Deep Dive: Procurement & Supplier Engagement — What's Working, What Isn't, and What's Next

Supply chain emissions represent the largest and most challenging component of most companies' carbon footprints. For consumer goods companies, Scope 3 can exceed 90% of total emissions; for technology firms, 70-85%; for manufacturers, 60-80%. Yet progress on supply chain decarbonization has lagged behind Scope 1 and 2 achievements. This analysis examines what's actually working in supplier engagement—from startup-stage programs to enterprise-scale initiatives—and identifies the approaches that consistently fail to deliver results.

Why This Matters

The math is stark: without supply chain decarbonization, corporate net-zero commitments are unachievable. The CDP Supply Chain Report 2024 found that corporate supply chain emissions are on average 11.4 times higher than operational emissions. Yet among companies reporting to CDP, supply chain emission reductions averaged only 0.4% annually—far below the 4-7% annual reductions needed for Paris-aligned trajectories.

Regulatory pressure is intensifying. The EU CSRD requires comprehensive Scope 3 disclosure, including supplier-specific information for material categories. The EU due diligence directive creates legal liability for supply chain environmental impacts. Similar requirements are emerging across jurisdictions. Companies that cannot demonstrate effective supplier engagement face not only emissions targets at risk but regulatory non-compliance and potential market access restrictions.

For Asia-Pacific suppliers—manufacturing the majority of global goods—this creates both challenge and opportunity. Suppliers capable of providing verified carbon data and demonstrating low-carbon production can capture emerging "green premium" opportunities. Those unable to participate in buyer sustainability programs risk losing market share to more capable competitors.

The commercial stakes are substantial. Research indicates that 30% of corporate buyers now include sustainability criteria in supplier selection, up from under 10% five years ago. Leading buyers are shifting from sustainability as a tie-breaker to sustainability as a qualifier—suppliers below threshold performance are excluded from consideration entirely.

What's Working

Concentrated Engagement with High-Impact Suppliers

The most effective programs concentrate resources on the suppliers with highest emissions impact rather than spreading effort across the entire supply base. This "80/20" approach recognizes that typically 50-100 suppliers account for 70-80% of a company's Scope 3 emissions.

Apple's Supplier Clean Energy Program exemplifies this approach. Rather than asking all suppliers to adopt renewables, Apple identified the suppliers representing the largest share of manufacturing energy consumption and provided direct support for their renewable energy transitions. The program now includes over 320 suppliers committed to 100% renewable electricity—but these represent the strategically critical subset, not the thousands of smaller suppliers in Apple's chain.

Key elements of effective concentrated engagement:

• Emissions mapping to identify high-impact suppliers by contribution
• Dedicated account management for priority suppliers
• Multi-year engagement plans with clear milestones
• Resource investment (training, tools, financing support) proportional to emissions impact

Results speak clearly: Apple's Supplier Clean Energy Program has avoided over 28 million metric tonnes CO2e since inception—more than the annual emissions of many countries.

Commercial Integration of Sustainability Requirements

Programs that integrate sustainability into commercial relationships consistently outperform those that treat sustainability as a separate workstream. When sustainability performance affects contract awards, pricing, or volume allocation, supplier behavior changes materially.

Walmart's Project Gigaton demonstrates commercial integration at scale. The program sets clear expectations for supplier emissions reductions and publicly tracks participation. Suppliers achieving significant reductions gain access to "Gigaton Supplier" recognition, featured prominently in Walmart's supplier portal and communications. The visibility and implicit commercial advantage of participation has driven over 5,000 suppliers to join, with cumulative avoided emissions exceeding 750 million tonnes CO2e through 2024.

Key elements of commercial integration:

• Explicit sustainability criteria in supplier scorecards
• Weight of sustainability in contract decisions (typically 10-20% of scoring)
• Preferential terms (longer contracts, favorable payment terms) for high performers
• Public recognition and visibility for leaders

The mechanism is straightforward: sustainability becomes a competitive advantage when it affects commercial outcomes.

Capacity Building Beyond Data Requests

Many supplier engagement programs stop at data collection—sending questionnaires, requesting CDP disclosure, and tracking response rates. Effective programs go further, providing capacity building that enables suppliers to actually reduce emissions.

Schneider Electric's "Zero Carbon Project" targets carbon neutrality across its top 1,000 suppliers. Critically, the program includes:

• Free carbon footprint measurement training and tools
• Technical guidance on emissions reduction opportunities
• Access to Schneider's own procurement of renewable energy certificates (allowing smaller suppliers to leverage Schneider's scale)
• Preferential payment terms for enrolled suppliers

By late 2024, over 600 suppliers had joined, representing 70% of procurement spend. Participating suppliers achieved average annual emission reductions of 15%—roughly 3x the rate of non-participants.

Key elements of effective capacity building:

• Measurement training and tools for suppliers lacking capability
• Technical assistance for identifying and implementing reductions
• Financing support or preferential terms to enable investments
• Peer learning opportunities connecting suppliers at different maturity levels

The upfront investment in supplier capability development yields more reliable data and more significant reductions than passive data requests.

