Procurement power: How an undervalued function’s decision could reduce the chemical industry’s GHG emissions

New research shows that chemical companies already have people who can help them to reduce their greenhouse gas (GHG) emissions faster. But can the businesses get this crucial team up to speed?

The chemical industry is taking steps to reduce its GHG emissions. But new research by Maersk and FT Longitude shows they could go further by working more closely – and assertively – with suppliers. The survey of 500 chemical businesses worldwide shows that most of the chemical industry’s GHG emissions come from its indirect activities: on average, 63% of these businesses’ total GHG emissions fall into this category, which is known as Scope 3. This includes emissions generated indirectly in logistics, transportation, and warehousing. By including Scope 3, the chemical industry can go beyond the operational/direct savings from action on Scope 1 and 2 emissions. And to do that it will need to work much more closely with suppliers such as logistics services providers.

Chemical industry GHG emissions: is procurement doing enough?

As the function that deals directly with those third-party providers, procurement is best placed to take on this challenge. But the procurement teams of many companies within the chemical industry are not set up for it.

A supplier’s decarbonisation performance is not a significant factor in most procurement functions’ purchasing decisions – even if we put cost, speed, and regulatory compliance to one side. Just 37% of the companies in the research list the impact of a product or service as one of their top three additional criteria. Even fewer – 33% – consider the climate impact of logistics and transportation.

This suggests that suppliers’ decarbonisation credentials are being ignored, which will do nothing to encourage progress. If transforming products, services and logistics arrangements does not improve suppliers’ chances of winning a contract, they are unlikely to do it.

But that could be a mistake:

• 65% of the companies in the chemical industry survey have turned away a potential provider because they were worried about upsetting climate-conscious customers
• 58% have done this because of concerns that investors might look unfavourably at their company
• 57% have at least once rejected a potential provider because of concerns about GHG emissions trading system-related costs
• 51% have done this because of GHG emissions-related tariffs

The research also shows that when it comes to logistics in particular, procurement functions are occasionally getting tough on climate issues: 31% have rejected an LSP that did not supply reliable GHG emissions data, and 29% say they have done this more than once.

Tellingly, the companies within the chemical industry that are most likely to think about decarbonisation criteria during the procurement process are the ones that are further ahead on implementation of their GHG emissions reduction plans: 47% regularly consider logistics-related climate concerns during their procurement processes, for instance, compared with just 33% across all the businesses we surveyed. 

Putting procurement decisions to work

To make a difference, procurement needs to be able to influence strategic decisions about the company’s climate strategy. Only 20% of businesses within the chemical industry say their procurement function is among the most impactful members of their decarbonisation committee (compared with 40% for legal and compliance and 34% for finance and accounting). Businesses need to find a way to bring procurement into the decarbonisation discussion.

And they should empower and incentivise procurement teams to take climate considerations more seriously during their day-to-day purchasing. According to Ann Vereecke, a professor of operations and supply chain management at Vlerick Business School, this comes down to having the right incentives. “If you're the procurement person and you know that 10% of your bonus is related to climate and 30% is dependent on cost, the more ecological option may suffer,” she says. “You’ll make the trade-off.”

Procurement decisions: start with logistics and move on from there

Rebalancing those incentives will put the procurement team in a stronger position to press suppliers on their decarbonisation credentials. Logistics services providers will be a good place to start: the chemicals companies in the research attributed on average nearly a quarter of their Scope 3 emissions to upstream logistics, transportation and storage activities.

So, tackling this source of GHG emissions should be a priority for procurement. And by learning from their experience of working with logistics suppliers in this way, chemicals businesses will find it more straightforward to push others hard too.

For more information on this topic:

• Listen to the latest episode of “Beyond the Box” on how to tackle supply chain emissions in the chemicals industry.
• Discover more insights chemical businesses

About FT Longitude

FT Longitude is a specialist thought leadership agency, owned by the Financial Times, working with a wide range of the world’s most prestigious B2B brands across Europe, the US and Asia-Pacific. FT Longitude’s 80+ clients are concentrated in the professional services, financial services, and technology sectors, but also stretch into energy, infrastructure, manufacturing and other industries. Headquartered in London, the company was founded in 2011 and was selected as one of Chief Marketer 200, Top Marketing Agencies of 2020, an Inc. 5000 Europe in 2018, an FT 1000 company in 2017, and a 2016 Leap 100 high growth UK company by City A.M. and Mishcon de Reya. It is led by founders Rob Mitchell (CEO), James Watson (COO) and Gareth Lofthouse (Chief Revenue Officer). For more information: visit longitude.ft.com.