Scope 3 Comprises Hefty GHG Emissions Yet Balancing Act for Industry to Address
Over the course of the past several years, brands have laid out ambitious targets related to climate impact and emissions reduction. But as the months fly by and the industry inches closer to its deadlines, many companies seem to be stagnating—or worse, backsliding.
J Research from Stand.Earth released last year showed that greenhouse gas (GHG) emissions have continued to rise—in spite of these commitments—from a pre-pandemic baseline, with energy-intensive manufacturing activities like material processing, dyeing and finishing making up the bulk of the carbon outputs.
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These “purchased goods and services,” characterized as Scope 3 emissions, make up 70 percent or more of most brands’ GHG footprint.
The fact that the lion’s share of brands don’t own their own mills or factories doesn’t mean they should be sitting on the sidelines, according to Rachel Kitchin, senior corporate climate campaigner for fashion and IT at Stand.Earth. But that’s what they’re doing by saddling them with the responsibility of making the fundamental changes necessary to build a healthier supply chain, she believes.
“The reason that emissions are not coming down—or certainly aren’t coming down fast enough—is that brands are really only tackling the low-hanging fruit at this stage, when it comes to working with their suppliers to actually phase out fossil fuels,” she told Sourcing Journal.
The root of the issue is that apparel manufacturing is still heavily reliant on energy derived from coal and natural gas.
“There are several key levers that brands really need to be engaging in order to actually have an impact on their emissions, and a lot of these, they’re certainly not addressing with enough urgency,” she explained. “One of the biggest ones, according to several different studies, is renewable energy,” she added—transitioning away from coal to renewable thermal processes, for example, as well as supporting factory transitions to self-generated solar or wind power or Power Purchase Agreements to get off the fossil-fuel grid.
If it sounds like a heavy lift, that’s because it is. The renewable energy transition will take “a ton of collaboration” between brands and their suppliers, “but brands are just not investing the kind of resources into their supply chain that it’s going to take to make that transition happen, and make it happen fast enough.”
Kitchin said she takes issue with the idea that Scope 3 emissions are fundamentally outside of brands’ control, “because ultimately, the brands have created the conditions which make it challenging for suppliers to transition.”
“By squeezing on prices, by constantly pushing on the margins and shoving responsibility for emissions and for their entire environmental policy onto suppliers, they are basically asking the impossible,” she said. “Suppliers have to make these energy transitions become more sustainable while still providing the same amount of volume at the same price and the same quality.”
Knowing the razor-thin margins that the industry operates on, it’s no wonder that without the security of sustained business from brands or a good-faith cash infusion, many suppliers are unable or unwilling to pony up the funds to revamp their operations.
“Brands have a really important part to play here, which is that they actually need to invest in their supply chains and invest in a meaningful way,” Kitchin added. “They need to have long-standing relationships with suppliers that provide confidence that they will still be there, buying from them, sourcing from them, during the time that it takes for the manufacturer to improve its processes.”
What’s more, brands and fashion firms need to provide up-front capital investments—cold, hard cash—to get on-site renewable energy infrastructure development or a transition to a PPA off the ground.
“I think we’ve seen a lot of big words come out of brands—not just fashion companies, but all kind of companies across all sectors. Commitments that have not been met. And that’s a huge problem,” Kitchin said. “It’s getting to the point where consumers, the public and regulators are more aware of this greenwashing narrative, of brands getting the big PR moment for making an announcement and then never ultimately following through.”
It’s possible that brands signed onto lofty goals not knowing how difficult and costly remediating the impacts of their supply chains would be. “And what we’re seeing now is that brands are more aware of the potential PR pitfalls of making commitments that they can’t meet, and of the actual challenges involved in getting there,” she added.
With the industry inching ever closer to 2030 and the deadlines it has set for Science-Based Targets and net-zero commitments, “I do think that we are going to see more brands looking seriously at their options,” Kitchin said, “but something which is common in the fashion industry is brands really waiting for somebody else to jump first.”
They move as a pack, not wanting to take risks alone, she said—“And so what is needed is more collaboration from brands willing to step forward and say, ‘We’re going to organize financing. We’re going to organize a funding model. We’re going to provide a fund for suppliers to make the kind of capital investments they need to support their energy transitions and their energy efficiency processes.’”
“We need to start seeing some leadership, and I think that’s where public pressure, regulation and that backlash that we’re seeing against this idea of greenwashing is going to be really important,” she said.
Stand.Earth’s 2024 Clean Energy Close Up report showed just two of the 11 leading global brands assessed—H&M Group and Puma—scored more than 50 out of 100 points on the group’s scorecard analyzing commitments, transparency, progress towards 2030 actions and advocacy. The median score across fashion firms was 20.5 out of 100, and the lowest scorer, Shein, amassed just 2.5 out of 100 points, with its emissions increasing nearly 50 percent from 6.04 to 9.17 million tons of CO2e in 2022 alone.
