The next net-zero frontier: Emissions-free supply chains

This article is sponsored by Ørsted

What makes for a credible corporate net-zero target?

That question has generated a lot of discussion in recent years, as more companies look to set emissions reductions targets in line with science. And with no common definition available, companies have interpreted the requirements around net zero in different ways.

Last year, the Science-based Targets Initiative (SBTi) made a significant contribution to the debate with the launch of the Net Zero Standard. The standard sets out several requirements for credible net-zero targets, including a focus on deep emissions cuts before any use of offsets, and the setting of interim goals to incentivize action towards the long-term target.

One other key point the Net Zero Standard makes is the need for full value-chain coverage. Companies should disclose and address emissions from across their value chain — that is to say, not just emissions generated by their own operations but also emissions generated in the manufacturing, transport and use of products.     

This will mean different things for different companies. For some companies, such as oil and gas majors, the use of sold products (such as gasoline) will be a major source of emissions. For others, such as clothing companies, emissions from suppliers in the manufacturing process will be a bigger source. But what almost all companies have in common is that the value chain emissions — known as Scope 3 — constitute the majority of emissions.

Any credible net zero target therefore requires a major focus on the value chain. Only through a full value chain approach can companies collectively help keep temperature rise below 1.5 degrees Celsius.

At Ørsted we set a net-zero target in 2021, and we were the first energy company (and originally one of only seven companies worldwide) to have our target validated by the SBTi. Our climate target is to be net-zero by 2040 — 10 years ahead of what science requires. To get there, we must address our value chain emissions. In our case, this means the emissions from the supply chain of renewables — the manufacturing and installation of wind turbines, solar panels and other green energy infrastructure.

So, while taking part in the renewable energy build-out supports global climate goals and will help us transition away from fossil fuels, it is only truly meaningful if we also build emissions-free renewable energy.

Our vision is not only to build green energy quickly and at scale, but, importantly, to deliver it in a way that respects and addresses the sustainability challenges of such an enterprise. We want to offer our customers more than just renewable energy; we want to offer them a sustainability solution — decarbonized, in harmony with nature, delivering well-paid jobs and thriving local communities.

Mapping the emissions

Given that we are on track to be carbon-neutral in our own operations by 2025, the supply chain is the next frontier for our decarbonization efforts. Over the past five years, we have therefore been working hard to address this topic through our Supply Chain Decarbonisation Programme.

One key initial step in such efforts is a mapping of the supply chain to identify hotspots. At Ørsted we have several thousand suppliers, and we cannot realistically work to the same degree with all of them. By assessing where most of our emissions is generated, we can prioritize collaboration with specific sectors.

The hotspot assessment revealed two key drivers of emissions in the supply chain of renewables: steel and heavy shipping. Over 50 percent of emissions related to the construction and operation of an offshore wind farm come from steel: the steel that goes into the foundations (below the waves) and the towers (above the waves). Similarly, the large vessels used to install offshore wind turbines currently run on fossil fuels, generating significant amounts of emissions.

Working the three levers

Reducing emissions from these sectors is not easy — but it is essential to any net-zero ambitions. Through our Supply Chain Decarbonisation Programme, we are working closely with our strategic suppliers (representing over 60 percent of total procurement spend) to do three main things:

• Disclose emissions and set science-based targets
• Use 100 percent green electricity
• Optimize vessel fleets and develop roadmaps to power vessels with renewable energy

Since the launch of our program, we have seen significant progress in these areas. Ninety-seven percent of our strategic suppliers are disclosing and reporting emissions to CDP, while 28 percent have an emissions reductions target approved by the SBTi. A further 11 percent of suppliers have committed to setting such a target.

In addition, 51 percent of suppliers today have already adopted 100 percent green electricity in the production of components, and 15 percent have committed to do this before 2025. Ørsted recently announced an increased expectation in this regard: that all suppliers to Ørsted are expected to use 100 percent renewable electricity.

Collaborating for progress

Setting targets is the first step of supply chain decarbonization. For companies to deliver on these targets and truly drive change across the supply chain, they need a collaborative relationship between buyer and supplier. Decarbonization across the value chain is a task that no single company can achieve on its own.

That’s why we focus on engaging in a dialogue with our suppliers. We know that many have small sustainability teams — or no dedicated function at all. Through this dialogue, we want to build their capabilities, help them understand what is possible and how it can be achieved. We see it as our obligation to help, support and advise suppliers, building on our own green transformation learnings.

Active collaboration with partners in the value chain is key to achieving decarbonized supply chains, but it also serves as another crucial function: it sends important demand-side signals for the technologies needed to truly reach net zero. Zero-emissions steel, for example, requires the development of electric-arc furnaces powered by renewable hydrogen, which is still a very immature technology and is not expected to reach commercial scale before the late 2030s.

By sending clear demand signals that companies are ready to buy such products and even committing to doing so — as Ørsted and other companies across multiple sectors are doing through the SteelZero initiative — buyers help create the conditions for suppliers and startups to invest and innovate.

The stronger the collaboration between partners in the supply chain and across global supply chains the faster we will all reach our shared goal: emissions reductions in line with global climate science.