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Clean Energy is a Big Deal for Your Biggest Customer

As more corporations commit to ambitious sustainability targets, they are increasingly turning to their supply chains to drive decarbonization. Through Sustainable Supply Chain programs and CDP Supply Chain engagement strategies, major brands are urging their Tier 1 suppliers to join them on the journey to net zero by procuring renewable electricity.

What is a Sustainable Supply Chain Program?

In a Sustainable Supply Chain program, companies work with their suppliers to measure, report, and reduce greenhouse gas (GHG) emissions and other environmental impacts across the value chain. The goal is to drive sustainability improvements upstream and downstream from the company's operations.

Many companies are aware that the majority of their carbon footprint lies in Scope 3 - outside their direct control - which includes GHG emissions from purchased goods and services, supplier operations, transportation and distribution, and more. CDP has found that supply chain emissions are on average 11.4 times higher than operational emissions.

To make meaningful progress on Scope 3 reductions, companies need their suppliers to take action on their own Scope 1 emissions (from direct operations) and Scope 2 emissions (from purchased energy). This is where Sustainable Supply Chain programs come in - by collecting supplier data, setting procurement standards, offering training and resources, and tracking performance over time.

The Power of Collective Action

The impact of Sustainable Supply Chain programs is amplified when more companies get on board. As of 2023, more than 330 major corporations, with a combined purchasing power of $6.4 trillion, are requesting environmental data from over 50,000 suppliers through CDP Supply Chain. This includes industry giants like AstraZeneca, Walmart, The LEGO Group, Stanley Black & Decker, Unilever, and L'Oréal, who are using their influence to drive climate action at scale. 

One of the highest impact areas is setting renewable energy procurement as an expectation for suppliers because it’s an effective and relatively quick way to sustainably reduce a company's carbon footprint.  

A 2021 CDP report found that only 38% of suppliers are currently engaging on climate change, and the majority of suppliers have yet to set any kind of climate reduction targets. However, large buyers are increasingly making purchasing decisions based on which vendors are moving in the right direction on emissions.  As said by Apple’s Lisa Jackson, Vice President of Environment, Policy, and Social Initiatives during a 2016 Climate Week event, “we have to be the ripple on the pond…we can’t just be 100% renewable energy - we have to bring others with us.”

Risks and Rewards for Suppliers

For suppliers, participating in Sustainable Supply Chain programs is increasingly a matter of competitive advantage. As more purchasing organizations adopt "green" procurement criteria, suppliers who fall behind on sustainability risk losing business to those who can demonstrate progress.

Meeting customer climate goals may require significant investments, such as installing on-site solar arrays, purchasing renewable energy certificates (RECs), or pursuing power purchase agreements (PPAs). 

The good news is that suppliers don't have to go it alone. Many Sustainable Supply Chain programs offer support services like training, tools, and collaborative supplier events to help build internal capacity.  Proactive suppliers can also seek out NGO partnerships, government incentives, and peer networks to accelerate their renewable energy journeys.

Choosing the Right Renewables Solution

One common challenge for suppliers is navigating the complex landscape of renewable electricity procurement. With so many options available - including unbundled RECs, green tariffs, on-site PPAs, and virtual PPAs - it can be difficult to determine which solution is best for a particular facility or region.

For many suppliers, the key criteria are additionality (driving new renewable energy capacity), locality (matching facility electricity use), and simplicity (minimizing transaction costs). Suppliers should also consider their emissions reduction goals, risk tolerance, and budget when evaluating procurement options.

One increasingly popular solution is renewable energy certificates with additionality (Additionality RECs or ARECs), which are fixed-price forward agreements for the RECs from new renewable energy projects. ARECs offer the impact of a long-term PPA with the simplicity of a REC purchase, making them well-suited for small and medium-sized energy buyers.

By procuring ARECs, suppliers can make credible claims about driving new clean energy generation, without the complexity of wholesale energy markets or long-term contracts. 

The Path Forward

As the climate crisis accelerates, companies can no longer afford to ignore the environmental impact of their supply chains. Purchasing organizations can drive meaningful emissions reductions by engaging suppliers in the collective effort to decarbonize while building a more resilient value chain.

For suppliers, embracing renewable energy is no longer optional - it is a business imperative. Those who move quickly to align with customer sustainability goals will be well-positioned to thrive in the net zero economy. Innovative solutions like ARECs can help suppliers achieve impact while managing costs and complexity.

The transition to a sustainable supply chain won't be easy, but it is essential. Only by working together can companies achieve the speed and scale of emissions reductions needed to secure a livable future. 


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