3.2 Climate Change and Greenhouse Gas Emissions

Climate change significantly impacts supply chains, with greenhouse gas emissions stemming from transportation, manufacturing, and land use changes. Companies must address their Scope 3 emissions, which often represent the largest portion of their carbon footprint. Inefficiencies in supply chain operations contribute to increased energy consumption and emissions.

Reducing emissions in supply chains involves adopting cleaner transportation, improving energy efficiency in manufacturing, and collaborating with suppliers. Companies must also enhance supply chain resilience by diversifying sourcing, conducting climate risk assessments, and developing contingency plans to adapt to the changing climate landscape.

Climate Change and Greenhouse Gas Emissions in Supply Chains

Supply chains and climate change

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• Supply chains significantly contribute to global greenhouse gas (GHG) emissions through transportation of goods releasing GHGs from fuel combustion (diesel, gasoline), manufacturing processes emitting GHGs through energy consumption and industrial processes (steel production, cement manufacturing), and deforestation for raw material extraction and agriculture releasing stored carbon (palm oil plantations, cattle ranching)
• Scope 3 emissions, or indirect emissions from supply chain activities (purchased goods and services, transportation and distribution), often represent the largest portion of a company's carbon footprint
• Inefficiencies in supply chain operations lead to increased energy consumption and GHG emissions through overproduction, excess inventory, and unnecessary transportation contributing to higher emissions (air freight, expedited shipping)

Greenhouse gas sources in supply chains

• Logistics and transportation heavily rely on fossil fuels for freight transport by road (trucks), rail (diesel locomotives), air (cargo planes), and sea (container ships)
• Last-mile delivery in urban areas contributes to traffic congestion and emissions (delivery vans, courier services)
• Manufacturing and production involve energy-intensive processes, such as those in the steel (blast furnaces), cement (kilns), and chemical industries (petrochemical plants)
• Emissions from the use of fossil fuels for heat and power generation (coal-fired boilers, natural gas turbines)
• Agriculture and land use change release stored carbon through deforestation for agricultural land expansion (soybean farming, palm oil plantations)
• Livestock farming, particularly cattle, generates methane emissions (enteric fermentation, manure management)
• Fertilizer use in crop production leads to nitrous oxide emissions (nitrogen fertilizers)

Climate impacts on supply chain resilience

• Increased frequency and severity of extreme weather events disrupt transportation networks and logistics operations (hurricanes, floods) and damage infrastructure, such as ports, roads, and warehouses (storm surges, landslides)
• Rising sea levels and coastal flooding pose risks to coastal manufacturing facilities and distribution centers (inundation, erosion) and disrupt shipping routes and port operations (navigability, accessibility)
• Changes in temperature and precipitation patterns shift agricultural yields and the availability of raw materials (droughts, heatwaves) and alter consumer demand for seasonal products (winter clothing, air conditioners)
• Regulatory and market pressures, such as carbon pricing mechanisms and emissions reduction targets (carbon taxes, cap-and-trade systems), and changing consumer preferences for sustainable products and practices (eco-friendly packaging, low-carbon footprint) impact supply chain operations

Emissions reduction in supply chains

• Adopt cleaner transportation modes and technologies by shifting from road to rail or sea freight, where feasible (intermodal transport), investing in electric and hybrid vehicles for last-mile delivery (electric vans, cargo bikes), and optimizing transportation routes and consolidating shipments to reduce mileage (route planning software, load consolidation)
• Improve energy efficiency in manufacturing and production by:

1. Conducting energy audits and implementing energy management systems (ISO 50001)
2. Investing in renewable energy sources, such as solar and wind power (on-site generation, power purchase agreements)
3. Adopting circular economy principles to minimize waste and resource consumption (remanufacturing, recycling)

• Collaborate with suppliers to reduce emissions by engaging them in emissions reduction initiatives and sharing best practices (supplier sustainability scorecards), setting sustainability performance targets and incentivizing low-carbon practices (supplier awards, preferential contracts), and developing local and regional sourcing strategies to reduce transportation emissions (nearshoring, localization)
• Enhance supply chain resilience and adaptability by diversifying sourcing locations and suppliers to mitigate regional climate risks (multi-sourcing, dual sourcing), investing in climate risk assessment and scenario planning (climate models, risk matrices), and developing contingency plans and flexible supply chain networks to respond to disruptions (business continuity planning, agile supply chains)