Decarbonizing the technology supply chain | Bain & Company

At a glance

  • In the technology sector, most emissions are Scope 3, resulting from upstream supply chains and downstream product use, and Scope 1 (operations) and Scope 2 (energy use) that are directly controlled by the company. are more difficult to control than emissions.
  • Many software companies can reduce their Scope 2 emissions by increasing the use of renewable energy in their data centers.
  • Moving supply lines closer to customers can reduce upstream Scope 3 emissions, and redesigning products to use less energy can reduce downstream Scope 3 emissions.
  • Companies need to adopt a holistic perspective so they can take a long-term strategic approach to emissions and other sustainability issues.

This article is part of Bain’s 2023 Technology Report.

Sustainability and decarbonization efforts are increasingly becoming top priorities for technology companies, as customers, shareholders, and regulators all demand more sustainable products and services. In response, most technology companies are setting ambitious targets to reduce emissions, but only half report that they are on track to meet their targets (Figure 1). Most emissions reduction targets focus on Scope 1 (direct emissions from business operations) and Scope 2 (emissions from purchased electricity, heat, and steam), where companies have more control. Scope 3 emissions originate from the upstream supply chain and flow downstream to customer use.

90% of technology companies have set decarbonization targets, but results are mixed

90% of technology companies have set decarbonization targets, but results are mixed

Why are emissions reductions so difficult? First, most emissions are Scope 3, which is more difficult to control. Reductions also compete with other strategic priorities. For example, PC manufacturers need to find sustainable solutions to extend the life of their products without compromising long-term sales.

The ambition may be obvious, but the devil is putting it into action. Improvement efforts require complex coordination between manufacturing, operations, engineering, research and development teams, and customers. Regulations vary by location. Even with offset purchases as part of their strategy, companies may find it difficult to source enough renewable electricity in some markets. Initiating, tracking, and following implementation requires senior sponsorship and commitment, as well as a willingness to address challenges across organizations and geographies.

successful measures

The sources of carbon dioxide emissions vary by subsector (see Figure 2). Emissions in semiconductors primarily come from downstream Scope 3 uses, but the sector is also the largest source of Scope 1 and Scope 2 emissions. The hardware manufacturer’s emissions come from its Scope 3 downstream electricity usage and upstream materials and mineral supply chain. Software industry emissions come not only from the goods and services that software companies purchase to make their products (Scope 3 upstream), but also from the customers who use their products (Scope 3 downstream).

Most emissions are Scope 3, which makes them difficult to track and reduce.

While specific solutions may look different for hardware and software companies, all tech companies are incorporating carbon impacts into decisions about their supply chain footprints, daily operations, and product lifecycles. is. Technology companies are looking for ways to reduce carbon emissions across subsectors.

A step-by-step approach helps companies bridge the gap between sustainability goals and results.

The first step is to better understand the main sources of carbon emissions in your supply chain by mapping them. This may reveal opportunities for reduction. For example, selecting renewable energy sources for a company’s or supplier’s energy needs is often low-hanging fruit and achievable in the early stages of decarbonization.

Next, companies need to take a long-term, holistic view and develop new business models that strengthen their competitive advantage. By addressing emissions sources strategically, adopting innovative business models, and making thoughtful strategic choices, companies can become more sustainable while being financially successful. Although most customers are still not willing to pay much of a green premium for sustainable products, they are becoming more conscious of their environmental impact and actively seeking eco-friendly options.

Finally, technology companies are facing increased pressure from regulators to disclose and reduce Scope 1, 2, and 3 emissions as part of their financial reporting. The EU’s Corporate Sustainability Reporting Directive and the U.S. Security Exchange Commission’s new reporting rules are measures to help ensure companies develop sound climate strategies to reduce emissions and comply with disclosure requirements. This is one of the.

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