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The supply chains of FTSE 100 companies emitted 3 billion tons of CO2 last year, shows research by supply chain experts INVERTO, a subsidiary of Boston Consulting Group.

These latest figures show just how far the UK’s biggest businesses still have to go in achieving Net Zero in their supply chains (i.e. the raw materials, goods and services that FTSE 100 companies use).

The Top 5 emitters alone accounted for 86% of the FTSE 100 total (2.56bn tonnes of CO2), while the Top 10 accounted for 93% (2.79bn tonnes of CO2). The Top 10 was dominated by oil & gas, mining and engineering firms. Supply chain emissions – also known as Scope 3 emissions – include all indirect emissions occurring in the upstream and downstream activities of an organisation, e.g. from the goods and services it purchases.

Sushank Agarwal, Managing Director at INVERTO, argues that though much work remains, progress is being made towards Net Zero emissions in FTSE 100 supply chains. “Even though there’s still a long way to go, we’re in a much better place than we were on supply chain decarbonisation just a couple of years ago. There’s now a lot of awareness and strong senior sponsorship, but many are still in the process of turning that into concrete action.

“Those businesses that have started their journey are mainly focusing on reducing their Scope 3 emissions through embedding sustainability measures into their sourcing processes and working directly with key suppliers to reduce emissions throughout the value chain. The bulk of supply chain emissions reductions are relatively achievable in the medium term, with only a minority requiring further technological advancement or very large-scale investment. That’s what businesses should be focusing on today – the low-hanging fruit in their supply chains.”

Still too few FTSE 100 companies setting Net Zero targets

There is concern that not enough FTSE 100 companies have made explicit commitments for when they will achieve Net Zero. INVERTO’s research shows that so far, only 53 FTSE 100 companies have set a clear target date for fully decarbonising their supply chains. With an average target date of 2043 (see table below), INVERTO says that more FTSE 100 companies should be setting challenging targets for faster supply chain decarbonisation.

Agarwal says there is also a lack of FTSE 100 companies setting interim targets on their roadmap to Net Zero. This tactic means companies are more likely to commit resources to decarbonisation today, rather than hoping to catch up in 10 or 20 years’ time. “All companies should have a clear deadline for achieving Net Zero and milestones in place to get there. If they are targeting 2050 for complete decarbonisation of their supply chains, they should make clear where they will reach by 2030 and 2040 too. While some sectors will of course take much longer to get there, their progress will undoubtedly quicken over time.”

Far more reporting needed from the UK’s biggest listed companies

INVERTO says there is also a lack of regular and precise reporting on progress in reducing supply chain emissions by FTSE 100 companies. Overall, 57 FTSE 100 companies report their progress to shareholders, although the quality of the reporting varies significantly. While 57 companies have reporting in place, only 44 are reporting by using a clear metric – most often a percentage change on the year before. This is a sign that improvement is necessary, says Agarwal.

Highest-emitting sectors account for lion’s share of overall supply chain emissions

Despite the FTSE 100 as a whole emitting some 3 billion tonnes of CO2, just two sectors accounted for five sixths of the total: oil & gas with 49.6% and mining with 34.3%. Between them both, oil & gas and mining amount to just eight FTSE 100 companies.

Agarwal concludes: “All companies have a responsibility to bring down their supply chain emissions, but some more so than others. It’s expected that oil & gas and mining account for the lion’s share of emissions, so these sectors have the most to contribute to decarbonisation. Their efforts will automatically have a huge effect on other companies Scope 3 emissions as well.”

Long-awaited price deflation is now happening, says international procurement and supply chain management consultancy INVERTO, part of Boston Consulting Group. Sushank Agarwal, Managing Director at INVERTO, says that businesses must now renegotiate with their suppliers to bring prices down – or lose out to their competitors as price competition heats up:

“The coming months are going to see significant price competition as costs come down, especially in certain commodities. Those businesses that are unable to cut prices in line with the rest of the market could lose out significantly. Some of the major supermarket groups are already starting to compete more heavily on price – milk is one product where we’re seeing price cuts. This trend is going to be repeated across a whole range of industries. There are sectors, like luxury goods, where pricing matters less but that’s a minority of the economy. A lot of businesses have fallen out of the habit of negotiating prices down over the last couple of years. They need to get back to doing that and quickly.”

Despite inflation in the overall Consumer Price Index only having fallen from 10.4% in February to 10.1% in March, INVERTO says that it has seen costs start to fall noticeably across a range of products, including:

– Milk (down 7% from peak price in December 2022)
– Construction materials, such as:
– Sawn wood (down 8% since November 2022 peak)
– Structural steel (down 5% since November 2022 peak)
– Steel rebar (down 7% since November 2022 peak)

These price decreases add to others that were already down substantially from their peaks, such as wholesale electricity, now down 71% from its peak in August 2022 and wholesale natural gas, down 77% over the same period.

Agarwal says that businesses must proactively engage with suppliers and put pressure on them to cut their prices, just as suppliers put upward pressure on prices when inflation was rising. More businesses should now be looking to renegotiate and structure their contracts in a way that allows prices to decrease as inflation falls, rather than only moving in one direction. “Every business in the UK will have seen its costs rise over the last 18 months, with suppliers blaming inflation for their own prices going up. Now that period is over, businesses have to push back in the other direction. Businesses can take a lot of the stress and time out of these price negotiations by agreeing transparent pricing mechanisms in their contracts with suppliers. These mechanisms can ensure that customers know they aren’t being taken advantage of in pricing, while suppliers know that they will get a fair margin even when prices start to come down.”

To help businesses to monitor their suppliers’ costs and negotiate pricing with them, INVERTO has created its Value Protector tool. This tool allows buyers to independently assess the costs of all their suppliers’ inputs across the locations in which they operate. This gives businesses the information they need to judge whether the price rises demanded by suppliers are genuine or to decide whether to negotiate price decreases.

Businesses can then use the insights provided by Value Protector during meetings with suppliers in order to base the negotiations on the true costs of their suppliers’ inputs. Agarwal adds, “few suppliers are likely to want to share their input costs. Bridging that information gap is the most effective way of reaching an agreement that works for both parties. Customers that can come to a negotiation armed with that data put themselves in the best position to bring their costs down.”

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