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A giant climate change stress test is coming for Amazon sellers and suppliers

As Amazon and other big businesses ramp up efforts to cut back their carbon footprint, they’re putting pressure on their suppliers to do the identical, and those that don’t may pay an enormous price.

Starting in 2024, Amazon would require suppliers to share their emissions data, set emissions goals, and report on their progress, the e-commerce giant said in its recently released sustainability report. With that move, it joins Microsoft, Walmart, Apple, and others in saying that suppliers must step up decarbonization efforts. 

The mandates come as big businesses face more demand than ever to adopt eco-friendly practices. Consumers, investors, regulators, and governments are pushing firms for more progress and transparency.

“The pressure is coming at firms, who’re then putting pressure on suppliers,” said Bob Willard, a company consultant and creator of six books on sustainability. 

And in a cascade, those suppliers are leaning on their suppliers.

Businesses typically track three levels of emissions. Scope 1 come directly from operations. Scope 2 are from purchased energy comparable to electricity. And scope 3 relate to an organization’s activities but come from indirect sources comparable to supplier emissions and emissions from customers using their products. An evaluation of major industries by the non-profit CDP found that, on average, scope 3 accounts for about 75% of all emissions. 

Companies have way more control over their suppliers than many other areas of indirect emissions, says Andrew Winston, creator of several sustainability-related business strategy books.

For instance, while a consumer goods company cannot force a detergent buyer to scrub in cold water, it might probably be selective in working with eco-conscious suppliers. 

“The supply chain is where there’s going to be continued rising pressure and transparency because firms have a direct impact over that,” Winston said.  

Decarbonization mandates are getting tougher

Salesforce now requires suppliers to reveal scope 1, 2, and three emissions, deliver services and products on a carbon-neutral basis, and fill out a supply scorecard annually. AstraZeneca suppliers are expected to annually report emissions data to the CDP and set science-based goals. 

While Amazon doesn’t include suppliers in its scope 3 accounting, it’s effectively coping with this in the way in which many other firms have began doing, by forcing suppliers to report emissions to them and set goals which emissions levels can then be tracked against. “We know that to further drive down emissions, we must ensure those in our supply chain make the operational changes obligatory to decarbonize their businesses,” Amazon said within the sustainability report. 

Third-party sellers and suppliers — especially smaller ones — face a paradox because the climate mandates arise and change into increasingly tougher. Even in the event that they’re eco-conscious, many say they haven’t got the resources to satisfy the tracking and reporting demands. 

Eight in ten small and medium-sized business owners say reducing emissions is a high priority, yet 63% also say they haven’t got the suitable skills, and 43% say they lack the funds, in accordance with a survey from the non-profit SME Climate Hub. In a survey from Intuit QuickBooks, two-thirds of small business owners said they were taking steps to cut back their environmental impact, comparable to recycling and using renewable materials. Businesses that weren’t acting cited an absence of cash, time, and resources. 

“Tracking emissions data isn’t any easy feat,” says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council. 

She says compliance costs can vary, but upfront expenses might be considerable, which is difficult for the numerous firms with a good money flow.

The information is on the market to start out getting a handle on the duty. Yet, certainly one of the primary things that business owners will learn is that it’s going to be time consuming, says small-business owner Chaitali Patel, who founded the sustainability advisory firm Evergood. She points to a 152-page document on scope 3 supply chain accounting and reporting from the Greenhouse Gas Protocol, which provides standards for measuring and managing emissions. 

“If you take a look at the means of data collection and recordkeeping alone to comply with these requirements, it’s going to take up significant resources,” Patel said. 

Small businesses already under economic stress

Amid ongoing fears of recession, higher rates of interest cutting into sources of capital, signs of weaker consumer demand, and labor market challenges, small businesses have focused more on employees and their bottom line than sustainability. When asked what issues matter most to them, nearly 40% said jobs and the economy, while 10% said the environment, in accordance with the CNBC|SurveyMonkey Small Business Survey for the third quarter. 

Yet ready or not, suppliers big and small may have to step up soon. “This is coming,” he said. “The procurement arm of the business community is reaching into their supply chains and is beginning to ask more pointed questions.”

In addition to the pressure from investors and politicians, another excuse big firms might be looking farther down the availability chain is because they’re currently coming up short of their emissions reduction goals. Amid the boom in consumer demand and global growth post-pandemic, most of the world’s largest corporations are producing more carbon emissions than they will reduce.

A recent review by the New York Times of climate documents for 20 major food and restaurant firms found that over half have made no progress in reducing emissions or are increasing emissions. The report found, as previous climate accounting has typically shown, that nearly all of emissions come from suppliers.

A recent Just Capital report found that more firms than ever before are making carbon reduction commitments, but the outcomes aren’t there yet within the disclosures. Of firms with existing science-based targets, only 26 out of 123 within the Russell 1000 disclosed emissions reductions. Meanwhile, amongst firms without specific targets — just general net zero targets — emissions have gone up.

Companies that need to retain high-quality suppliers are apt to assist partners meet any sustainability requirements, says Mark Baxa, the current and CEO of the Council of Supply Chain Management Professionals.

Corporate giants are offering assistance that ranges from direct funding and higher terms to training and access to scrub tech.

For its part, Amazon said in its sustainability report that it’s going to use its “scale, investment, and innovation thus far to offer our suppliers with products and tools that may help them reach their goals — whether that is transitioning to renewable energy or having more access to sustainable materials.”

But the retail giant also made clear that there could also be consequences for partners that do not measure up. “We will proceed to search for suppliers that help us achieve our decarbonization vision as we select partners for business opportunities,” Amazon said in its report.

Amazon spokespeople declined to comment beyond its publicly available materials.

In the tip, it comes right down to suppliers selecting what works for his or her business.

“The suppliers themselves and the suppliers of suppliers have to come back to their very own independent decision on how they will approach this,” Baxa said.

At the identical time, firms have to deal with scope 3 emissions. “Often, they’ll go together with a supplier who can comply,” he said. And for those who don’t, “Eventually, the hard conversation will happen.”

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