Pepsi and Mars want to squeeze carbon out of their supply chains

Carbon-reduction pledges tend to concentrate among the wealthy.

Hundreds of large, publicly traded companies are promising to buy clean electricity through programs like RE100. Some are going further to zero out emissions from all their business activities. But pledges from even the best-resourced corporations are held back by emissions throughout their supply chain, which are largely beyond those big companies’ direct control.

The effort to decarbonize big business is entering a new phase where the focus shifts to the smaller firms that supply the big ones. Some corporates have found that taking a fresh look at their supply chains is a vital component of fulfilling carbon promises they’ve already made.

Mitigating supply-chain emissions is certainly vital to the effort to hold planetary warming to 1.5° Celsius. Global industrial supply-chain emissions add up to 40 percent of annual greenhouse gas emissions, according to a 2020 study from RMI. Extracting raw materials is the biggest emitter in that subset, followed by transporting materials and goods around the world.

A 2021 World Economic Forum report asserts that the global supply chains for eight industries — food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight — emit more than half of global emissions, with food alone producing one-quarter of the total.

“The frontier of what it means to be a good citizen from a sustainability perspective is starting to creep into Scope 3, which is supply chain emissions,” said Paolo Natali, principal covering supply chain emissions at RMI and co-author of the 2020 report.

Last week, three packaged-food giants kicked off their push into this frontier: soda maker PepsiCo, candy conglomerate Mars and spice purveyor McCormick & Company. They rallied 210 of their supplier companies for a sort of climate boot camp to figure out how to tackle emissions from ingredients, packaging, transportation and contract manufacturing.

The goal is to extend state-of-the-art corporate decarbonization to ​“the brands behind the brands,” said Matt Banks, communication director of the supplier collaborative.

“The climate action movement has really only affected the Fortune 250,” said Banks, also an associate director at consulting firm Guidehouse. ​“Now we’re seeing that that has to really be up and down the value chain. […] It’s a new frontier for companies that are leading in this space.”

The fine print on dirty supply chains

The 2015 Paris Agreement on climate change kicked off a flurry of corporate promises to lower carbon emissions. More than 290 companies signed the RE100 pledge, which requires sourcing renewable electricity for the entirety of a company’s annual electricity needs. The Science-Based Targets initiative lists 662 companies with targets in line with the Paris Agreement and 495 committing to the more difficult goal of limiting global warming to 1.5° Celsius.

Companies have clear authority over the carbon they emit at their own facilities (known as Scope 1 in the Greenhouse Gas Protocol, the dominant carbon accounting scheme). Depending on where they operate, they wield more or less influence over the emissions profile of electricity and heating they pay for (this domain is Scope 2).

But there’s a third and more nebulous pillar of the carbon stool. Here’s how the Science-Based Targets initiative describes Scope 3:

Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g., [transmission and distribution] losses) not covered in Scope 2, outsourced activities, waste disposal, etc.

You could summarize Scope 3 emissions as ​“stuff other people do.” But the Science-Based Targets initiative stipulates that a company has to take accountability for Scope 3 emissions if they add up to more than 40 percent of the combined Scope 1, 2 and 3 emissions.

In other words, companies with especially carbon-intensive supply chains need to clean them up if they want to fulfill their official carbon pledges. 

The brands behind the new supplier collaborative have all set specific targets around their Scope 3:

• Mars wants to cut all three scopes of emissions 27 percent by 2025 and 67 percent by 2050. That’s from a 2015 baseline.
• McCormick aims to lower Scope 3 emissions 16 percent by 2030 from a 2017 baseline.
• PepsiCo promised to drop Scope 3 emissions 40 percent by 2030 from a 2015 baseline.

First-time carbon trackers

For the most part, governments have not stepped in to force change on supply-chain emissions. And it’s not clear that a policy push in individual nations would have much impact, given the interconnectedness of modern industry.

“Supply chains are really global, and it’s really difficult to agree on a policy framework at the global level,” Natali said. ​“If there is enough pressure from the consumer side, the signal will travel in the absence of policy.”

But supply-chain issues have largely fallen outside of the spotlight placed on high-profile companies in recent years from sustainability-minded investors and climate activists.

“They do not get pressure from [nongovernmental organizations]; they do not get pressure from investors,” Banks said of the supplier companies. ​“In order to get this to move, you have to facilitate it.”

Many suppliers are just now beginning to grapple with emissions inventories. Family-owned peanut farms or medium-sized shipping companies typically don’t have full-time sustainability managers on staff, not to mention the wherewithal to make systematic changes.

As such, the Pepsi/​Mars/​McCormick effort acts as ​“more of a carrot than a stick,” Banks said.

Participants will learn how to track their carbon footprint and set reduction goals; they will also be scored on ​“climate maturity” and rewarded for improving over time. Meeting these milestones will lead to recognition, like badges akin to LEED certification for sustainable buildings.

The first cohort of the ​“Supplier Leadership on Climate Transition collaborative” will run from April to August. A new cohort will launch in October, Banks said; it will be open to other companies that have signed a science-based target agreement and their networks of suppliers.