Join the HubSign in

Royal Mail to Use AI for Supplier Emissions Calculations

Royal Mail to Use AI for Supplier Emissions Calculations

Royal Mail has begun testing an AI-powered tool that estimates the carbon footprint of supplier contracts before they are signed. The system is designed to help procurement teams flag high-emission purchases early enough to request alternative proposals or adjust contract terms. It was built in six weeks by Emma Bayliss-Chan, Royal Mail's head of climate strategy and risk, as part of a summer fellowship with Watershed, a climate data platform.

The trial reflects a practical challenge facing many UK businesses. Supply chain emissions typically sit outside direct control, yet they often represent the largest share of a company's carbon footprint. For Royal Mail, around 70% of total emissions fall into Scope 3, the category that covers suppliers, logistics partners, and contracted services. Consequently, procurement decisions carry significant climate consequences, even when emissions are not the primary consideration during tendering.

This tool brings carbon estimates into the approval process itself. Instead of calculating emissions after a contract is awarded, the AI agent analyzes proposals, business cases, and tender responses in real time. It uses Royal Mail's financial data, emissions factors, exchange rates, and an internal carbon price to estimate the carbon intensity of each option, expressed in kilograms of CO2e per pound spent. The system is intended for higher-value or higher-impact contracts, not routine purchases.

The approach is still experimental. Royal Mail is testing the calculator with a subset of its procurement team before deciding whether to expand its use. However, the underlying principle is clear: if carbon costs are visible during decision-making, not just during annual reporting, businesses can make different choices. In one example cited by Bayliss-Chan, the AI flagged a scenario where a more expensive supplier would deliver lower emissions than a cheaper alternative, prompting a discussion that might not have happened otherwise.

Royal Mail's broader emissions reduction commitments

The AI calculator sits within a wider decarbonisation programme. Royal Mail has committed to reaching net zero across all emission scopes by 2040. More immediately, it aims to cut Scope 3 emissions by 25% by 2030 and 90% by 2040, measured against a 2020-21 baseline. These are significant targets, particularly given the company's limited direct control over many of the activities that generate those emissions.

Progress is already visible in some areas. Royal Mail reported a 7% reduction in total emissions during 2024-25. Emissions per parcel fell from 206 grams of CO2e to 165 grams over the same period. By 2025-26, that figure had dropped further to 164 grams per parcel. Meanwhile, the company has deployed more than 8,000 electric vans, one of the largest such fleets in the UK.

These improvements reflect both operational changes and better data. Royal Mail has worked with Watershed to map emissions across more than 3,000 suppliers and vendors. Around 10% of that supplier data is now populated automatically from public disclosures, reducing the manual effort required and improving consistency. The resulting dataset provides the foundation for tools like the AI calculator, which rely on accurate, granular emissions factors to produce useful estimates.

Nevertheless, the scale of the task remains substantial. Scope 3 emissions are difficult to measure and harder to influence. They depend on the actions of third parties, many of whom may not yet track or report their own carbon footprints. Royal Mail's approach is to improve visibility first, then use that visibility to inform procurement choices, supplier engagement, and contract negotiations.

How the AI calculator analyses procurement decisions

The tool is designed to assess a range of purchasing scenarios. It can evaluate standalone business cases, responses to requests for proposal, and longer-term capital investments such as vehicle replacement programmes. Each analysis draws on Royal Mail's financial accounts, which provide a reference table of spending categories, along with emissions factors specific to those categories.

Currency exchange rates are factored in for international suppliers. Royal Mail also applies an internal carbon price, a shadow cost used to reflect the financial risk or future liability associated with emissions. This price helps translate carbon estimates into monetary terms, making it easier for procurement teams to compare environmental and financial impacts side by side.

The output is a carbon intensity figure: the estimated kilograms of CO2e generated per pound of contract value. This metric allows Royal Mail to identify outliers and understand which contracts carry disproportionate climate risk. It also creates a basis for challenging suppliers to improve their own emissions performance or offer lower-carbon alternatives.

