Scope 3 Upstream Action Plan for Suppliers

4.1 Overview and Scope 3 Upstream Action Plan for Suppliers

The Scope 3 Upstream Action Plan calls on companies to work with their suppliers towards the North Star Supplier Ask: to set Scope 1-3 targets in line with a net-zero 2050 pathway, disclose emissions, and decarbonize according to those targets (for more information, kindly refer to Chapter 1.3 “The Scope 3 Upstream Action Plan”). However, not every company is at a stage where they can set targets and decarbonize. Reaching the North Star Ask will be a journey – a journey that companies across the value chain should embark on together.

We are distinguishing four levels of sustainability maturity:

Foundational: Where a supplier has a basic understanding of climate-related risks and its adverse impacts on their business and started to measure Scope 1-2 emissions.
Advanced: Where a supplier has started to set emission reduction targets that are in line with a 2050 net-zero pathway. The supplier also understands what science-based targets are and why they are important.
Leading: Where a supplier has started to double down on emission reduction activities by having implemented systematic emission reduction activities and/ or having developed a net-zero transition plan.
North Star: Where a supplier has set Scope 1-3 targets and is decarbonizing systematically and in line with its net-zero pathway. In addition, that supplier has started to gain transparency on its Product Carbon Footprint (PCF) and – if not done so already – is developing a net-zero transition plan.

Supplier differentiation

In addition, different suppliers will be in different circumstances and may face different challenges to decarbonize. Taking those differences into consideration, as we are designing suppliers’ journey to reach the North Star Ask, is an important key success factor.

Suppliers can be differentiated based on various characteristics, e.g.,

Based on their ability to decarbonize
Based on their strategic importance (e.g., based on providing strategic or scarce input materials)
Based on their location in your value chain (i.e., being a direct supplier, often referred to as a Tier 1 supplier)
Etc.

Supplier types

While all the above differentiation possibilities are sensible and the decision on how a company differentiates its suppliers will depend on its priorities, we recommend considering a differentiation based on the ability to decarbonize. The ability to decarbonize is mainly driven by two factors:

Sector: as elaborated by the SBTi (and in the definition section on the SBTi’s Sectoral Decarbonization Approach), different sectors can decarbonize at a different pace, depending on the maturity of decarbonization technologies available.
Size: Small- and Mid-sized companies oftentimes don’t have the capacity to focus on mitigation in the same way that large companies do. It is therefore crucial to treat SMEs and Large enterprises differently, when engaging them to decarbonize.

Large, non-fossil fuel sector suppliers

Should either follow the Sectoral Decarbonization Approach (SDA), or the Absolute Contraction Approach (ACA) to set science-based targets. For companies in some sectors, such as power generation, iron & steel, cement, forest, land and agriculture, and maritime transport, the SBTi has developed specific methodologies, guidance, tools and requirements to help through the target-setting process.

Large, fossil fuel sector suppliers

Currently cannot set science-based targets since the sector-specific pathway is still under development. The SBTi is developing a target setting standard for oil and gas companies.

The SBTi clearly defines companies that can and cannot commit to the SBTi until the fossil fuel method is finalized here.

Small- and medium-sized enterprise (SME) suppliers

SME Climate hub: An SME is defined as a company or an organizatoin with up to 500 employees. For more information, see here.

SBTi: For a company to be considered an SME by the SBTi, all of the following must be true: 1) Have <10,000 tCO2e Scope 1 and location-based scope 2 emissions, 2) do not own or control maritime transport vessels, 3) do not own or control power generation assets, 4) are not classified in the Financial Institution sector or Oil and Gas setor, and 5) are not a subsidiary of a parent company whose combined businesses fall into the standard validation route.

And two or more of the following must be true: 1) Employ <250 employees, 2) turnover of <€50 million, 3) total assets of <€25 million, and 4) are not in a mandatory Forest, Land and Agriculture (FLAG) sector. For more information, see here.