Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How Procurement Teams Are Decarbonizing Supply Chains
Transcript
- Lucas: When you think about decarbonization, the first thing that comes to mind is probably a factory installing solar panels, or a logistics fleet switching to electric trucks. Luna: Right — the stuff companies control directly. Lucas: Exactly. But for most large companies, their own operations — what's called Scope 1 and Scope 2 emissions — account for maybe 10 to 20 percent of their total carbon footprint. The rest, often 80 percent or more, sits in the supply chain. That's Scope 3. Luna: And procurement is the team that has to deal with that. Lucas: Procurement is the leverage point. If you want to decarbonize a supply chain, you don't do it from a sustainability office — you do it through sourcing decisions, supplier contracts, and RFPs. That's what we're talking about today: how procurement teams are actually embedding carbon reduction into their day-to-day work. Luna: And I'm guessing some are further along than others. Lucas: Way further. There's a European automotive manufacturer — I'll keep the name off for now, but it's a major player — that set a target to reduce supply chain emissions by 25 percent by 2030. By early 2026, they'd already hit a 22 percent reduction. That's not small. Luna: How did they do it? Lucas: They redesigned their RFP process. Every supplier bidding on a contract now has to submit a carbon footprint estimate for the goods or services, and they must show a plan to reduce it over the contract term. Luna: So carbon becomes a scoring criterion, like price or quality. Lucas: Exactly. They weight it at about 15 percent of the total evaluation. But the clever part is they don't just penalize high emitters — they work with suppliers to improve. For example, they helped a steel supplier switch to scrap-based electric arc furnace production, which cut emissions per ton by over 60 percent. That collaboration counted toward the supplier's score. Luna: That's a big shift. Traditionally, procurement is about extracting the lowest price. This is about investing in supplier capability. Lucas: And it's not charity. That steel supplier is now more competitive on carbon, which matters as the EU's carbon border adjustment mechanism starts phasing in. The supplier can offer lower-carbon steel to all its customers, not just this automaker. So everyone benefits. Luna: So procurement teams are becoming carbon accountants, in a way. Lucas: To some degree. But they're not doing the calculations themselves — they rely on third-party platforms that digitize the carbon data. Companies like Normative, CarbonChain, and others provide tools that map supply chain emissions using spend data and industry averages. Luna: Is that accurate enough to base contracts on? Lucas: It's getting better. The platforms use a methodology called environmentally extended input-output analysis — EEIO — which estimates emissions based on the dollar amount spent in each category. It's not perfect, but it's consistent. And for procurement teams, consistency matters more than precision. You need a baseline to measure progress. Luna: Right, because if you can't measure it, you can't manage it. Lucas: Exactly. And the baseline for most companies is pretty high. A typical manufacturing firm's supply chain emissions can be 10 to 20 times larger than its direct emissions. So there's huge leverage. Luna: But I imagine some suppliers push back. Sharing carbon data isn't easy, especially if they don't have it themselves. Lucas: Pushback is common. The automotive company I mentioned initially got resistance from about a third of its suppliers. But they made it clear that eventually, carbon data would be a contractual requirement. And they offered training and templates to help suppliers calculate their footprints. Over two years, the resistance dropped to under 10 percent. Luna: So it's about building a standard, not just imposing a rule. Lucas: Exactly. And the standard is becoming more formal. The Science Based Targets initiative has a specific framework for supply chain engagement, and the Partnership for Carbon Accounting Financials — PCAF — is working on accounting standards that procurement teams can adopt. Luna: I've also seen some companies writing 'green clauses' into contracts — like requirements to use renewable energy or reduce packaging. Lucas: That's happening more and more. One study from early 2026 found that 40 percent of new supplier contracts in the automotive and electronics sectors included a sustainability clause of some kind. That's up from about 15 percent just three years earlier. Luna: And what about enforcement? Do they actually cancel contracts if suppliers miss targets? Lucas: It's rare so far. Most companies use a carrot and stick approach: preferential payment terms, longer contract durations, or access to innovation programs for good performers. Only a few have terminated contracts. But the threat is there, and it's becoming more credible as alternative suppliers emerge. Luna: For smaller procurement teams that don't have a big sustainability department, where do they start? Lucas: Start with spend data. Any procurement team can pull their top 10 suppliers by spend and ask them for carbon data. Most large suppliers already have it. Then set a simple target: reduce emissions from those 10 by 10 percent over two years. That alone can have a meaningful impact. Luna: And if the supplier says no? Lucas: Then you have a conversation about why. Often, it's a lack of knowledge, not resistance. There are free tools — the GHG Protocol has calculation guides, and some industry associations offer templates. You can point them to those resources. Luna: So it's about procurement leading, not just following. Lucas: Yes. And the business case is getting stronger. Investors and customers are paying attention. A 2025 survey by McKinsey found that companies with strong supply chain decarbonization programs had a 12 percent higher total shareholder return over five years compared to peers. That's not a small number. Luna: I think that's a good place to mention that we keep this podcast ad-free and freely available, and that's only possible because of listener support. If today's episode was useful to you, buy me a coffee dot com slash fexingo helps keep it going. Lucas: Yeah, it's a small-ask thing — if today was worth a coffee, that's the place. Anyway, back to the topic: one area where procurement teams struggle is the 'hotspot' analysis — figuring out which categories to prioritize. Luna: Is it usually the obvious ones, like steel or aluminum? Lucas: Often, yes. But sometimes the biggest source is something unexpected. For a food company, it might be refrigeration in logistics. For a tech company, it could be air freight of components. A proper hotspot analysis uses spend data and emission factors to identify the top 5 categories by emissions. That's where you focus first. Luna: And then set reduction targets for each category? Lucas: Right. And you can make them category-specific. For logistics, you might require carriers to report on fuel efficiency. For raw materials, you might specify a recycled content minimum. For electronics, you might ask for conflict-free mineral certification, which often overlaps with lower carbon. Luna: So it's not a one-size-fits-all approach. Lucas: No, and that's why procurement teams need to understand the supply chain deeply. The best decarbonization strategies are built on category expertise. Luna: But that takes time. How do you get buy-in from senior leadership? Lucas: You frame it as risk management and competitive advantage. Supply chain emissions are increasingly regulated — the EU's Corporate Sustainability Reporting Directive already requires large companies to report Scope 3. If you don't have the data, you're non-compliant. And if you do, you can market your products as lower carbon. That's a differentiator. Luna: Are there any examples of companies that turned decarbonization into a revenue driver? Lucas: Yes. One industrial components supplier I know started offering a 'carbon-optimized' version of its products, sourcing lower-emission raw materials and using renewable energy in production. They charged a 5 percent premium, and customers — especially European automakers — were willing to pay it. That premium covered the cost of the carbon accounting and more. Luna: So procurement becomes a profit center, in a way. Lucas: In a way. But it's not just about profit. The biggest motivator for most procurement professionals I talk to is the sense of impact. They can point to a specific number — like 22 percent reduction — and say, 'Our team did that.' That's powerful. Luna: And it's measurable, which matters for career growth too. Lucas: Absolutely. A procurement manager who has led a successful decarbonization program has a very marketable skill set. I think we'll see more companies creating roles like 'supply chain sustainability director' in the next few years. Luna: Alright, so to wrap up: procurement teams should start with spend data, focus on top suppliers, use free tools, and set category-specific targets. And don't be afraid to collaborate. Lucas: That's a great summary. And one last thought: the technology is improving fast. By late 2026, I expect most major procurement platforms will have built-in carbon modules. So the data barrier will keep falling. Luna: It feels like an area where procurement can really lead. Lucas: It can. And the companies that start now will have a real edge.