Importantly, the calculator is not a gatekeeping tool. It does not automatically reject high-emission bids. Instead, it provides information that can inform conversations between procurement, sustainability, and operational teams. In practice, this means decisions can be made with a clearer understanding of trade-offs, rather than discovering emissions impacts only after contracts are signed.

Bayliss-Chan has described the calculator as adaptable, meaning it can be configured for different types of procurement activity. For example, a vehicle lease might be assessed using mileage estimates and fuel type, while a facilities contract might focus on energy consumption and refrigerant use. The flexibility is necessary because emissions drivers vary widely across Royal Mail's supply base.

Carbon intensity thresholds and procurement workflows

Royal Mail has indicated that the tool will be used selectively. Not every purchase will require an AI-generated carbon estimate. Lower-value or lower-risk contracts will continue through existing processes. However, contracts above a certain emissions threshold will trigger additional scrutiny, potentially including requests for alternative bids or supplier-specific carbon reduction commitments.

This threshold-based approach reflects a broader trend in sustainability management. Businesses are moving away from blanket policies and towards risk-based systems that focus resources where they can have the greatest impact. For procurement teams, this means distinguishing between routine spending and strategic decisions that materially affect the company's carbon footprint.

It also addresses a practical constraint: procurement teams do not have unlimited time or capacity to conduct detailed emissions assessments for every purchase. By concentrating effort on high-impact contracts, Royal Mail can make progress without overwhelming its own systems or creating bottlenecks in purchasing workflows.

Moreover, integrating carbon estimates into existing approval processes reduces the risk of sustainability becoming a parallel or isolated function. When emissions data is presented alongside cost, delivery timescales, and quality metrics, it becomes part of the normal commercial discussion rather than an afterthought or compliance exercise.

If the trial proves successful, Royal Mail may extend the methodology beyond procurement. Potential applications include vehicle route planning, fuel usage analysis, and property lease evaluations. Each of these areas generates significant Scope 1 or Scope 3 emissions and could benefit from more granular, real-time carbon intelligence.

Scope 3 emissions and supplier engagement challenges

Scope 3 emissions are notoriously difficult to manage. They include all indirect emissions that occur in a company's value chain, from the production of purchased goods to the end-of-life treatment of sold products. For service-heavy businesses like Royal Mail, the largest contributors are often fuel use by subcontractors, energy consumption by suppliers, and emissions embedded in purchased materials.

Measuring these emissions requires data from hundreds or thousands of external organisations, many of whom may not collect or share carbon information routinely. In the absence of primary data, businesses often rely on industry averages or spend-based estimates, which can be imprecise and slow to update.

Royal Mail's partnership with Watershed has helped address some of these data gaps. By automating the collection of publicly reported emissions and mapping them to specific suppliers, Royal Mail has improved both the accuracy and coverage of its Scope 3 inventory. However, around 90% of supplier data still requires manual input or estimation, highlighting the ongoing challenge of supply chain transparency.

Engaging suppliers to improve their own emissions performance is another layer of complexity. Many small and medium-sized suppliers lack the resources or expertise to measure and reduce carbon footprints. Even when suppliers are willing to act, they may need technical support, financing, or clearer guidance on what their clients expect.

Royal Mail's AI calculator could support supplier engagement by making expectations explicit. If a contract is flagged as high-carbon during procurement, the supplier can be asked to provide a reduction plan or demonstrate progress against a baseline. Over time, this creates a feedback loop: suppliers who invest in decarbonisation become more competitive, while those who do not face commercial pressure to change.

Summary of key details

What this means for businesses managing supply chain emissions

Royal Mail's trial illustrates a shift from retrospective reporting to forward-looking decision support. Traditionally, businesses calculate supply chain emissions annually, often months after purchasing decisions have been made. By the time the data is available, contracts are signed and opportunities to choose lower-carbon options have passed. The AI calculator changes that sequence by estimating emissions before commitments are finalised.

This approach is particularly relevant for businesses facing Scope 3 reporting requirements under frameworks such as the Streamlined Energy and Carbon Reporting (SECR) regulations or voluntary standards like the Science Based Targets initiative. As regulatory expectations increase, the ability to forecast and influence supply chain emissions will become a commercial advantage, not just a compliance task.