Collective Action and Industry Collaboration

Some supply chain challenges exceed what individual companies can address alone. For commodities with limited supplier options, extractive supply chains, or sectors requiring infrastructure investment, collective action among buyers amplifies impact.

The First Movers Coalition, launched at COP26, exemplifies collective action for hard-to-abate sectors. Member companies commit to purchasing specified percentages of green steel, sustainable aviation fuel, and other emerging low-carbon materials. By aggregating demand across over 100 members (including Amazon, Apple, Boeing, Ford, and Volvo), the coalition creates market signals that justify supplier investment in decarbonization.

For commodity supply chains, initiatives like the Sustainable Apparel Coalition and the Responsible Steel certification create common standards that suppliers can certify to once and use for multiple customers—dramatically reducing the compliance burden that results from each buyer having proprietary requirements.

Key elements of effective collective action:

• Aggregated demand commitments creating investment signals for suppliers
• Common standards reducing redundant certification burden
• Pre-competitive collaboration on measurement methodologies
• Shared infrastructure (databases, verification systems) reducing individual company costs

What Isn't Working

Questionnaire Fatigue Without Follow-Through

Many companies have launched supplier sustainability programs consisting primarily of annual questionnaires with no meaningful consequence for responses (or non-responses). These programs generate data but not outcomes.

Research indicates that suppliers in major global supply chains receive an average of over 50 sustainability questionnaires annually from different customers—each with different formats, different questions, and different deadlines. Response quality degrades as questionnaire volume increases. CDP data shows that supplier response quality scores have declined over the past three years despite increased questionnaire distribution.

More critically, many companies collecting this data do not act on it. A survey of sustainability professionals found that over 40% of companies have never used collected supplier data to influence commercial decisions. Suppliers quickly recognize when questionnaires are compliance theater rather than drivers of commercial consequences.

Generic Requirements Without Industry Context

Programs applying identical requirements across all supplier categories often fail to drive meaningful action. A chemicals supplier, a packaging supplier, and a logistics provider face fundamentally different emissions profiles and abatement options—yet many programs apply one-size-fits-all approaches.

Effective programs tailor expectations and support by industry category:

• For energy-intensive manufacturers: focus on renewable electricity and process efficiency
• For agriculture suppliers: focus on land use, fertilizer application, and methane
• For logistics providers: focus on fleet electrification and route optimization
• For professional services: focus on travel and office energy

Generic "reduce by X%" requirements without category-specific guidance leave suppliers without clear pathways to compliance.

Unilateral Demands on SME Suppliers

Small and medium enterprise (SME) suppliers represent a significant share of most supply chains—and the segment least equipped to respond to sustainability requirements. Programs demanding sophisticated carbon accounting, third-party verification, or science-based targets from SMEs without providing support consistently fail.

SMEs typically lack dedicated sustainability staff, carbon accounting expertise, and capital for decarbonization investments. Mandating capabilities they cannot develop simply excludes them from supply chains—potentially without emissions benefit if their volume shifts to other SMEs equally lacking capability.

Effective SME engagement requires graduated requirements:

• Awareness and basic data collection as entry point
• Simplified measurement tools and training
• Extended timelines for capability development
• Pooled resources (shared verification, collective renewable procurement) that provide SME access to capabilities requiring scale

Misaligned Incentives Within Buyer Organizations

Many supplier sustainability programs fail due to internal misalignment rather than external challenges. Procurement functions are typically measured on cost, quality, and delivery—not sustainability. Sustainability teams may design programs, but procurement teams make sourcing decisions.

When procurement teams face no consequence for ignoring sustainability performance—or worse, face incentives to prioritize cost over sustainability—supplier engagement programs produce documents rather than outcomes.

Successful companies address this through:

• Sustainability metrics in procurement KPIs and incentive compensation
• Sustainability weight in supplier scorecards used for actual decisions
• Executive accountability for supply chain emissions tied to compensation
• Procurement-sustainability function integration rather than separation

What's Next: Emerging Approaches

Digital Product Passports and Traceability

The EU Digital Product Passport requirement, beginning with batteries in 2027 and expanding to textiles and other categories, will transform supply chain data requirements. Products will carry digital identifiers linking to verified supply chain information including carbon footprint data.

This infrastructure enables new models of supply chain transparency:

• Product-level rather than company-level emissions tracking
• Automated data flow through supply chain tiers
• Consumer and business buyer access to verified environmental data
• Regulatory enforcement through product-level verification

Companies investing in traceability infrastructure now will be positioned for compliance; those waiting will face significant catch-up costs.

Scope 3+ and Supplier Attribution

Emerging methodologies are moving beyond aggregate Scope 3 estimates toward supplier-specific attribution. Rather than estimating category-level emissions using spend-based factors, advanced programs track actual supplier performance and attribute specific emissions to specific suppliers.

