Decarbonizing Fashion: The Role of Tier 2 Suppliers
As the fashion industry grapples with ambitious decarbonization goals, translating these targets into actionable strategies remains a significant challenge. A key area for brands to focus on is reducing emissions from Tier 2 suppliers—the producers of fabrics and treatments before assembly. Research indicates that Tier 2 operations can account for 45 to 70 percent of a brand’s Scope 3 emissions, making them critical in the fight against climate change.
The Importance of Tier 2 Emissions
Tier 2 production is considered the primary hotspot for emissions within the fashion supply chain. The sector’s complexity arises from a fragmented supplier landscape, where many brands lack direct relationships beyond their Tier 1 suppliers. This limits their ability to enact significant changes. While using low-impact materials is a step in the right direction, it is often not enough and can turn out to be an expensive route for brands looking to decarbonize.
However, focusing on Tier 2 emissions could lead to substantial cost savings. Studies suggest that approximately 50 percent of emissions from Tier 2 can be mitigated at a near-neutral cost, second only to strategies that reduce overproduction and waste.
Decarbonization Strategies: Two Main Avenues
A collaborative study with Made2Flow, a notable provider of supply chain data solutions, analyzed emissions data from over 9,000 suppliers. This analysis identified two key strategies for achieving decarbonization in Tier 2 production:
- Technical Decarbonization Initiatives: Implementation of low-cost renewable energy solutions can lead to significant cost reductions—up to $250 per metric ton of CO2 equivalent. This path necessitates long-term commitments, but brands can facilitate these efforts by supporting their suppliers.
- Supplier Incentives: By incorporating emissions intensity into their supplier selection criteria, brands can work with lower-carbon suppliers, achieving a 20 to 50 percent reduction in emissions without altering manufacturing origins. This approach allows for immediate emissions reductions and drives market demand for sustainable suppliers.
Pathways for Supplier Decarbonization
An average-sized Tier 2 cotton supplier in a major Asian manufacturing hub could potentially achieve a 50 percent reduction in emissions at a modest cost increase of about $30 per metric ton of CO2 equivalent, which translates to just a two-cent increase in the price of a cotton t-shirt. However, practical implementation often poses challenges, requiring significant investment and commitment.
To overcome these hurdles, two predominant strategies have emerged:
- Supplier Collaboration Programs: Sharing best practices across the supply chain to enhance sustainability.
- Investment Initiatives: Examples include the Renewable Energy Initiative, which aims to support offshore wind projects in regions like Bangladesh, showcasing how financial commitments can foster industry-wide change.
Leveraging Marginal Abatement Cost Curves (MACC)
Fashion brands can utilize a Marginal Abatement Cost Curve (MACC) to identify cost-effective emissions reduction strategies. The MACC visually represents potential reductions against their associated costs, aiding in prioritizing actions that promote sustainability.
Actions for Success: Six Strategic Initiatives
To make impactful reductions in Scope 3 emissions related to Tier 2 suppliers, fashion brands can undertake the following six initiatives:
1. Foster Long-term Supplier Relationships
Brands should take a more active role in selecting Tier 2 suppliers, allowing for better alignment with sustainability goals. By consolidating production volumes with fewer suppliers, brands can exert greater influence over operational improvements.
2. Secure Access to Primary Emission Data
To effectively tackle emissions, brands must collect primary data from suppliers rather than relying on industry averages. Collaborating with traceability and measurement providers is essential for accurate assessments.
3. Educate and Incentivize Suppliers
Brands should support Tier 2 suppliers in developing decarbonization plans that incorporate MACCs. Educational resources and on-site assistance can empower suppliers to implement necessary changes.
4. Unlock Financing Options
Supplier access to capital is often limited, making the shift to lower-carbon technologies challenging. Fashion brands can improve financing options through collaborative solutions with financial institutions, providing favorable terms for sustainable investments.
5. Commit to Renewable Energy Sources
Brands should actively engage in projects that enhance renewable energy availability within production regions. Initiatives like power purchase agreements (PPAs) help drive the transition toward cleaner energy sources.
6. Collaborate with Industry Peers
Joint efforts among brands can streamline the decarbonization process. Smaller groups of brands with overlapping supplier networks can efficiently implement best practices and launch collaborative energy projects.
By adopting these strategies, brands can significantly mitigate emissions from their Tier 2 suppliers, moving closer to their sustainability targets for 2030 and beyond. Transforming sourcing methodologies to prioritize long-term partnerships and sustainability practices will be essential for lasting change.