For procurement teams, the challenge is integrating carbon data without slowing down purchasing processes. Royal Mail's threshold-based model offers one solution: apply detailed analysis where it matters most, and streamline routine decisions. This mirrors the risk-based logic already used in areas like fraud prevention and financial controls.

There is also a broader question about supplier readiness. Businesses that rely on carbon estimates rather than supplier-specific data may struggle to differentiate between vendors or identify genuine reductions. As more companies adopt tools like Royal Mail's, suppliers who invest in measurement and disclosure will gain a clearer competitive edge, particularly in sectors where environmental performance is becoming a tender criterion.

Furthermore, the use of an internal carbon price reflects growing sophistication in how businesses account for climate risk. By attaching a monetary value to emissions, even before regulatory carbon pricing is in place, companies can stress-test commercial decisions against future cost scenarios. This helps avoid lock-in to high-carbon contracts that may become financially unviable as carbon prices rise or climate regulations tighten.

Royal Mail's trial also highlights the importance of data infrastructure. Without a reliable emissions inventory and supplier mapping, tools like this would produce unreliable outputs. Consequently, businesses considering similar approaches should prioritise foundational work: establishing baselines, engaging suppliers, and building systems that can scale as data availability improves.

Finally, the calculator is a tool, not a policy. It provides information, but decisions still require human judgement. Procurement teams must weigh carbon intensity against cost, delivery risk, quality, and other commercial factors. In some cases, a higher-carbon supplier may still be the right choice if no viable alternative exists. The value of the tool lies in making those trade-offs visible and ensuring they are considered deliberately rather than by default.

Next steps for businesses reviewing procurement and emissions

If your business is looking to reduce supply chain emissions, there are several practical steps to consider. First, establish a baseline by mapping emissions across your key suppliers. This does not require perfect data initially. Spend-based estimates can provide a starting point, which you can refine over time as supplier-specific information becomes available. Tools and guidance are available through our net-zero program for carbon reporting compliance.

Second, identify which procurement categories generate the highest emissions. Focus on areas where spending is significant or where emissions intensity is unusually high. These are the contracts where changes will have the greatest impact. You may also want to review contracts coming up for renewal in the next 12 to 24 months, as these offer natural opportunities to introduce new environmental criteria.

Third, engage suppliers early. Ask for emissions data where it exists, and offer support where it does not. Many suppliers will welcome the conversation, particularly if you can provide clear guidance on what you need and why. Over time, this dialogue can lead to collaborative emissions reduction initiatives, such as switching to lower-carbon materials or optimising logistics routes.

Fourth, consider how carbon data fits into your existing approval workflows. Whether you build a bespoke tool like Royal Mail or adopt a simpler checklist, the goal is to ensure emissions are visible when decisions are made. This might mean adding a carbon estimate to your standard business case template or requiring a sustainability review for contracts above a certain value threshold.

Finally, keep an eye on regulatory developments. The UK government has signalled that mandatory Scope 3 reporting will expand in the coming years, particularly for larger businesses and those in high-emission sectors. Early action on supplier emissions will not only reduce your footprint but also position you ahead of future compliance requirements. Training and support on these issues is available through the SBS Academy.

Where to find further guidance and resources

For detailed information on Royal Mail's climate strategy and emissions performance, visit the Royal Mail sustainability pages. These include data on fleet electrification, emissions per parcel, and progress against net zero targets.

The Department for Energy Security and Net Zero provides guidance on carbon measurement and reporting standards applicable to UK businesses. You can access these resources at gov.uk.

For businesses seeking support with sustainable procurement or supply chain emissions management, we offer advisory services tailored to the needs of UK SMEs. This includes help with Scope 3 baselining, supplier engagement strategies, and integration of carbon data into procurement systems.

Additional guidance on Scope 3 emissions measurement and reduction can be found through the Greenhouse Gas Protocol, which sets the international standard for carbon accounting. The UK-specific interpretation of these standards is supported by resources available from government and industry bodies focused on net zero delivery.

Tagged with: Supply ChainNet-ZeroSustainability