From large corporations to local businesses, companies worldwide are accelerating their transition to sustainability. What was once voluntary is now increasingly mandatory: the EU's Corporate Sustainability Due Diligence Directive (CSDDD), adopted in July 2024, requires large companies to establish climate transition plans covering their supply chains. Under the CSRD, Scope 3 emissions reporting is now a legal obligation for Phase 1 companies under ESRS E1. And from 2026, the Carbon Border Adjustment Mechanism (CBAM) puts a direct financial cost on carbon-intensive imports. Companies are no longer just paying attention to their ESG scores - they are being held accountable for emissions across their entire value chain.

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Patagonia leads the way, by implementing the most radical solutions to reach net zero and protect the environment. A few examples: the "Don't buy this jacket" ad campaign, closing stores between Christmas and New Year's Eve, or even making nature the first stakeholder of the company.

Amazon is investing in less carbon-intensive delivery solutions, transitioning from van deliveries to cargo bikes where possible. And large customers are now expecting their suppliers to report Scope 3 emissions - making supply chain decarbonization a commercial necessity, not just an environmental one.

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However, despite all these efforts and awareness, companies often underestimate their carbon emissions and, therefore will most probably never reach net zero. In fact, research from the University of Amsterdam found that "at least tens of thousands of Dutch companies won't achieve climate goals." With the window for action to contain global warming to 1.5-2°C closing fast, companies must pay more attention to emissions coming from their supply chains and apply effective methods to speed up decarbonization.

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According to the UN Global Compact, Scope 3 emissions account, on average, for more than 70 percent of an organization's carbon footprint. CDP's supply chain research puts the figure even higher, finding that supply chain emissions average 11.4 times a company's own operational emissions. This means there is increasing pressure to integrate sustainability and drive decarbonization in supply chains - and with CSRD and CSDDD now in effect, that pressure is backed by law.

This Coolset Academy article will go over 9 effective methods to decarbonize businesses' supply chains. Understanding these methods and frameworks is also crucial for SMEs without complex supply chains, as they will probably face pressure from customers willing to reduce their Scope 3 emissions.

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How to prepare for net zero carbon emissions

Engaging in sustainability and achieving net zero emissions isn't something that happens overnight, it is a long-term challenge. Like for any other long-term goal, this means business leaders need to build the right approach. Before diving into the 9 decarbonization methods to reduce supply chain emissions, let's take the time to prepare.

Here are the 3 steps that will make all supply chain decarbonizations successful.

1. Gaining visibility over the supply chain

This first step is key to accelerating carbon reduction through a company's supply chain. By understanding their supply chains, businesses can identify "quick wins" for decarbonization, implement the most effective methods and plan ahead for those harder to implement.

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• Start by identifying your company's Tier 1 suppliers. Tier 1 suppliers provide almost end-products or services to your supply chains. For instance, Continental is a common Tier 1 supplier of the automobile industry.

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• Move down to Tier 2 suppliers (where Tier 1 suppliers source materials) and lower. Clearly identifying these companies and their activities will be more difficult, but you should assess what visibility you can get.

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• Last step: group your suppliers. This grouping can be by sector, spending, emissions, or any other strategic metrics. Also, try to identify your key suppliers in terms of decarbonization opportunities.

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2. Measuring scope 3 emissions throughout the supply chain

Scope 3 emissions (also known as supply chain emissions) are any indirect emissions that occur in a company's value chain that aren't covered by scope 2. These emissions result from the company's operations but come from sources it does not own or control.

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On average, 70% of organizations' emissions come from Scope 3, meaning it is difficult for companies to directly understand their actual climate impact. Therefore, measuring your company's carbon footprint - and specifically estimating Scope 3 emissions - is vital to achieving net zero. This helps understand where emissions come from and identify carbon emissions hotspots. This is where Coolset comes in.

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Measuring Scope 3 emissions remains one of the biggest challenges for companies of all sizes. Best practice has shifted from relying on spend-based estimates toward collecting primary, supplier-specific data - a direction reinforced by both IFRS S2 and the EU's ESRS standards. For SMEs, this process can still be a headache, often requiring significant financial and human resources.

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Coolset offers an autonomous carbon accounting platform, requiring minimal human input to measure any company Scope 1, 2, and 3 emissions.
Our data-driven carbon insights will identify emissions hotspots by suppliers or spending categories.

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3. Setting a carbon reduction target

Once you have access to a detailed assessment of your company's carbon footprint, you must set long-term and interim targets that will correlate with your sustainability action plan.

