Supplier engagement, it just makes sense!
Setting aside reporting requirements for now, (although it is a big part of why supplier engagement has become such a hot topic lately, trade and geopolitics being another), good supplier engagement practices simply make sense. All businesses should know what they are sourcing, how it’s made and where they are sourcing from, regardless of disclosure obligations. Why? To avoid risk and create resilience.
The supply-chain related risks to companies are considerable and carry with them financial implications, be it regulatory, physical or reputational, all of which business undoubtably wants to avoid. With increased instability globally from both trade shocks and climate, having good relations with suppliers and traceability helps businesses spot risks before they become a problem, allowing them to act earlier and can give them competitive advantage.
Two recent publications offer practical strategies to support and guide companies to improve their supplier engagement practices.
The first is the SBTi New Supplier Engagement Guidance, published in 2023. A core message in this document is that one of the most critical and effective pathways to reach net zero is by activating wide-scale decarbonisation efforts across supply chains. It points out that setting supplier engagement targets is a good first step in the process of introducing suppliers to the fact that a company wants to collect emissions data. This sets solid foundations for influencing decarbonisation by smaller actors and helps tackle the challenge of collecting emissions data.
To prepare for setting supplier engagement targets, a company will need to complete a full Scope 3 GHG inventory by undertaking a complete value chain mapping exercise, which is usually based on procurement spend or volume data or other proxy data such as industry averages. This can then be screened to provide an initial estimate of emissions across Scope 3 categories, highlighting which categories are most significant and offer the greatest reductions opportunities. This data can then be used as a ‘base year’ and should be updated each year thereafter, with the intention of improving the quality of the data with each iteration. Spoiler alert, purchased goods and services, followed by capital goods, followed by upstream transportation and distribution are usually the biggest emission sources in a company’s supply chain.
More recently, the We Mean Business Coalition published a report entitled Building Resilient Supply Chains in collaboration with a number of organisations including CDP and the SME Climate Hub. A key message in this report is that strategies that drive effective supply chain management can be used not only for emissions reductions, but also to progress action on adopting more nature positive practices also and managing other climate risks. In this document the authors outline 7 top tips, aimed at providing adaptable strategies, practical approaches and best practice:
- Build a cross functional team with procurement and sustainability playing central roles. Establish clear roles, responsibilities, work together to build the business case and identify shared KPIs. This will support more consistent messaging and strategies at different points of supplier engagements. Other teams that could be included include finance, legal and operations. Under this tip it also suggests sharing the businesses own goals and motivations to address climate risks.
- Have clear, measurable objectives for your supplier engagement efforts. As part of this step, establish the business case (considering risks, management priorities and cost savings), size of the goal and level of resources. For example, if the majority of emissions in your supply chain are in tier 1, then focus on the operational emissions of tier 1. If they are beyond tier 1, perhaps goals around specific commodities and empower tier 1 companies to cascade targets outwards.
- Asking suppliers to set targets. This will take time and might need to be done in stages. Most companies start with asking suppliers to calculate emissions, perhaps only starting with their own scope 1 and 2, and reporting on these publicly. This can then be followed by calculating scope 3. Similarly, target setting could start with scope 1 and 2 followed by 3. Near term target setting can be prioritised as a starting point for suppliers as another way of breaking down the ask and making it more manageable. The thing to remember is progress over perfection. The key message for this tip is to consider the readiness of suppliers and meet them where they are at.
- Use available and established tools, frameworks, metrics and industry standards. For SMEs, offer simplified versions to minimise the administrative burden. If you have built your own data collection system, offer training to suppliers to ensure they understand the request.
- Identify suppliers who are essential to the company in reaching climate goals, similar to the screening process mentioned above. Prioritise suppliers by potential impacts and readiness. The The Climate Drive suggests segmenting suppliers into 1) strategic – those with high climate maturity and emissions 2) high-impact – those with low maturity but high emissions 3) transactional – those with low impact emissions across all levels of maturity. Companies should prioritise high spend and high-volume suppliers for additional hands-on engagement given their high potential impacts. Consider meeting strategic and high impact suppliers in person, either 1:1 or in workshops, as it can help identify and engage with the right people. Consider also critical material inputs which have a significant impact on the company’s ability to produce or provide goods and/or services. These critical suppliers should also be considered ‘high impact’.
- Identify the right incentives, and reward performance. Some suggestions here include rolling out an engagement campaign, training and support, reward schemes, recognition programmes and joint investment in R&D. There is no ‘one size fits all’, but active engagement is key. Build supplier capacity through engagement, education and training, either generally or specifically by topic. Facilitate access to solutions through collaboration and peer to peer learning.
- Be prepared. Integrate your supplier engagement asks into your procurement documents, contracts and supplier codes of conduct. Respond to specific concerns with targeted supports, tools, capacity building opportunities and space for collaboration.
As pressures from climate change, trade dynamics, and regulatory expectations continue to mount and shift, supplier engagement is no longer a “nice to have”—it’s a strategic imperative. Businesses that invest in understanding and collaborating with their suppliers are better positioned to manage risks, meet climate goals, and build more resilient, future-ready supply chains.
This is why Business in the Community Ireland has built one of its strategic goals around supporting our members to engage more effectively with their SMEs. For Business in the Community Ireland, this is a Just Transition issue, as no one should be left behind because they cannot access the right supports. By leveraging our capacity as a network and collaborating with partners, Business in the Community Ireland can support companies and the SMEs in their value chain to take meaningful steps toward decarbonisation, improved transparency, and long-term value creation. We are currently working on phase 2 of our Climate Action Programme for SMEs.
If you would like to hear more, please get in touch with Project Lead, Éadaoin Boyle Tobin via eboyletobin@bitc.ie
Find out more on Business in the Community Ireland’s Climate Action Programme for SMEs here.
