Net-Zero Transition

Lower your environmental impact

With the growing demand for businesses to minimize their carbon emissions, procurement is a key driver in achieving supply chain decarbonization. By implementing strategic decarbonization initiatives, your organization can advance toward its net-zero goals more effectively.

Our Approach to Sustainability

The Role of Procurement in Sustainability

Procurement plays a critical role in shaping an organization's environmental impact, with supply chain emissions accounting for up to 80% of total carbon output.

Strategic Partnerships for Sustainable Goals

KGM Strategy supports organizations in achieving their sustainability objectives by designing strategies, assessing carbon footprints, and fostering collaboration with suppliers to reduce indirect emissions.

PROCUREMENT: TIME TO BE HONEST!

Insights from our expert Kiren on Reducing Carbon Footprint

What is procurement's role in supporting decarbonization?

We all understand the need to reduce emissions globally to combat global warming. Companies are under increasing pressure to do this, in particular from investors, consumers, regulators and employees. And just to give a bit of background, when you look at emissions, they fall into 3 categories, or scopes – Scopes 1, 2 and 3:

Scope 1 refers to direct emissions from a company’s own production, such as manufacturing or processing of materials
Scope 2 refers to indirect emissions related to the use of purchased energy, so if you get your energy from a coal powered source or a renewable source, that will directly impact your Scope 2 emissions
Scope 3 refers to all other indirect emissions, of which a large part is from goods and services bought from suppliers and that occur throughout the value chain

The ratio of emissions between the 3 scopes will vary based on industry, but Scope 3 can be as much as 70-90% of a company’s total emissions in industries that manufacture end-product goods, industries such as in electronics, automotive, food and FMCG.

So when you combine the fact that Scope 3 covers predominantly goods and services that are bought into a company, plus the fact that Scope 3 is often the biggest emissions areas, then the role of Procurement becomes extremely important. The ability of the Procurement function to engage suppliers and drive down emissions will directly impact whether a company is able to hit its carbon reduction targets.

What key challenges do procurement functions face when trying to reduce emissions?

Because Scope 3 emissions come from suppliers, there’s already fundamental challenge, which is that you have limited control over what your suppliers do. However, when we look more specifically at client challenges we help with, there are three key ones we see most often:

Firstly, and most common with our clients, is the lack of data and transparency. Many companies simply don’t collect data on emissions, so they don’t know the scale of the problem or where to start – even those that do collect some data may be using third-party databases and benchmarks which will be less accurate than getting it directly from suppliers

Secondly, cost: the costs and investment involved with decarbonizing can be very high. This directly conflicts with procurement’s traditional role of trying to reduce costs. I’ve spoken to many procurement teams who ask how they should balance cost against carbon in sourcing decisions for example. Other companies simply don’t have money to invest in sustainability due to recent inflationary challenges

Finally, we see a gap in expertise and knowledge around decarbonization – there’s a lot of new technology and research underway, different business models being developed and companies are trying things that have never been done before. For example: we have clients in the food sector who are trying to understand how they get farmers to switch to regenerative agriculture methods, or how to procure seaweed in bulk to use as fertiliser

And on top of these three reasons, you also have: regulatory uncertainty, a challenging macro-economic environment, technological barriers, the political landscape, limited infrastructure, resistance to change and many more – so there’s definitely a lot to take into account when making decisions and knowing where to prioritise.

How does KGM Strategy help clients reduce scope 3 emissions?

Our main proposition approaches the challenge from 5 key areas:

SOA: Firstly we start with the assessment phase – our Sustainability Opportunity Assessment or SOA. This is the key starting point to help build a baseline, understand your ESG procurement maturity and define key abatement levers to know where to focus. We often do this alongside a typical cost assessment to find cost savings to fund the carbon journey – helping mitigate the challenge of investment

Then we move into design and implementation where we look at 3 main levers: (i) reducing emissions from suppliers, (ii) reducing emissions from the supply chain, and (iii) reducing emissions from products

Suppliers: When we talk about suppliers, we look at how to actively influence suppliers through incentives and disincentives, plus how to adapt sourcing processes to select new suppliers with lower emissions. We also recommend looking more across the value chain and at the broader ecosystem – for example, how can you work with your supplier’s suppliers more? Or form alliances with competitors to drive industry change?

Supply Chain: Regarding the supply chain, we start off by looking at where you should source from in the world based on emissions – so rather than re-shoring or nearshoring, we look at green-shoring. For a manufacturing client, we looked at the impact of the new CBAM regulations to advise whether they should source more steel from China or Europe. We also look at our clients’ logistics footprint to see how to reduce it, e.g. Switching from air freight to sea freight, or moving from diesel vans to EVs

Product Design: The final lever is around product design, which includes how to build sustainability into your design processes, how to conduct value engineering to redesign products and product lifecycle management

Op Model: The final fifth area we support is the Operating Model: The priority areas for clients are getting data, upskilling their teams and refining procurement processes to factor sustainability more into decision making

Using these 5 elements, we support clients on their end-to-end decarbonization journey to help them reach their carbon goals.

At the beginning of the decarbonization journey there is a need to create transparency across the different types of emissions:

Scope 1: direct emissions from the company’s own production
Scope 2: indirect emissions related to the purchasing of electricity and air conditioning for the company’s buildings
Scope 3: all other emissions that arise in the company’s value chain, caused by suppliers, services or logistics

While the amount of Scope 1 and Scope 2 emissions is relatively easy to determine and within a company’s direct sphere of influence, Scope 3 emissions, which can be as much as 70-90% of a company’s total emissions, lack transparency and direct access. With its direct contact to suppliers and service providers, procurement plays a crucial role in mitigating Scope 3 emissions.

How we support your procurement in the decarbonization journey

1. Sustainability Opportunity Assessment

build a baseline
understand your ESG procurement maturity
define key abatement levers to understand where to focus.
set decarbonization roadmap

We often do this alongside a typical cost assessment to find cost savings to fund the carbon journey – helping mitigate the challenge of investment

2. Operating Model

Data & Tools to actively measure emissions and progress
Upskilling procurement teams
Refining procurement processes to factor decarbonization into decision making

3. Implementation

Reducing emissions from suppliers

Actively influence suppliers through incentives and disincentives
Adapt sourcing processes to select new suppliers that have lower emissions
Look across the value chain and at the broader ecosystem, e.g. closer collaboration with suppliers, industry alliances

Reducing emissions from the supply chain

Define sourcing regions based on emissions, e.g. Nearshoring, Greenshoring
Ensure compliance with regulations, e.g. CSDDD, CBAM,…
Optimize logistics footprint, e.g. switching from air freight to sea freight, or moving from diesel vans to EVs

Reducing emissions from products

Value engineering to redesign products with a lower carbon footprint
Product lifecycle management, e.g. recycling, waste management