Organizations like the Science-Based Targets initiative (SBTi) produce resources for companies to create zero-emissions strategies and set science-based targets. Over 13,000 companies have now set or committed to science-based targets. Aligning with the GHG Protocol and the Paris Agreement is critical to take your suppliers with you in the decarbonization journey.

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What is a science-based target? Emissions (GHG) reduction targets are considered 'science-based' if they are consistent with what the most recent climate science indicates is required to meet the Paris Agreement's goals of limiting global warming to 1.5°C above pre-industrial levels.

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9 decarbonizations levers to make your supply chain sustainable

Public recognition

Your company may influence its industry: competitors look at which suppliers you source your products from or how you managed to succeed in certain markets, and your customers appreciate your values and pay attention to your company's image.

Offer your suppliers the opportunity of benefiting from this spotlight. Condition some public recognition, like press releases, ad-campaign, or co-branded products, to carbon reduction achievements.

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WARNING: Learn how to communicate sustainability effectively.

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Upskilling

Business leaders and their teams who undergo at least a little training on sustainability usually achieve their goals at a lower cost while demonstrating more credibility with investors and talents.

Share resources and training materials with your suppliers and organize dedicated workshops to encourage them to build awareness.

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Peer benchmarking

Your suppliers probably work in a competitive environment and keep an eye on their competition. Provide them with a scoring system that compares their performances to their competitors' on a carbon emissions basis. This will motivate them to implement a decarbonization plan to remain competitive.

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Pay for performance

Offer financial incentives to your suppliers when they reach specific emissions reduction targets. Generally, financial rewards encourage more rapid decarbonization of the supply chain; however, it can take time to implement this method through large supply chains.

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Longer term investment

Decarbonization is a long-term process, and companies won't reach net zero emissions overnight. Therefore, providing long-term rewards and reassurance to your suppliers, conditioned by their decarbonization success is vital.

These can take many forms: direct investments in suppliers, joint ventures, preferential payment terms, or advance payments.

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Decarbonization criteria in procurement

It is highly recommended that the Sustainability and Procurement teams work closely together to increase the chances of decarbonization success. This method perfectly embodies this principle. For a detailed guide, see how to implement sustainable procurement practices to reduce Scope 3 emissions.

Introducing a criterion into the supplier selection process that rates suppliers based on their carbon reduction achievements provides a clear incentive to decarbonize the supply chain. More than just encouraging suppliers to reduce their emissions, by making this practice widespread, you will ensure that your supply chain emissions will naturally decrease over time.

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Mandatory carbon reporting

Requiring mandatory carbon reporting from suppliers, even in the absence of performance-based contracts, is an effective way to set a high standard for climate reporting and decarbonization across the industry. This is no longer just a best practice - under the CSRD, large EU companies are now legally required to report Scope 3 emissions, and the CSDDD extends due diligence obligations across the value chain. Meanwhile, CBAM's financial phase (from 2026) means that carbon-intensive imports carry a direct cost, giving suppliers a concrete financial reason to decarbonize.

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Carbon pricing

After estimating the carbon footprint of your suppliers' products, apply a carbon cost that penalizes the supplier when their products are carbon intensive. This method shifts the responsibility for decarbonization to the suppliers and forces them to reduce their carbon emissions. However, it can be more challenging to implement.

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Contract termination

Suppliers are encouraged to reach their decarbonization goals or face losing their contracts. If they fail to meet decarbonization requirements, terminate agreements with suppliers.

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How to concretely implement decarbonization through your supply chain

Choosing the right decarbonization levers

Each decarbonization method requires different resources to implement and will vary in impact from the others. In addition, the impacts and ease of implementation will vary by industry. Knowing which levers to implement and when is crucial in transitioning to net zero emissions across the supply chain.

Because SMEs don't have the time and resources to experiment and find the right lever for them, here is a chart showing estimates of ease of implementation and impacts by decarbonization method:

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To effectively reduce emissions through their supply chains, companies must implement the decarbonization methods from the green area as soon as possible. We observe that most of the levers from this area, "Easiest to implement, Most impactful" are procurement-related levers, reminding the importance of Sustainability and Procurement collaboration.

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Methods such as "Upskilling" are considered "quick wins" because they are among the easiest to implement and build awareness and transparency throughout the supply chain, helping to build a solid foundation for future decarbonization.

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Finally, companies should pay more attention to the harder-to-implement methods to plan ahead and anticipate how they will be implemented in the near future, as they are essential to achieving zero emissions.

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Resource:

WBCSD, PwC. "Incentives for Scope 3 supply chain decarbonization: accelerating implementation". November 2022

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