This granularity enables:

• Reward/consequence for individual supplier performance
• Identification of supplier-specific reduction opportunities
• Verification of claimed supplier improvements
• Defense against greenwashing with supplier-level data

Financed Decarbonization Programs

Recognizing that many suppliers—particularly SMEs—lack capital for decarbonization investments, leading companies are deploying financing mechanisms:

• Supply chain finance at preferential rates for sustainability performance
• Dedicated climate funds for supplier investments
• Shared investment in supplier infrastructure (on-site solar, efficiency equipment)
• Guarantee programs enabling supplier access to climate finance

IKEA's supplier financing program provides loans at below-market rates for suppliers investing in renewable energy or efficiency improvements. Participating suppliers repay loans from energy savings, creating self-financing decarbonization at scale.

Real-World Examples

1. Unilever's Partner with Purpose

Unilever's supplier engagement program includes:

• 170,000+ suppliers globally, tiered by emissions contribution
• Direct engagement with top 300 suppliers representing 50% of supply chain emissions
• Free carbon measurement training reaching over 15,000 supplier personnel
• Public targets: 100% of suppliers meeting sustainability requirements by 2025

Results: Supplier-related emissions reduced by 21% since 2015 despite business growth. Program costs approximately $25 million annually; estimated value captured through supply chain resilience and brand differentiation exceeds investment.

2. Microsoft's Supplier Carbon Program

Microsoft requires all significant suppliers to:

• Disclose Scope 1 and 2 emissions annually
• Set science-based targets or equivalent
• Report progress toward renewable electricity goals

Non-compliant suppliers face graduated consequences:

• Year 1: Warning and development plan
• Year 2: Reduced contract eligibility
• Year 3: Contract termination for critical non-performance

By 2024, over 85% of Microsoft's contracted spend comes from suppliers with emissions reduction programs—up from under 30% when the program launched.

3. Nestlé's Agricultural Supply Chain Program

Nestlé faces unique Scope 3 challenges: agricultural supply chains with millions of smallholder farmers producing coffee, cocoa, dairy, and other commodities. The company's approach:

• Farmer training programs reaching over 950,000 farmers globally
• Income support linking sustainability practices to premium payments
• Investment in regenerative agriculture pilots with rigorous measurement
• Long-term sourcing commitments providing farmer investment security

Results: Demonstrated 15-20% emissions intensity reductions in participating agricultural supply chains. Cost per tonne abated is among the lowest of any corporate decarbonization program.

Action Checklist

• Complete supplier emissions mapping to identify top 50-100 suppliers by Scope 3 contribution
• Develop tiered engagement strategy with concentrated resources on high-impact suppliers
• Integrate sustainability performance into procurement scorecards with explicit weight in decisions
• Audit current questionnaire program for redundancy; consider consolidation using standard frameworks
• Develop capacity building programs for priority suppliers lacking measurement or reduction capability
• Evaluate supply chain financing mechanisms to enable supplier decarbonization investments
• Align procurement function incentives with supply chain sustainability objectives
• Prepare for Digital Product Passport requirements with traceability infrastructure investment

Frequently Asked Questions

Q: What percentage of our supplier base should we engage for meaningful Scope 3 impact?

A: Focus on the suppliers representing 70-80% of your Scope 3 emissions—typically your top 50-100 suppliers. Engaging 100% of suppliers dilutes resources across low-impact relationships. For the long tail of smaller suppliers, use automated questionnaires and standard frameworks rather than intensive engagement.

Q: How do we handle suppliers who refuse to participate?

A: Build engagement gradually. Start with data requests and provide support for suppliers lacking capability. Communicate clearly that sustainability will increasingly affect commercial decisions. Most suppliers engage when they understand competitive implications. For persistent non-participants in priority categories, develop alternative sourcing options and transition away over reasonable timelines.

Q: What's the appropriate investment level for supplier capacity building?

A: Leading programs invest 0.5-2% of procurement spend in supplier sustainability programs. This includes staff, training, tools, and in some cases direct financial support for supplier investments. ROI comes from supply chain risk reduction, avoided regulatory costs, brand value, and in some cases direct cost savings from supplier efficiency improvements.

Q: How do we verify supplier claims without unreasonable verification costs?

A: Use tiered verification aligned with supplier importance. For top suppliers: require third-party verification of key claims. For mid-tier: use automated data validation and selective audits. For the long tail: rely on certification schemes (ISO 14001, CDP disclosure) as proxies. Verification costs typically add 10-15% to program costs but are essential for credibility.

Sources

• CDP. (2024). Global Supply Chain Report 2024. Available at: https://www.cdp.net/
• World Economic Forum. (2023). Supply Chain Decarbonization: A Practical Guide. Available at: https://www.weforum.org/
• Walmart. (2024). Project Gigaton Progress Report. Available at: https://www.walmartsustainabilityhub.com/
• Apple. (2024). Environmental Progress Report 2024. Available at: https://www.apple.com/environment/
• Schneider Electric. (2024). Sustainability Report 2024. Available at: https://www.se.com/
• First Movers Coalition. (2024). Annual Report. World Economic Forum.
• Science Based Targets initiative. (2024). Value Chain Interventions Guidance. Available at: https://sciencebasedtargets.org/
• McKinsey & Company. (2023). The Path to Net-Zero Supply Chains. McKinsey Sustainability.