Puma reported a significant increase in renewable energy across its Tier 1 and Tier 2 suppliers, amounting to 27.4 percent of electricity use within those operations. Meanwhile, H&M was the only group that offered suppliers grants to decarbonize, funding the installation of solar panels, for example. These two brands, along with Levi Strauss & Co., where the only ones on track to hit their 2030 emissions reduction targets of 55 percent.
James Cooper, assistant vice president of sustainability, energy and climate change in consulting firm WSP’s apparel and retail practice said that the firm, which works with small, medium and large fashion firms including Kate Spade and Coach owner Tapestry, helps companies go “beyond strategy and theory to actual implementation” of GHG reduction actions, leveraging the expertise of engineers and other experts to help install solutions.
“With apparel specifically, it becomes complicated, because every brand seems to have a different hold or even visibility into their supply chain,” Cooper said.
He noted that “there are brands that understand this are more advanced, and actually have a handle on their Scope 3 emissions—but 90 percent [of Scope 3 outputs] are indirect emissions, and what the brands are waking up to a bit is they don’t have as much leverage towards sustainability goals unless they’re willing to pay.”
Fashion faces different challenges than other sectors in that much of the upstream supply chain is made up of suppliers and contractors that aren’t brand-owned. According to Cooper, brands have historically “benefited from that lack of consistency, because they’re going to the lowest bidder that provides the most margin.”
But moving forward with climate goals in mind, that mercurial strategy won’t cut it. It will come down to fostering “longer-term relationships that actually incentivize and advance investment” into the renewable energy transition, he said.
Some of that is already underway. “There’s a huge rush in Vietnam to do more solar generation and renewable energy that’s starting to come online,” he added by way of example.
Collaborating on concrete sourcing agreements—to secure the financial stability of a mill in Bangladesh or a dye house in Vietnam—will be the key to ensuring suppliers face as little risk as possible in transitioning from fossil fuels to renewables, he believes.
“But Covid did a lot to damage those relationships and showed how fragile some parts of the supply chain really were, and how they weren’t so resilient,” Cooper said. When brands pulled back on orders during 2020, they did damage to suppliers that many are still recovering from.
In the end, the two parties will have to find a more symbiotic way to structure their relationships.
“That’s a term we’ve used a lot recently—supply chain resilience. Looking into your supply chain to ensure that they are invested in a pragmatic way that, in the end, supports both your sustainable and financial goals,” he added. “Some brands don’t necessarily have capital to do that with a long-term vision.”
It’s WSP’s large-scale U.S. apparel business clients that are currently working hardest to identify and prioritize sourcing from Tier 2 and Tier 3 suppliers that utilize renewable energy to reduce Scope 3 emissions, Cooper said.
Among medium-size firms, the strategy has centered more on modeling and subsequently switching material types for both products and packaging to reduce Scope 3, Category 1 emissions. Most material switches were in favor of recycled materials, he added. They’re also working with logistics providers to minimize, if not eradicate, the use of air freight in favor of ocean freight and truck transport to reduce Scope 3, Category 9 emissions.
“Our clients are engaged in this and continue to be engaged in this—they’re working with us and they still prioritize this,” he said. “But on the whole, anecdotally, we’ve seen the layoffs to sustainability teams across the apparel sector. What I do think is going to be potentially a conflict that pushes it back the other way is the introduction of regulation at such a pace that’s going to force action.”
Asked how much he believes impending regulations will influence brands’ sustainability strategies, Cooper said, “Significantly.”
From European regulations like the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) to California’s Responsible Textile Recovery Act, pertaining to textile recycling, and New York’s proposed Fashion Act, the momentum is gaining, and it’s prompted “a renewed interest” in emissions reporting and disclosures.
“If there’s a regulatory approach, all the companies in California for example have to then work together to set up the system so that they are all in compliance,” he said. “That will force collaboration where there may not have been an incentive before.”
“It’s not that all of a sudden [textile] waste becomes more valuable—it’s that the regulation changes the value of that textile waste as a matter of complying with this new law.”
According to Cooper, among fashion sustainability leads, “There’s always been this groundswell” around climate action and environmental stewardship. But with governmental intervention on the horizon, “Maybe this starts getting other stakeholders in organizations to buy into that.”
“It becomes more than just the moral argument of, ‘It’s the right thing to do.’ It becomes, ‘We have to do this to comply—otherwise, we’re going to be left behind,” he said.
This article ran in SJ’s Sustainability Report. To download the full report, click here.
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