Do net-zero goals matter?

Editor’s Note: The SCM thesis Do Companies' Environmental Commitments Differ According to Their Supply Chain Position? was authored by Julia Fernandez del Valle and Samara Vilar da Costa and supervised by Dr. David Correll ([email protected]). For more information on the research, please contact the thesis supervisor.

Globalization has led to the development of complex supply chains for companies to meet their profitability goals and expand their markets. However, the environmental costs of supporting such an infrastructure have highlighted the importance of sustainability practices, particularly those aimed at addressing environmental concerns such as climate change.

To address environmental issues, many companies have adopted objectives related to reducing harmful emissions. One of the most popular examples of sustainability commitments made by companies is establishing a “net-zero” emissions goal. To achieve net-zero emissions, companies must be able to reduce their Scope 3 emissions, which encompass all emissions associated with a company's activities—including its suppliers and customers upstream and downstream in the supply chain.

Our research explored how, depending on the company type and position in the supply chain, companies may experience pressure from different stakeholders. Studying the relevant players influencing the adoption of net-zero goals and Scope 3 reduction initiatives reveals interesting findings.

Unraveling the influence of stakeholders

The data we collected from over 1,700 participants showed that the source of pressure to create net-zero goals differs by company type and position in the supply chain. While all types of companies are influenced by investors, we observed that publicly traded companies experience higher levels of pressure compared to private entities, evidenced by the higher likelihood of adoption of net-zero goals among public companies. This was backed up by interviews with supply chain executives.

Downstream companies are also more likely to have net-zero goals—and with more aggressive timelines. Regarding which stakeholders were applying pressure, oddly enough, higher pressure from industry associations correlated with lower adoption of net-zero goals among downstream players. This finding was unexpected—it may be due to industry associations setting lower standards to meet the needs of the lowest common denominator in the group, or perhaps due to a lack of clarity on how to achieve these goals. The absence of net-zero goals, however, does not necessarily translate into a lack of commitment to environmental sustainability, as there are other objectives that can be set. 

The influence equation: exploring the paradox

Having explored stakeholder pressure for sustainability, we studied whether companies with net-zero goals have near-term initiatives to lower their Scope 3 emissions and meet their goals. We expected to see the same levels of commitment across the different company types, as without initiatives in place, the achievement of established net-zero goals is not realistic.

Similar to net-zero goal setting, public companies are more likely to have current or near-term initiatives compared to private companies. However, we saw that when it came to the implementation plans for Scope 3 reduction initiatives, companies are generally unprepared to meet their targets.

Surprisingly, the same sources of pressure that influence companies to set net-zero goals are not influencing companies to create initiatives to reduce Scope 3 emissions. These results are concerning as they put into question the validity of net-zero goals and the motivations for stakeholders to pressure for supply chain sustainability. Our executive interviews uncovered some possibilities for this inaction. Is the complexity and absence of proper standardization for measuring Scope 3 emissions to blame for the lack of meaningful initiatives? Or are companies simply using net-zero goals as a method to build social license to operate?

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

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