A Guide To Developing Scope 3 Supplier Engagement Targets

Step 1: Selecting the Right Suppliers

In order to ensure this exercise is impactful, companies are encouraged to ensure that they select the right supplier to engage with on target setting. Suitable suppliers can be selected based on assessment of procurement spend data – by selecting a supplier that you have significant and relevant spend with, the emission reduction opportunities will be greater. Companies are also encouraged to use the GHG Protocol to calculate the scope 3 calculations, where the current state will be used as a baseline for reduction targets.

It is recommended to rank suppliers highest to lowest according to their portion of total emissions, then selecting the number of suppliers that contribute significantly to the overall spend or total scope 3 emissions of the business.

Some factors in selecting the suppliers include:

• Strategic status of suppliers – strategic suppliers would be more willing to invest time and resources in this exercise if there is an understanding of long-term collaboration between the businesses.

• Supplier category – some companies may segment suppliers according to product or sector such as Food & Beverage, Apparel & Footwear, Home Furnishings etc. Depending on the business strategy, it might be prudent to prioritize one category over another depending on the relative emissions represented or relevance to the company's goals.

• Supplier GHG program maturity – Companies can screen a supplier's level of maturity according to their GHG-related programs, ESG reports, or suitable questionnaires. Some suppliers may already have SBTs in place and require less guidance, while others that are less mature in their sustainability reporting may require more engagement.

Determining the final list of suppliers requires balancing SBTi scope 3 coverage requirements with the business implications of engaging the targeted group of suppliers. This should be reviewed and discussed with key stakeholders across Sourcing and Procurement, and any other relevant business teams prior to committing to the next step, which is to establish a supplier engagement goal.

Step 2: Secure Internal Buy-in Before Engaging Suppliers

Before reaching out to your suppliers, it's important to get internal alignment on the supplier engagement strategy and implementation plan. The key is to set realistic expectations of what it will take to achieve the goal.

At this stage, the strategy does not need to be detailed. However, it is recommended to identify internal stakeholders, define supplier expectations, motivations for setting targets, resources and tools required to support suppliers through this journey, and what the team's roles and responsibilities will be. Clearly defining how much to invest in the effort as well as the level of engagement will result in more productive conversations with stakeholders.

Simply asking suppliers to set SBTs is unlikely to drive the level of action required to meet these goals within five years. Commitments to supplier training, capacity building, and incentives will be required to drive action - although these efforts can be built up progressively over time. In the initial phases, what's important is to ensure internal buy-in is secured for proceeding with the SBT, so that the targets can be submitted to the SBTi for final validation.

Step 3: Collaborating with Supplier(s) for Target Implementation

As soon as internal buy-in has been established, the business can start preparing for target implementation. There are a few steps to this:

1. Establishing team's roles and responsibilities – For clarity of work, an individual should be selected to head this project. Ideally, the candidate would be in a Sourcing/ Procurement team, and is knowledgeable about sustainability and SBT related topics. A team comprising of other key stakeholders and supporting roles such as legal teams can be built around this. Teams must also be trained on new supplier expectations, how to provide support to suppliers, share relevant resources, and develop internal materials, such as a one-page program overview or FAQs.

2. Defining supplier expectations and timelines – There is just one core criteria for supplier engagement targets: whether the supplier has set an SBTi-aligned target within the five-year target timeframe. To support that, the team should determine upfront how often and through which channels they want suppliers to report relevant data. This could be at a weekly or monthly basis, and should be communicated if the reporting is a "requirement", "expectation", or "encouraged".

3. Supplier communications – Companies also need to determine the tone and how frequently they will follow up with suppliers, and provide helpful information about SBTs to guide the supplier. Ideally an initial statement would be from someone of senior leadership to demonstrate the company's commitment, while regular follow-ups can come from Sourcing/Procurement Managers who typically interact with suppliers.

4. Supporting resources – SBTs and GHG emissions topics may be unfamiliar for many suppliers. Hence, there should be a collaborative effort from both parties to progressively learn more about basic climate-related topics, such as calculating their GHG emissions, and setting and implementing science-based targets.

