greenhouse
Feb 27, 2021

Reducing the Carbon Footprint of your Supply Chain

Supply chains contribute to more than three-quarters of greenhouse gas (GHG) emissions by industries. Greenhouse gas emissions are the de facto centre of climate change, yet a small percentage of companies maintain sustainable supply chains.

The rise in the use of natural gas and oil since the beginning of the industrial revolution has increased carbon dioxide emissions. The three major nations contributing to greenhouse gas emissions are the United States, China, and the European Union nations.

Major economies leading to greenhouse gas emissions, 1990-2030

Source: Center for Climate and Energy Solutions

The greenhouse effect

The greenhouse effect is a natural process of insulation that traps heat from the sun and warm the earth surface for it to sustain life.

As incoming solar radiation reaches the earth's atmosphere, it is absorbed by the land and oceans and heats the surface. Most of it, however, is reflected as infrared energy. Greenhouse gases in the atmosphere trap some of this energy from escaping into space. The energy is reflected to the earth surface, making it warmer.

Anthropogenic greenhouse gas emitted due to human activities such as agriculture and burning fossil fuels increases greenhouse gasses in the atmosphere trapping excess heat that causes a rise in earth's temperatures and climate change.

Greenhouse gases

The primary greenhouse gases are:

  • Water vapor (H2O)
  • Carbon dioxide (CO2)
  • Methane (CH4)
  • Nitrous oxide (N2O)
  • Perfluorocarbons (CF6, C2F6)
  • Hydrofluorocarbons (CHF3, CF3, CH2F, CH3CHF2)
  • Sulfur hexafluoride (SF6)

Water vapor, carbon dioxide, methane, and nitrous oxide occur naturally, while perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride occur due to industrial processes.

Water vapor is the most abundant greenhouse gas in the atmosphere, occurring mainly due to temperature and other meteorological conditions and not necessarily caused by human activities.

CO2 is the primary greenhouse gas caused by human activities, and it accounts for 78% of the human-contributed greenhouse effect.

Supply chain and its environmental impact

Supply chains are vital parts of modern business and globalization. As the international commerce expends, there is a need for new technologies, materials, manufacturing methods, transport capacities, information channels and harmonized trade policies. However, global supply chains have a more significant environmental impact as compared to company operations.

The supply chain entails the entire process of creating and distributing goods, sourcing raw materials, processing, and how the finished products are transported to the final consumer. Market competition and profitability force businesses to use low-cost and fast-moving supply chains, leading to unintended negative environmental impacts.

The two major areas of the supply chain of concern are greenhouse gasses emission during the shipping process and international sea travels. Shipping and sea travel facilitate over 90% of global trade. Shipping is the most efficient mode of transport but has also significantly contributed to pollution and the decline of the world's oceans.

Supply chain carbon emissions

Supply chains are responsible for the largest share of global carbon emissions. The increasing globalization of commerce

Supply chains cause over 80% of greenhouse gas emission. It is also the primary cause of other environmental damages, having over 90% of air, land, water biodiversity, and geological resource pollution.

According to the Center for Climate and Energy Solutions, the top five sources of greenhouse gases are as follows:

  • Electricity and heat – 31%
  • Transportation – 15%
  • Manufacturing – 12%
  • Agriculture – 11%
  • Forestry – 6%

Transport sector represents 15% of total greenhouse gas emissions and is the primary air pollutant in cities. While other sectors are experiencing a decline in emissions, transport sector emissions have increased due to international passenger and freight activities.

Road travel takes the most significant share of transport emissions, most of it caused by passenger vehicles (cars and buses) accounting for 45.1% and trucks carrying freight making up 29.4%.

Aviation accounts for 11.6% but makes the biggest headlines on climate change discussions. Aviation emits about a billion tones of CO2 every year, which accounts for 2.5% of global greenhouse gas emissions. Similarly, international shipping emits 940 million tones of CO2 each year, which makes up 10.6% of transport emissions and 2.5% of total global emissions.

Transport of liquid materials such as water, gas and oil via pipeline accounts for 2.2%, rail travel and freight emits the lowest at 1%.

The U.S freight and transport sector contribute to U.S. emissions as follows:

  • Over 50% of nitrox oxides total emissions
  • Over 30% of volatile organic compounds emissions
  • Over 20% of particulate matter emissions

United States Environmental Protection Agency (EPA) projects that supply chains will continue to become more global and complicated due to increasing international commerce. Shipment of U.S. goods will increase by 23.5% by 2025, and by 2040 it will have grown to 45%. This means greenhouse gas emissions will increase in the future, making it hard to achieve supply chain sustainability.

Sustainable supply chains

The United Nations (UN) defines a sustainable supply chain as “the management of social, economic and environmental impact of while maintaining good governance practices through lifecycles of goods and services."

Businesses should build practices and processes that maximize supply chain performance while reducing costs, wastes and negative environmental impact.

