financial Economics, the topic of “Stewardship, Strategic Planning and Compensation for Sustainability - Implications for the Board” was discussed. In one of the sessions, Yangfang (Helen) Zhou, Associate Professor of Operations Management shared three strategies that companies can integrate into their sustainability visions. In particular, she shared a framework that can help organisations source and act responsibly, and discussed the benefits that renewable energy investment and product stewardship can bring - not just in enhancing the company’s value but in multiplying the environmental impact made.  

Looking further down the supply chain 

The task of reducing Scope 3 emissions is difficult to tackle, as many companies do not even know their supply network beyond their immediate suppliers. In the rare case that a company does have a clear view of its entire supply network, it is hard to mitigate their emissions as most suppliers are outsourced to developing countries where the rules and laws are lax. Assoc Prof Zhou explains that even auditors do not go beyond immediate (first-tier) suppliers as a standard practice. Nevertheless, it is important to look further down the supply chain, not just for managing Scope 3 emissions but to identify social and ethical issues that might occur within the network. 

For instance, the forced labour issue reported against Levi Strauss & Co in 2008 and the lead in toys manufactured for Mattel in 2007 were two incidents where the violations occurred in the third or fourth-tier of their supply network. In some cases, catastrophic consequences can occur as a result of hazardous working conditions, such as the collapse of a poorly constructed factory in Bangladesh in 2013 that killed more than a thousand people. While there is no easy way to track every activity within one’s supply network, Assoc Prof Zhou offers a solution.  

What is responsible sourcing and how does it work? 

‘Responsible sourcing’ is a means of sourcing that is environmentally sustainable, ethical, and socially responsible. This involves being aware of and accountable for environmental harms such as carbon emissions, as well as ethical and social issues such as child labour and excessive overtime labour that may occur with outsourced arrangements. To help organisations source and act responsibly, Assoc Prof Zhou suggests using the 'Sense and Response' framework. Here, organisations are given guidelines to develop an understanding of the environmental and social performances of suppliers at all tiers, as well as a list of strategies to help them respond accordingly (e.g., issuing a fine or terminating the contract). 

The details of the framework can be found below:

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While the framework itself is intuitive, it is not always easy to implement. Nevertheless, Assoc Prof Zhou views it as an important tool to help outsourcing organisations identify and address issues within their respective supply chains. 

Renewable energy investment and product stewardship 

Assoc Prof Zhou shared two other strategies that more organisations should integrate into their sustainability visions. The first is investing in renewable energy. According to her, the energy strategy of large organisations should be a C-level strategic decision because if overlooked, it could lead to the loss of an enormous opportunity to reduce risks, cut costs, and create value. “Investing in renewable energy is doing good while doing well. It does not just reduce greenhouse emissions. It can have significant business cases, including cutting down costs and hedging against risks” adds Assoc Prof Zhou. While she is happy to see many firms commit to using 100% renewable energy by 2050, she is also cautiously optimistic about the direction that many are currently taking. With most companies dependent on the purchase of renewable energy credits as their sole approach to sustainability, she believes that more should be done to steer them towards achieving real, tangible benefits for the environment.  
 
The second approach is product stewardship, the practice of designing products in a way that reduces its environmental impact at each stage - from production, to use and later, disposal. By adopting a cyclical mindset and finding a product design framework that works best for them and the environment, organisations can multiply their impact for sustainability. Assoc Prof Zhou cited as an example, furniture retailer Herman Miller which uses a cradle-to-cradle design to create its Mirra and Aeron chairs. The process takes enormous effort and includes working closely with its suppliers (even dropping non-willing suppliers), training its employees, developing necessary tools, and re-engineering the entire production process. Despite the challenges, the company’s founders choose to practise product stewardship because   they believe that “each measurable action adds up to the big changes we (the world) need”.  

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Assoc Prof Zhou echoes the sentiment. In her words, “Just as it takes a whole village to raise a child, it takes a whole world to make the Earth sustainable. We should come together as politicians, academics, corporates, consumers, and non-governmental organisations (NGOs). It is only through collective efforts that we can protect the one and only planet that we call home, Earth.”