Digitizing Value Chains To Cut Co2: The Role of Data

Digital supply chains allow companies to be more efficient, resilient, and responsive to change. Currently, much data sits in isolated silos, which limits its use and value. At the same time, the need for collaboration is growing as businesses face increasing costs for emissions and pressure to meet reporting requirements. This shift not only creates opportunities for innovation but also allows companies to turn obligations into value-creating opportunities. We consider emissions also as a data challenge. In this opinion piece, we explore how digitizing value chains can help companies better manage their Co2 emissions and the role of data.

In a globalized market, digitizing value chains and deeper integration offer significant benefits to all players involved, such as manufacturers gaining a better understanding of how their parts are used, or vendors looking to improve their products or services. With new regulatory and corporate disclosure requirements aimed at reducing greenhouse gas emissions, it is becoming increasingly important that companies know how much Co2 they are emitting. 

For example, Scope 3 emission reporting is changing accounting as we know it. Scope 1 and Scope 2 emissions refer to direct and indirect emissions created during business activities and consumption of energy and fossil fuels. Scope 3 emissions are all emissions produced by a company's value chain, hence its suppliers. For example, a steel producer creates emissions when melting steel (Scope 1 + 2). The emissions from mining the iron ore, which the steel producer has purchased, are considered Scope 3 emissions. Scope 3 emissions that are created at the beginning of the value chain are now becoming liabilities for companies at the end of the chain. This means that all companies along the value chain will need to increase collaboration and holistic thinking. 

This can be challenging because companies often work with many different suppliers throughout one single value chain. Effectively tracking emissions relies on companies sharing data, which can be sensitive. Balancing transparency while protecting business intelligence, brings up interesting data governance questions and highlights a real need for reliable models to facilitate and secure data transfers. 

Digitizing value chains can help increase collaboration and identify areas for improvement in Co2 emissions management. However, revealing Scope 3-related data carries certain risks as it can be used for reverse engineering of product compositions, profit margins, or the identification of supplier networks. For example, while more granular data allows us to identify and improve main emitting sources, it can also reveal deeper insights on the companies along the value chain. Therefore, most firms consider Scope 3 emission data as competitively relevant. New cryptographic technologies, such as Secure Multi-Party Computation, Zero-Knowledge Proofs, and Homomorphic Encryption, can allow for data collaboration, e.g., as required for Scope 3 emission calculations, without revealing sensitive inputs, potentially turning data graveyards into value banks for all parties involved, including small and medium-sized enterprises. If scaled, these sorts of technologies could help support sustainable business practices by improving the transparency and oversight of Co2 emissions. This would further enhance data discoverability, build data literacy, and enable data-informed decision making across knowledge silos.

Businesses and societies need to leverage their collective wisdom, embodied in the ever-growing Datasphere, to improve their efficiency and cut emissions. Digitalizing entire value chains can be a big task, especially for smaller actors with complex supply chains. Companies can also be reluctant to share sensitive data. Incentives for participation and responsible and effective data governance practices, therefore, play an important role to foster trust and efficiency in data-sharing practices. Technological advancements may need to be complemented by protocols or templates for data-sharing communities to organize governance and interoperability of data-sharing initiatives.

As our world becomes more data-driven, it's important that our business management and policy practices catch up with digital transformation. Knowledge sharing, connecting data silos, and understanding connections between data sources and use could help identify and tackle inefficiencies. 

Approaching the environment in which all digital data exists as a global Datasphere could provide a perspective shift needed to understand how data governance relates to sustainable value chains.  Data collaboration, with the help of technical tools such as encryption, is one example of the innovative solutions available to address challenges. While we transition our existing technologies toward becoming carbon neutral, it's important we stay curious and ready for experimentation with new technical tools, to responsibly unlock the value of data. 

About the Authors

Niklas Frank, Director of Development, SINE Foundation, has been building early-stage tech companies in industries such as fintech, people tech and mostly big data for the past eight years. Upon graduating from Copenhagen Business School in organizational innovation and entrepreneurship, he developed an interest in social entrepreneurship and sustainability. In 2022, Frank decided to join the non-profit SINE Foundation, with the mission to unlock the use of data in reducing carbon emissions.

Martin Hullin, Acting Executive Director, Datasphere Initiative, is a multistakeholder governance expert with an entrepreneurial background, specialized in building public-private partnerships and facilitating knowledge transfer between governments, the private sector, international organizations, and academia. At the Internet & Jurisdiction Policy Network, he managed the organization’s operations and knowledge partnerships. Prior to that,  Hullin led the formalization of a leading global renewable energy policy network and worked as a consultant for the United Nations Environment Program and GIZ. He has also served as an international focal point for cross-sectoral collaboration between numerous governments and international organizations. Hullin is a public speaker and has led the production of several major policy publications.