Unfortunately, businesses only look at their operations, forgetting to work closely with their suppliers. Only 25% of companies that report to CDP on greenhouse gas emissions engage their suppliers, intending to reduce emissions.

However, these companies influencing suppliers are likely to face challenges such as not directly linking their supplying firms. Most firms subcontract a large order or use a purchasing agent to place large orders. This makes it a challenge to maintaining sustainability in supply chains.

Pillars of sustainability

The U.S. Environmental Protection Agency (EPA) stipulates three pillars of sustainability, each housing six subsections. These pillars should be considered when promoting sustainable supply chains:

Environmental

  • Ecosystem services – protecting, sustaining, and restoring the condition of critical habitats and ecosystems
  • Green engineering and chemistry – treat chemicals to be less hazardous, reuse, recycle and dispose of chemicals properly.
  • Air quality – achieve and maintain the required air quality standards and avoid toxic air pollutants.
  • Water quality – reduce contamination of drinking water through the protection of water sources, protection of fish and shellfish, as well as recreational waters.
  • Stressors – reduce adverse effects of stressors, including pollutants, greenhouse gas emissions and genetically modified organisms (GMOs) to the ecosystem.
  • Resource integrity – reduce generated waste, increase recycling, and practice proper waste management to mitigate their effects on the environment.

Social

  • Environmental justice – empower communities affected by pollution to take action to protect and improve their health and environment.
  • Human health – protect, sustain, and improve human health.
  • Participation – engage relevant stakeholders through transparent processes.
  • Education – educate the general public, stakeholders, and affected groups on sustainability.
  • Resource security – Protect, maintain, and restore access to basic resources.
  • Sustainable communities – improve development, planning, building, or modification of sustainable communities.

Economic

  • Jobs – create and maintain current and future employment.
  • Incentives – provide incentives that encourage human nature to maintain sustainable practices.
  • Supply and demand – ensure price and quality-driven economic growth, environmental health and social prosperity.
  • Natural resource accounting – accounting indices should also incorporate natural capital depreciation, while cost-benefit analysis should consider ecosystem services.
  • Costs – reduce the costs of processes, services, and products.
  • Prices – prices should account for externalities to production.

Steps to reduce the carbon footprint

Discussing with all company stakeholders the importance of a sustainable supply chain and actualizing can go a long way to ensuring company success. Here are the key steps to reduce supply chain carbon footprint:

Map out the supply chain

The critical step is to understand your supply chain, finding out specific challenges and areas to improve. Identify any vulnerabilities or environmentally dangerous practices that reduce the effectiveness or increase the risk to the environment.

To correctly identify areas that need intervention requires problem-solving skills. You can also use tracking and analytics tools that keep you in the know about your inventory, position, and how it builds up and identifies any sustainability problems or process bottlenecks.

From the issues identified, set sustainability goals that will eliminate or lessen the impact of such issues. Your goals should be based on protecting the environment or improve and maintain human well-being.

Address concerns and communicate the value

Address any concerns arising during the process and communicate the value of sustainable supply chain. Your suppliers, employees, and customers should be aware of the process being conducted and what will be the outcome of it.

Have a sustainability code of conduct clearly explaining the values and best practices to be maintained and ensure every stakeholder understands what they are expected of them. It should also outline the consequences to be faced in case of potential violations.

Suggest improvements to suppliers

Engage your suppliers and let them know about any suggestions, recommendations, or requirements you will implement to ensure a sustainable supply chain. If these conditions may change how you do business, be upfront and honest with them.

Collect their data and feedback on the process and how they will conduct their operations to meet the sustainability standards. If necessary, assist them in creating a sustainability plan and providing constructive feedback to your suppliers.

Audit and survey the improvements

Monitor your supplies to see if the recommendations are being implemented, and the baseline sustainability expectations are being met. Provide them with valuable insights and correct where necessary.

Make sure the steps are taken (even small) towards sustainable supply chains and are bearing fruits.

When conducting the auditing and survey, have straightforward and respectful communication with your suppliers. Interact with them and discuss ways you can improve the current performance. Remember, their success translates to your company's success.

Collaborate and discuss within the industry

The final step is to link up with other industry leaders, collaborate with them by attending conferences, share insights, and work on sustainable supply chains.

Discuss the best practices for sustainable supply chains and take what may work for you, also explain what may not do for your business and why.

Shipping is growing to be a significant risk to the environment. Explore here the several changes to make shipping eco-friendly.

The bottom line

For years, most companies never paid close attention to how their supply methods impacted social and environmental activities. However, these are starting to change as countries, organizations, and consumers become aware of climate changes due to poor human decisions.

Businesses have also realized the benefits accrued to them from sustainable supply chains, such as increased profitability, innovations and improved customer spending on their eco-friendly goods.

Lockstep advocates for eco-friendly international trade through sustainable trade finance. We ensure exporters get paid as soon as possible to boost their working capital availability and reward their green supply chains. Contact us today, and let's partner together towards your sustainable supply chain.

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