Amazon Suppliers Face Environmental Stress Test: Decarbonizing the Supply Chain
Amazon and other major corporations are imposing stringent environmental mandates on their suppliers, raising the stakes for businesses' sustainability efforts. Beginning in 2024, Amazon will require suppliers to share emissions data, set emissions reduction goals, and provide progress reports. This move aligns Amazon with industry leaders like Microsoft, Walmart, and Apple, who are emphasizing the importance of decarbonization throughout their supply chains.
The backdrop for these mandates is an increasing global demand for eco-friendly practices, driven by consumers, investors, regulators, and governments. Pressure from these stakeholders is compelling corporations to hold their suppliers to higher environmental standards.
According to Bob Willard, a sustainability expert, this pressure from corporations is being passed down the supply chain, affecting even the smallest suppliers. This cascade effect underscores the importance of environmental sustainability in today's business landscape.
Understanding Emissions Categories Businesses typically categorize emissions into three scopes. Scope 1 emissions originate directly from a company's operations. Scope 2 emissions stem from purchased energy sources, such as electricity. Scope 3 emissions relate to a company's activities but originate indirectly, often from supplier emissions and emissions resulting from customers using their products. On average, scope 3 emissions account for approximately 75% of total emissions in major industries.
Companies have a significant degree of control over their suppliers, offering them a unique opportunity to reduce emissions. For instance, a consumer goods company can choose to collaborate exclusively with eco-conscious suppliers.
Decarbonization Mandates Grow Stricter Various companies are implementing more stringent requirements. Salesforce, for example, now demands that suppliers disclose scope 1, 2, and 3 emissions, deliver products and services on a carbon-neutral basis, and complete an annual supply scorecard. AstraZeneca suppliers are expected to report emissions data to the Carbon Disclosure Project (CDP) and establish science-based emission reduction targets.
Although Amazon doesn't include suppliers in its scope 3 emissions accounting, it is pushing suppliers to report emissions data and set goals, allowing the company to monitor progress. Amazon recognizes that to reduce emissions, it must ensure its supply chain partners adopt decarbonization measures.
Challenges for Small Suppliers Smaller suppliers, including third-party sellers, often face a dilemma as environmental mandates become more stringent. Many of them lack the resources required to track and report emissions. While a significant number prioritize emission reduction, they often lack the necessary skills and funds to comply with tracking and reporting demands.
Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, emphasizes that tracking emissions data is a complex and resource-intensive task. Compliance costs can be substantial, especially for businesses with limited financial resources.
The Path Forward Despite economic challenges, companies, both large and small, will need to adapt to these environmental mandates. The pressure from investors and policymakers, combined with a genuine need to reduce carbon emissions, will drive companies to take action further down the supply chain.
As Mark Baxa, CEO of the Council of Supply Chain Management Professionals, notes, companies keen on retaining high-quality suppliers are likely to assist their partners in meeting sustainability requirements. Corporate giants are offering financial support, favorable terms, training, and access to clean technology.
Amazon, for instance, is committed to assisting its suppliers in transitioning to renewable energy and sustainable materials. However, Amazon also states that partners that fail to meet these standards may face consequences.
Ultimately, suppliers and their suppliers must independently decide how they will address these environmental challenges. Those who align with sustainability goals will have a competitive edge, while those who do not may face difficult decisions in the future.
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