By Caroline Fouvet
In the wake of the Paris Agreement, it is now recognised that the private sector must play a prominent role in tackling climate change. Insurers have to address a growing protection gapwhile investors should brace for both climate change’s financial repercussions and opportunities. That being said, to what extent could large supply chains also contribute to climate change adaptation and mitigation? Why is it crucial to take them into account when building a low-carbon, climate resilient economy?
Many large organisations have complex networks of direct and indirect suppliers. The Carbon Disclosure Project’s (CDP) latest report, Harnessing the power of purchasing for a sustainable future, takes stock of current businesses’ efforts to enhance the sustainability of their supply chains. CDP’s members, that include organisations like Bank of America, Endesa or Nestle, requested information from over 8 200 suppliers to gather data on their endeavours to reduce their environmental impact and increase supply chain resilience. Given these companies’ large spending on procurement – $2.7 trillion per year according to the report – they have a tremendous ability to weigh on their suppliers’ business practices.
Key report findings underscore that although 62% of suppliers expect climate-related impacts on their businesses within the next six years and 68% recognise positive opportunities from action on climate change, progress achieved so far is still insufficient. And why so? One of the main limits is that the overwhelming majority of businesses focus their sustainability efforts on areas within their direct control and overlook stakeholders such as key suppliers and customers. Moreover, only 22% of suppliers also engage with their own suppliers to reduce emissions.
According to the respondents, several obstacles hinder their involvement in implementing climate friendly practices throughout the whole supply chain. In addition to a lack of awareness regarding climate risks and opportunities, businesses cite investment and operational costs as major barriers. Identifying climate risks seems however to depend on suppliers’ geographical location, as a higher percentage of Chinese providers perceive climate-related risks on their business (87%) than Americans do (70%) for instance.
Raising awareness regarding climate opportunities seems to be key to draw a larger involvement of global suppliers. In 2016, those who cut their CO2 by 434 million tonnes, saved up to $12.4 million. Developing low-carbon technologies and services can hence help stakeholders improve their competitive position. Other advantages highlighted in the report include positive impacts on corporate reputation, sales, stock price and company’s ability to attract and retain top talents.
To encourage companies’ efforts, the report provides a framework for action within the supply chain. Based on a four-pronged approach, this methodology highlights the importance of understanding and quantifying climate impacts, setting a plan to address these, implementing the defined blueprint and learning from the interventions’ outcomes. Concrete examples, such as BMW’s strategic supplier engagement, are provided as existing good practices that could inspire businesses. The German car manufacturer has for instance integrated its supply chain approach into a group-wide corporate sustainability strategy. The group’s top 100 suppliers are assessed against key indicators (e.g. emission targets) which enable the company to track their year-on-year performance.
With a growing number of businesses committing themselves to improving supply chains’ sustainability, the case for action is becoming compelling. As the clock keeps ticking, the scale and pace of these sustainable corporate practices ought to be increased to meet the goals set in the Paris Agreement.