How Walmart is tackling its supply chain emissions?

Barring a few industries, most companies’ biggest challenge in abating their overall carbon emissions lies in their value chains. And the reasons are lack of visibility and control. We’ll look at an example of one company’s initiative to reduce its scope 3 emissions in this article with the hope it becomes a launchpad of similar ideas for the readers.

Reducing emissions in the value chains is by far the most challenging. Most value chains are global and have also become very complex. There is a classification for this category of emissions and it is called Scope 3 emissions. Differing national carbon reduction goals, lack of multilateral policies and diverging set of standards are only compounding the effect.

For readers not well-versed with carbon emission classification, here is a quick primer: ⁽¹⁾

Scope 1: Emissions that are directly generated from a company’s core business;

Scope 2: Emissions indirectly generated by energy(electricity, heat, steam) purchased by a company;

Scope 3: Emissions indirectly created by its supply chain. Generally, this represents 65-90 per cent of all emissions at large global companies, according to Carbon Trust.

On the Journey to reducing Scope 3 emissions:

Some companies have already taken steps to be a leader in this space. Instead of controlling the process, they have made it encouraging for its complex chain of suppliers to participate in a collaborative effort to reduce carbon emissions. Companies like Walmart are on such a journey since 2017. They have laid a foundation of a blueprint for other large companies to adopt.

While the Glasgow COP26 will be remembered for including fossil fuel for the first time in the COP agreements, it will also be considered a watershed moment for the retail industry. The leading retailers like H&M Group, Ingka Group (IKEA), Kingfisher plc and Walmart also launched a new climate change initiative- Race to Zero Breakthroughs: Retail Campaign to inspire retailers to halve their emissions by 2030.

Walmart, the US retail giant, had launched “Project Gigaton” ⁽²⁾way back in 2017 to track the carbon footprint of their suppliers too and had set themselves a lofty target of cutting 1 Bn metric tons (a gigaton) of emissions by 2030.

95% of its emissions come from its supply chain⁽³⁾. This goal has been to reduce the Scope 3 emissions. Walmart also has separate targets for Scope 1 and 2 emissions.

Project Gigaton

Project Gigaton aims to reduce scope 3 emissions by encouraging its suppliers to reduce their carbon emissions voluntarily thus reducing the emissions in the full value chain. And this is achieved by providing financial benefits in addition to rewarding publicly the suppliers taking the right steps. The benefits encourage positive behaviours.

It begins with setting targets in one or more of the 5 following key areas:

These areas are also called Pillars and are based on Science-Based Targets. Science-Based Targets Initiatives defines any initiative set by any company as “Science-Based” if the level of decarbonization is aimed at keeping the global temperatures below 2 degrees.

Suppliers set their own targets and report their progress. Walmart then recognizes the leaders publicly. The program also rewards the suppliers by way of early payment of invoices and credit lines⁽²⁾

There are 2 levels of recognition for participating suppliers:

Giga Gurus: are the suppliers that have made progress in 3 of the 5 pillars

Sparkling Change: Suppliers who have taken meaningful steps in any 1 of the 5 pillars

Ripple Effect

After running this initiative for a couple of years Walmart observed that the bigger suppliers like Unilever, Mondelez, 3M etc were quick to be part of this program as they have similar reduction goals internally. The smaller suppliers still lacked the know-how of sustainability goals. To help the small and mid-size suppliers, Walmart is now focusing on two areas,

Empowerment by sharing know-how

In order to help smaller suppliers to understand and incorporate sustainability goals, Walmart facilitates events for suppliers which includes sharing best practices and bringing in experts to explain science-based targets.

Incentivisation through Supply Chain Finance

Lately, Walmart and HSBC have announced a new supply chain finance program to offer credit lines, early payment of invoices and other benefits for suppliers that cut greenhouse gas emissions according to targets established by the Carbon Disclosure Project.

Key Takeaways from Walmart’s Project Gigaton.

COP26 has been a step in the right direction but we also have challenges that need creative solutions:

Blueprint: There is still not a blueprint or global policy around Scope 3 emission reduction-> Governments, large companies, Universities have a role to play here

Collaboration: An effective carbon reduction program requires collaboration and trust, both of which have been a casualty in the race for profitability -> Private companies especially the larger ones must demonstrate the leadership

Creativity: A lot of technologies already exists to abate carbon emissions, what is lacking is creativity in applying those

Access: There is also a divide- Rich vs poor nations, large vs small companies, profit vs planet -> Rich nations’ governments, large corporations again can be leaders in this space.

Large Companies:

And although we used Walmart as an example, carbon emission reduction is down to leadership – at any level and in any organisation. Large companies like Walmarts have an added advantage- they have the resources and influence to make the change happen both among its supplier base as well as customer base.

This story is also a good example of the use of creativity in achieving something bigger. Walmart created a blueprint that suppliers, both big and small could follow. There has been a tremendous level of collaboration – as Suppliers and Walmart came together to solve this problem together, shared know-how and helped those that needed support.

Small & Mid-size Companies:

Smaller and mid-sized companies will require support. Large companies can provide that by sharing sustainability know-how. They can create a path that is equitable for the small players to follow yet contribute positively to this mission by incentivising them for making progress.

For small & mid-size companies, it’s a perfect opportunity to scale with such available support. As the public sentiment changes in favour of companies that are sustainability conscious, this will also become a strategic tool for growth and development.

People- Us:

This is an example of true leadership and there is a lesson for all of us here. We represent large and small companies and it is upon us to learn lessons such as these and/ or develop similar creative approaches to tackle rising temperatures in our work. It is upon us to keep sustainability at the back of our mind in whatever work we do, be it product design, Logistics, Supply chain, Finance, etc. We have the power to make this change.

Companies can tackle scope 3 emissions by collaborating & engaging with their customers and suppliers.