L
ast month saw a landmark ruling where Royal Dutch Shell was instructed to step up its 2030 climate commitments significantly. A court in the Hague ordered it to slash absolute emissions by 45% compared to 2019 levels by 2030. This ruling represents a considerable advance on Shell’s stated aim to cut 45% of its emissions intensity compared to 2016 levels by 2035. It is a target that provided leeway for increasing emissions as long as the relative carbon emitted per unit of energy produced fell. The new ruling imposes a much larger climate obligation on Shell in calling for an urgent absolute reduction. Shell is set to appeal the ruling.
A ruling that sent ripples through the oil, gas, and energy sector
A watershed moment? The ruling is sure to cause significant alarm amongst fellow oil and gas giants. For perhaps the first time, they may recognise that national courts can compel organisations to accelerate their reduction of harmful emissions under the Paris Agreement. It has “far-reaching” consequences for Shell itself and may even curb the company’s potential growth. The decision is also likely to set a legal precedent for other energy companies and corporations. According to Thom Wetzer from Oxford University (Registration required for FT content), who heads up the sustainable law programme: “all companies in the energy industry and all heavy emitters will be put on notice and have to accelerate their decarbonisation plans.”
This court mandate applies to not only the Shell group’s operations but notably also to all the suppliers and customers of the group. This strongly implies that Shell is being asked to tackle its Scope 3 emissions. Consequently, it is clear that Shell cannot meet the ruling’s demands alone. To impact all carbon emissions scopes, Shell and other large businesses must immediately look towards forging new, productive partnerships with supplier stakeholders. Failing to do this not only means missed targets and mounting legislative action but also the reputational damage that this will cause to its brand and the company.
Activist investor warns of existential business risk
Reports on the Shell ruling were almost immediately followed by news of a coup attempt in American oil and gas corporation Exxon Mobil. Due to concerns surrounding Exxon’s strategic direction, hedge fund Engine No. 1 ousted sitting board members. It stated that the climate crisis poses an “existential threat to the business”, which the board has been reluctant to confront.
This small hedge fund accused Exxon of “a failure to take even initial steps towards evolution” and of “obfuscating rather than addressing long-term business risk”. It claimed this was partly due to a historical lack of energy industry experience in Exxon’s board. It signalled an imminent shift in the company’s sustainability strategy, which was well received by the market, with Exxon’s shares rising 1.2% the day after the event.
The drive to reduce Scope 3 emissions
And if that wasn’t enough of a shake up, this was followed by American multinational energy corporation Chevron’s shareholders voting 61% in favour of a proposal to cut Scope 3 emissions at their AGM. The move signalled frustration with the company’s slack approach towards climate change. Chevron has thus far failed to match its competitors’ net-zero targets with any commitments of its own.
Corporate emissions fall into three categories: Scope 1, 2, and 3. Scope 1 covers emissions from sources that an organisation directly owns or controls. Scope 2 refers to emissions from purchased electricity, steam, heating, and cooling that the reporting company consumes for their operations. Finally, Scope 3 is everything else. All other indirect emissions that occur within an organisation’s value chain, both up and downstream.
Why is this significant? Until now, Scope 3’s heady combination of difficult-to-manage and thus far easy-to-ignore. It has led large companies to abdicate responsibility for their value chain and sweep its emissions under the carpet. However, the Shell ruling indicates that this approach is no longer viable for big business. The courts are stepping in and dictating climate policy to corporations as well as governments. The pressure is mounting on all heavy emitters to tackle their true impact and reduce Scope 3 emissions.
Time for action on Scope 3
Organisations like Shell, Chevron and Exxon are considered responsible for the actions of their entire ecosystems. Therefore, sustainability performance becomes contingent on supplier behaviour. The clearest example of this lies in Scope 3 emissions, which considerably exceeds the CO2 they emit directly for many organisations.
Therefore, the time for green-washing and lip service is now over. Pressure is mounting from all stakeholder groups for large corporates to take decisive action on sustainability in the supply chain. However, businesses cannot turn promises into concrete progress without actively collaborating with stakeholders across the value chain.
For every five weeks that pass, we lose 1% of the decade
2030, the deadline for achieving the UN SDG-related climate commitments, is fast looming, and with every five weeks that pass, we lose 1% of the decade. The imperative to take immediate action has never been clearer. It’s now down to procurement, wider business leaders, and their associated supplier ecosystems to put sustainability strategy into action by:
- Defining, aligning, and communicating their corporate sustainability goals to focus suppliers, partners and the wider stakeholder groups on how they can make an impact.
- Collaborating systematically through technology using transparent processes that develop trust with suppliers and partners.
- Harnessing the innovation and IP within the supplier ecosystem. Turning ideas into projects that can be managed and reported on transparently. Then adding clear value trackers to prove impact.
Working closely with stakeholders in the supply chain is an infamously complex process, but it can be made that much simpler using Supplier Collaboration & Innovation (SC&I) technology. This ensures strategic alignment between buyer and supplier and provides comprehensive relationship governance and real-time performance visibility. This allows companies and their suppliers to work on sustainability initiatives more cohesively and develop innovative ideas through collaboration.
Here at Vizibl – through our SC&I platform combined with our knowledge and expertise – we are helping large enterprise organisations in the energy sector better leverage their supplier relationships and move closer to meeting those lofty 2030 sustainability goals.
Vizibl is a leading SaaS supplier collaboration tech platform that enables enterprise buyer organisations, at scale, to manage better supplier partnerships, accelerate innovation and drive growth.
Vizibl has been named as one of the 5 technology companies changing the way organisations do business in the “IDC Innovators Report 2020”, has been nominated by Procurement Leaders in their ‘Technology of the Year 2020’ category and is ranked by Spend Matters in their “Top 50 Tech Companies To Watch” list. With a co-founding team led by Mark Perera (founding CEO of Procurement Leaders) and Alex Short, Vizibl is transforming how companies tap into the power of their suppliers.
