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 Market Mysteries of the week

   Why are big businesses helping small businesses reduce emissions? 

Answer:

This week, you may have seen our scoop about Walmart's new Supply Chain Finance program, which creates

financial incentives to help small businesses improve their sustainability

. But why is this a big deal?

Why do big businesses care about small businesses' emissions?

Small businesses' emissions are a big business problem. Major corporations have started making bold pledges to slash their greenhouse gas emissions, but more than

70% of a corporation's carbon footprint

comes from its Scope 3 emissions. Scope 3 emissions, also known as value chain emissions,

come from a company's suppliers, distributors, product use, and other things not under the company's direct control. 

A corporation cannot truly reach its' net zero' goals without addressing its Scope 3 emissions. Still, there is no established or widely adopted strategy for corporations to reduce their climate footprint, let alone one for small businesses.

Smaller businesses and suppliers responsible for Scope 3 emissions aren't always equipped to improve their infrastructure.

Plans and strategies that work for big corporations to reduce their carbon footprint

cannot simply be scaled down

to be feasible for small businesses. 

What is Walmart doing?

Walmart recently launched a Supply Chain Finance program intended to reduce its Scope 3 emissions by

supporting its suppliers, mostly small and medium businesses, with financial incentives to make necessary investments in their sustainability.

By incorporating Science-Based Targets, Walmart hopes to

avoid 1 billion tons of emissions from its supply chain by 2030, equivalent to ​​taking 200 million vehicles off the road per year

. 

Why are Science-Based Targets crucial?

Science-Based Targets

is a collaboration between organizations like the CDP, the United Nations Global Compact, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), whose

overall goal is to mobilize companies to reduce their climate impact and limit global warming to 1.5°C.

The Science Based Targets initiative is currently working with ~1,000 companies worldwide to help them set emissions reduction targets grounded in climate science. By joining the Science Based Targets initiatives,

companies must take responsibility for the emissions throughout their value chain and reduce them.

Organizations like Science Based Targets are

critical for companies to publicly report on their progress in a standardized way that translates across multiple corporations.

How does Walmart's program work?

Through the program, eligible small and medium-sized suppliers are encouraged to align their operations with Science-Based Target's sustainability objectives to earn access to special financing for their businesses. In partnership with Walmart's bank, HSBC,

suppliers can receive earlier payments for their invoices and better interest rates on their financing

. Access to cheaper loans and faster cash will allow small businesses to invest in their sustainability infrastructure, such as improved energy efficiency. Since small and medium-sized companies don't have the same volumes of cash flow or easy access to debt as the major corporations, these financial incentives are critical for small businesses to improve their operations and reduce their carbon footprint feasibly.

Suppliers can improve their access to these financial incentives by boosting their sustainability goals and lowering their reported environmental impact.

These actions will improve their sustainability scores based on Science-Based Targets. Suppliers with the highest sustainability ranking can receive earlier payments and take advantage of the lowest financing costs. 

What's next?

More reporting standards, more creative strategies.

We're still early in this sustainability journey. Companies are making significant pledges to get to net-zero, but how they're going to do it, or even how they're all going to measure it, is still uncertain.

How is your company addressing its carbon footprint?

Please share this with anyone who might find it helpful!

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