🔍 Understanding Supplier Tiers & Their Role in Scope 3 Emissions 📦🌱 A strategic imperative for sustainable supply chains

In the era of climate accountability and regulatory pressure, one truth stands out:

Over 70% of a company’s carbon footprint lies in its supply chain. But how well do we understand the different layers that make up these emissions?

Let’s break down the concept of Supplier Tiers (1, 2, and 3) and why engaging across all levels is critical for Scope 3 carbon accounting and sustainable transformation.

📌 What Are Supplier Tiers?

A supplier tier represents the supplier’s proximity to the final product or service:

• ✅ Tier 1: Direct suppliers to your organization

• ✅ Tier 2: Suppliers to Tier 1

• ✅ Tier 3: Raw material or base component providers supporting Tier 2

Understanding this structure helps organizations:

✔️ Improve traceability ✔️ Manage ESG risks ✔️ Enhance operational resilience ✔️ Build decarbonization strategies

🛠️ The Role of Each Tier in Carbon Management

🔹 Tier 1 Suppliers

• Directly supply components or services to the business

• Easiest to engage for ESG initiatives and emission data collection

• Critical for product quality, cost, and lead time

• 🏭 Example: In automotive, a Tier 1 may supply engines or braking systems to a vehicle manufacturer

🔹 Tier 2 Suppliers

• Supply subcomponents or services to Tier 1

• May not interact directly with OEMs but play a key role in upstream sustainability

• 🧩 Example: Producing gaskets, bearings, or electronics for engine assembly

🔹 Tier 3 Suppliers

• Raw material providers like metals, rubber, or plastics

• Often invisible in ESG strategies, but foundational to product lifecycle

• 🧱 Example: Steel plants, chemical producers, or mining operations supplying Tier 2

☀️ A Real-World Example: The Solar Industry

A solar panel company depends on multiple tiers of suppliers for its final product:

• Tier 1: Solar panel assembler delivering finished panels to clients

• Tier 2: Solar cell manufacturer producing photovoltaic cells

• Tier 3: Silicon wafer supplier providing the base material for solar cells

🧠 Insight: Each level influences product performance, cost, emissions—and sustainability goals.

📊 Supplier Tiers & Scope 3 Emissions: The Critical Link

🔎 According to CDP’s Global Supply Chain Report (2022):

Supply chain emissions are, on average, 11.4x higher than operational emissions.

📍 SBTi further highlights:

In most sectors, more than 70% of total emissions come from the value chain.

This means that for climate-conscious businesses:

• 🔄 Engaging Tier 1 only is not enough

• 🧩 Tier 2 and 3 must be mapped, measured, and managed

• 🎯 Targeted decarbonization requires upstream action

💻 How Technology Helps Across Tiers

Modern carbon accounting and supply chain management tools make it easier to capture and manage emissions across all tiers:

🔧 Features that enable scalable supplier engagement:

• 🗂️ Data collection portals for Tier 1 suppliers

• 📝 Simplified forms or mobile-friendly surveys for Tier 2/3 suppliers

• 🔐 Secure uploads for energy bills, transport records, or production logs

• ⚙️ Integration with ERP and procurement systems

• 📈 Analytics dashboards for emissions tracking and hotspot identification

✅ This approach:

• Increases accuracy of Scope 3 disclosures

• Builds transparency into ESG reporting

• Reduces manual data collection efforts

• Supports third-party validation (e.g., CDP, EcoVadis, SBTi)

📣 Why This Matters for Business Leaders

✔️ Meet evolving climate disclosure regulations (CSRD, SEC, etc.) ✔️ Strengthen supplier resilience & mitigate transition risks ✔️ Gain investor trust through robust Scope 3 strategies ✔️ Unlock supply chain innovation & process optimization ✔️ Position your business as a sustainability leader

✅ Key Takeaways

• Supplier tiers are not just procurement labels—they are emission sources

• Ignoring Tier 2 & 3 is a major blind spot in climate reporting

• Companies that proactively manage all tiers gain a competitive ESG edge

• Technology is an enabler—but strategy and collaboration are the real drivers

🗨️ How is your company engaging suppliers beyond Tier 1? 🌐 What tools or strategies are you using to tackle Scope 3 emissions?

👇 Let’s discuss in the comments and build stronger, greener value chains together!

𝐄𝐦𝐚𝐢𝐥: sachin.sharma@sgs.com or

𝐌𝐞𝐬𝐬𝐚𝐠𝐞: Sachin Sharma

𝐁𝐨𝐨𝐤 𝐚 F̳R̳E̳E̳ 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐢𝐨𝐧 𝐜𝐚𝐥𝐥: https://outlook.office.com/bookwithme/user/f8c76a6f4e12491b82595da2994f9f76%40sgs.com?anonymous

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