McKinsey Shares How Retailers Can Cut Scope 3 by 15%

Retailers could reduce their Scope 3 emissions by 15% by 2030 with existing technologies – or as much as 50% with new technologies and pathways.

That's according to the latest report from McKinsey & Company, which puts forward a series of actions to help retailers hit the mark.

Scope 3 emissions are not controlled directly by companies and instead account for emissions from upstream and downstream activities in their value chains.

The report, called 'Retailers’ climate roadmap: Charting paths to decarbonised value chains', represents views from McKinsey Sustainability.

Its authors say: "As companies in all sectors work to shrink their carbon footprints and hit their decarbonisation targets, the path to reducing Scope 3 emissions is often anything but straightforward.

“For some, decarbonising Scope 3 emissions can be more like navigating a particularly Byzantine maze. Such is the case for retailers.”

Scope 3 reduction proves problematic

Scope 1 and 2 emissions are produced and controlled directly by a business, but typically account for no more than 5% of total reportable emissions.

For retailers specifically, Scope 3 emissions include greenhouse gases generated from sourcing, manufacturing, transportation, warehousing, selling and beyond – the entire life cycle. 

"For a multicategory retailer, reducing Scope 3 emissions involves players from multiple sectors and industries and entails efforts to decarbonise six energy and land-use systems," reads McKinsey's report. 

"About 80% of a retailer’s Scope 3 emissions are generated upstream in product value chains via feedstock production, materials and components, processing and manufacturing and packaging.”

What's more, each product value chain contains multiple tiers of suppliers and inputs from regions around the world. 

“The commodities involved are often mixed together in agricultural areas or at shipping ports and each tier within a value chain can be highly fragmented," the report continues. 

“Additionally, suppliers can change their sources for inputs within the course of a single year. This complexity makes it challenging for retailers to influence how suppliers handle or report on emissions.”

McKinsey's seven decarbonisation themes

McKinsey's report identifies seven areas where retailers can drive decarbonisation:

• Transitioning to clean and renewable energy
• Reducing farming emissions from livestock management
• Adopting regenerative practices in plant-based agricultural inputs
• Increasing circularity of products and packaging
• Reducing waste and increasing process efficiency
• Reducing emissions in transportation
• Transitioning from animal protein to plant protein products.

It also suggests that, by combining these efforts, significant results could be achieved. 

“If all were deployed at scale, these actions could propel a 55-65% reduction in the average retailer’s Scope 3 emissions by 2030, although some actions carry sizable costs," the report says. 

“Actions that reduce or do not increase costs in the system could yield a 12 to 17 percent reduction in the average retailer’s Scope 3 emissions by 2030.”

Taking hold of decarbonisation levers

Elsewhere, the report outlines four “levers” that can be used by retailers to drive down Scope 3 emissions. They are:

1) Cost-effective near-tier levers: Retailers could engage direct suppliers, their direct suppliers’ suppliers and consumers by forming partnerships for renewable energy adoption, providing EV charging infrastructure and using consumer-focused marketing and tools to promote sustainable energy consumption habits and reduce waste.

2) Cost-effective far-tier levers: “Retailers could influence actions by engaging suppliers (along with other industry partners) in efforts to deploy cost-saving or cost-neutral levers to facilitate adoption of sustainability levers," says McKinsey's study. "Deployed at scale, such efforts could potentially help reduce the average retailer’s Scope 3 emissions by around 11 to 15%." Examples include sharing and collaborating with peer companies and other value chain stakeholders on best practices to reduce waste and maximise process efficiency.

3) Costlier near-tier levers: McKinsey's authors suggest that, by engaging tier one, two and three suppliers and other value chain partners, retailers could “help spark innovation that could improve the feasibility of interventions that are technically achievable but not cost neutral”. This might entail fostering private sector-led investment in emissions reduction innovations or taking part in campaigns to stimulate consumer awareness of plant-based protein.

4) Cost-prohibitive far-tier levers: Examples in this area include collaborating with value chain partners and other organisations to invest in and expand circularity of material and supporting recycling technology R&D. These levers are far removed from retailers and extremely costly to implement, but could ultimately yield a 25-30% reduction in the average retailer’s Scope 3 emissions.

******

Check out the latest edition of Supply Chain Magazine and sign up to our global conference series – Procurement and Supply Chain LIVE 2024. 

******

Supply Chain Digital is a BizClik brand.