5. Selecting a supplier data collection solution – Finally, to track progress towards supplier engagement targets, companies need to implement an effective supplier information or data-collection solution. This data is critical to building an effective supplier engagement program, both for target-tracking purposes and to enable visibility of supplier GHG program maturity.

Once a data collection solution has been identified, the timeline should be integrated into the overall program implementation plan. Some companies may choose a phased approach for data collection - starting with a subset of targeted suppliers in the first year to test the process, then progressively expanding to a wider range of suppliers each subsequent year - or you could initiate data collection with all targeted suppliers straight away.

Step 4: Enable and Track Supplier Performance

Once a supplier engagement program has been launched, companies must assess approaches to drive progress towards their set goal. Taking into account that suppliers are at varying stages of their climate journey and require varying levels of guidance and support, businesses may need to use one or more capacity training tools such as workshops, one-on-one coaching, email support, or e-learning training.

Subsequently, as a supplier's capability for tracking their metrics progresses, this can develop into a supplier scorecard, which is an effective way of holding suppliers accountable to tracking progress while at the same time providing the Sourcing/Procurement team a clear metric to facilitate supplier engagement.

In order to encourage supplier action to track emissions and set SBTs, incentives can be used as a motivator. This can be in the form of the "carrot", such as supplier recognition and awarding preferential business terms, or the "stick", such as supplier benchmarking or business penalties. Companies should also regularly review their supplier's SBTs and make sure they're aligned with SBTi's Criteria. This can be done on a yearly basis as part of the company's supplier engagement program to see what has worked and what needs to be improved in terms of communicating with suppliers, training and capacity-building, data collection, supplier incentives, and identifying improvements. Reviewing and refining the program each year is crucial to ensuring suppliers stay on track to meeting their own SBTs.

Step 5: Monitor and Report Target Progress

The recommended best practice is for companies to transparently report on any methodologies, assumptions, and data used for tracking annual performance for SBTs. To do this effectively, it is best to create a central repository for tracking all supplier targets and performance that is actively managed and updated by the core engagement team. The tracker should include the full list of suppliers that are in scope, any relevant categorization or identification information (% of emissions, % of spend, supplier IDs, categories etc.), and their current SBT status.

As a company's list of suppliers may fluctuate year after year, companies would need to refresh their scope 3 inventories and related supplier data annually over the target timeframe. For example, if a company sets a goal to target 70% of its suppliers by emissions, then it will recalculate the portion of scope 3 emissions each supplier represents annually, and tally up the list until the 70% threshold is covered. This means that there may be new suppliers added to the list, other suppliers that shift beyond the emissions/spend threshold, and others that the company may discontinue business with.

Some best practices include:

1. Inviting new suppliers to set SBTs each year if they enter the target threshold

2. Continuing to engage any suppliers that fall below the target threshold but were already invited to set SBTs

3. Working with Sourcing and Procurement teams to anticipate future business trends with target suppliers and adjust engagement prioritization accordingly

With the central target progress tracking solution, such changes should be easily visible and easily recalculated and reported annually. Companies can then choose to report target progress through their preferred sustainability and climate reporting channels, or work with third parties to validate scope 3 calculations that determine the targeted list of suppliers each year.

With that, we hope you have a clearer understanding of what is required to engage your suppliers in reporting their SBTs, in order to assess your company's scope 3 emissions. While this has been an introductory guide, you can find the full SBTi resource here.

This article was produced by the team at SPARKD Partners as part of its August Articles - a series of Supply Chain articles published every Tuesday and Thursday for the month of August. Click the button below to read more of our articles.

In order to achieve net-zero emissions globally by 2050, and limit warming to 1.5°C, companies and their suppliers need to commit to setting science based targets that are achievable and applicable to them. In this article, we will outline 5 steps recommended by SBTi to guide you on setting Scope 3 supplier engagement targets for your supply chain.

The 5 steps are:

1. Selecting the Right Suppliers

2. Secure Internal Buy-in Before Engaging Suppliers

3. Collaborating with Supplier(s) for Target Implementation

4. Enable and Track Supplier Performance

5. Monitor and Report Target Progress

For the full SBTi article, click here.