Corporate climate action: 3 steps to reduce Scope 3 emissions

Contribution by Stefan Klebert, CEO of GEA Group

With each passing year after the 2015 Paris Agreement, the need for urgent climate action has only grown. Climate change is increasingly having tangible effects around the world. The recent global stocktake at the 2023 UN Climate Change Conference (COP28), an important review process, has made it clear once again: Collectively we are falling short of our climate ambitions. It’s time to speed up our efforts.

The business sector, in particular, has a unique responsibility – and opportunity – to drive substantial change. The most fundamental step in this journey is for companies to reduce emissions in their own operations. But, for those committed to making a real difference, this merely sets the stage for scaling up efforts across the entire value chain. To do this we must:

1. Prioritize Scope 3 emissions

Indirect greenhouse gas emissions from suppliers and products sold – known as Scope 3 emissions – often make up the largest portion of a company’s carbon footprint. Recognizing and addressing them is critical. While many firms diligently measure their direct climate impacts (Scope 1 and 2), the broader impact of their supply chains and product lifecycles are too often overlooked. A holistic approach is necessary.

That is why GEA’s commitment to achieve net zero by 2040 is not limited to our direct operations. It encompasses all emissions Scopes and spans our entire value chain. This long-term ambition is reinforced by interim targets for 2030, which we have just increased substantially. To make sure our targets follow the latest climate science and are in line with the Paris Agreement goals, we have also submitted them to the globally recognized Science Based Targets initiative (SBTi). We expect validation in the first quarter of 2024.

Because of their complex nature, Scope 3 emissions can only be reduced together with suppliers, customers and other stakeholders. Success requires an approach that combines innovation and collaboration. For engineering and manufacturing companies, this means first and foremost adapting the products and solutions we offer. Given the longevity of our goods, every machine we sell today can impact the environment for decades. For this reason, we are focused on designing machines that use fewer resources and emit less over their lifecycle. We also partner with customers at an early stage to maximize the potential of today’s technologies. By taking a comprehensive, 360-degree approach, we can achieve significant improvements. Importantly, what’s sustainable for the planet is usually also positive for the bottom line; it just takes some upfront effort and investment. After all, efforts to save resources not only benefit the environment, but also lead to long-term cost savings and increased operational efficiency. For a company like GEA, the focus on sustainability is also a critical factor for success in a market that increasingly demands eco-friendly solutions.

2. Harness the power of procurement

Another key area for reducing Scope 3 emissions lies in the power of procurement. By focusing on this often-underappreciated topic, companies can effect transformation beyond their immediate operations. The rationale is compelling: when climate leaders set rigorous sustainability standards and engage their suppliers by demanding greater commitment and transparency, they create a ripple effect that amplifies along entire value chains.

To move forward, companies can foster an open dialogue with their suppliers while requiring that they permit trusted verifiers to establish a sustainability scorecard, share data for product lifecycle analysis and commit to sustainability goals validated by SBTi. If suppliers fail to comply, their status as preferred suppliers will be withdrawn. Such measures create a strong motivation, even for those companies that have previously been reluctant to prioritize decarbonizing their own operations.

Our experience shows that many suppliers are more than willing to contribute. Our annual GEA Supplier Summit is a testament to this, providing us with a platform to discuss sustainability with those who supply us with metal parts, electronic components and many other intermediate products. This model can be replicated by others.

3. Establish cross-industry supplier milestones

The shift towards stronger sustainability standards and more proactive supplier engagement by leading companies is a significant – and welcome – development. But by joining forces, we can amplify the impact and motivate a broader range of suppliers. At present, suppliers often face a patchwork of differing priorities, expectations and time horizons from their various customers. This situation underscores the need for greater collaboration and leadership.

As a member of the World Economic Forum’s Alliance of CEO Climate Leaders, I found it important to help shape such cross-industry guidance. My team and I were actively involved in developing the Scope 3 Upstream Action Plan. Launched at COP28 and resulting from the collaboration of leading global companies, this plan is a pivotal tool to engage suppliers and encourage them to decarbonize. It calls for Alliance members to set Scope 3 targets aligned with a 2050 net-zero pathway by 2025 and to start engaging at least 30 percent of their supplier base by the same year. By 2026, this engagement should expand to at least 67 percent of suppliers and, by 2028, suppliers are expected to establish their own Scope 1-3 targets, aligned with a 2050 net-zero pathway, and disclose their emissions.

Agreements, such as the Scope 3 Action Plan, provide a common framework for progress, aligning what we ask from our suppliers and how we incentivize them.

A joint response for a better worldx

Tackling the climate crisis requires a robust response, particularly from the corporate sector. Adopting comprehensive Scope 3 emissions reduction strategies, embedding decarbonization in procurement and establishing a cross-industry framework for supplier engagement are vital steps toward a more sustainable way of doing business. The task is daunting, but the potential to contribute to a better world is immense.

This article by Stefan Klebert, Chief Executive Officer of GEA, first appeared on the World Economic Forum's Agenda Blog: Corporate climate action: 3 essential steps to reducing Scope 3 emissions.