My blog post for November is about supply chains and sustainability. I’ll get to that, but first, I want to get a bit personal.
I opened LinkedIn at 6 am Pacific time on November 6 and saw multiple posts from contacts around the world saying, “America, what have you done?” These people push for climate action, pollution reduction, and making the global economy more circular. They are all asking, what now? So am I.
The optimist in me is struggling. She believes in and wishes for a world where:
- Companies in all sectors consider the long-term consequences of their actions,
- Reporting on greenhouse gas (GHG) emissions is transparent and as complete as possible,
- Businesses that pollute air, water, and soil suffer financial repercussions,
- More companies do the right thing to support public health even if regulations aren’t forcing their hand,
- A realistic appraisal of supply chain risks from climate-related disasters, political instability, and other factors causes companies to behave proactively.
I worry about potential rollbacks of regulations designed to curb pollution and accelerate the transition to renewable energy. How will companies respond if that happens? That said, many regions will continue to tighten regulations even if that’s not happening elsewhere.
The semiconductor industry is global. It relies on a complex supply chain of companies in many different countries. Resilient, flexible, and transparent supply chains are necessary for the industry to flourish and do so in the most environmentally responsible way possible. This is true no matter where you’re located or who controls the government.
Climate risks are real. If fires, floods, or hurricanes shut down a location, even temporarily, that affects not only that company but all its customers. More extreme temperature fluctuations mean more energy is required to maintain consistent temperatures inside fabs and other manufacturing facilities.
Massive reductions in GHG emissions may still be able to curb climate change impacts. Pollution mitigation can improve air and water quality. To be part of the solution, you need to know your starting point.
Scope 3 Emissions
Many companies have a handle on Scope 1 emissions—those generated at company-owned facilities. They know how to measure them and are working toward emissions reduction goals. They are committing to running more of their facilities on renewable energy to meet their Scope 2 goals. Reporting requirements have played a role in advancing measurement and disclosure, especially for publicly traded companies. Reporting does not necessarily lead to emissions reductions, but without it, everyone is in the dark.
The big problem is Scope 3—emissions outside the company’s direct control. This is where the supply chain comes in.
For companies that outsource production or make tools that run on electricity and consume process chemicals or gases over many years of use, Scope 3 may represent 98% of their total emissions. These companies can reduce their Scopes 1 and 2 emissions drastically while still indirectly emitting vast amounts of GHGs.
The challenge lies in calculating Scope 3 emissions. If your company supplies materials or components to fabs, assembly houses, or original equipment manufacturers (OEMs), your Scope 1 emissions are your customers’ Scope 3 emissions and vice versa. Even if you are a smaller or privately held company and don’t have shareholders or governments demanding that you calculate and report on your emissions, your customers may still want the data. A company that works with thousands of suppliers needs to estimate emissions data from every supplier.
As more companies up and down the supply chain measure and disclose their emissions, Scope 3 data will become less of an educated guess and more of a realistic appraisal. We aren’t there yet.
Screening Suppliers
Do you understand the risks within your supply chain? Screening suppliers for climate-related risks is a smart move. Performance and cost will always matter, but so does availability. Diversifying your supply chain, including building a list of multiple sources for each supply from different regions of the world, when possible, will help ensure a continuous supply of materials and parts even if disaster strikes some of your suppliers. Sustainability isn’t just a “nice to have”. It’s a necessity for long-term survival.
There are limits to diversifying your supply chain geographically. China dominates the production of some critical raw materials, for example. Taiwan dominates chip production, though that is changing with the boom of fabs in Arizona. Beyond geographical diversity, companies should evaluate the social and environmental records of their suppliers.
Frameworks like the Responsible Business Alliance Code of Conduct offer guidance for evaluating suppliers. The Code of Conduct “establishes standards to ensure that working conditions in supply chains are safe, and that business is conducted responsibly, ethically, and with respect for human rights and the environment.” RBA members adopt the Code and agree to require their suppliers to abide by its requirements for labor, health and safety, and the environment.
Three Actions for a Sustainable, Resistant Supply Chain
Here are three things you can do to make your supply chain more resilient and incorporate sustainability:
- Measure your Scope 1 and 2 GHG emissions, disclose the results, and ask for the same data from suppliers and customers so you can estimate Scope 3
- Review your Supplier Code of Conduct if you have one and update it if needed to include environmental considerations (if you don’t have a code, it’s time to create one or join an organization like the RBA and adopt theirs)
- Audit your suppliers’ sustainability records and use this information to inform future procurement decisions
These aren’t simple actions. I can’t tell you exactly how to implement them. But I believe that if our industry commits to this work, we have a better chance of doing more good than harm.
