Category: Supply Chains & Retail

Popular consumer goods like fashion & coffee at risk from climate impacts

Popular consumer goods like fashion & coffee at risk from climate impacts

By Elisa Jiménez Alonso

Climate change is increasingly having an impact on our daily lives. While many might think of the impacts in terms of extreme and sudden weather events, many problems are creeping up on our society. Such is the issue with many popular consumer goods. We are used to seeing densely stocked shopping aisles full of food, beverages, clothing and much more. But without adaptation measures from the private sector, the landscape of consumer goods as we know it might change very quickly. In a recent episode of the “Material World” podcast, hosts Jenny Kaplan and Lindsey Rupp explore how climate change might affect the consumer universe and what that means for popular products.

Going to the supermarket and buying groceries feels very removed from the actual food production. Shelves are always stocked, and if a consumer in the UK wants to buy an avocado in January, they will easily find one. Agriculture and food production are very complicated because they create globally traded goods and shortages in one country can potentially have knock on effects all over the world.

That is also the case for coffee. Illy Caffé CEO Andrea Illy explains that in the short term, as global temperatures begin to rise, the areas where coffee can be grown will expand. This can be seen in California where coffee production is on the rise. In the long term, however, the total area suitable for coffee production will significantly decrease. Illy estimates that about 50% of suitable areas today will not be able to produce coffee by the end of the century. In some traditionally coffee producing countries stagnating yields and decreasing quality can already be observed today. Adaptation actions are necessary today to reduce the negative impacts as much as possible. Andrea Illy recommends three broad areas of action: adapting agricultural practices, diversifying cultivated plants, and migrating plantations to more suitable areas. These will require enormous resources in terms of investments, knowledge, infrastructure, and people.

Cotton is another plant that is sensitive to a changing climate. While increased CO2 concentrations in the atmosphere boost cotton’s growth, the growth boost also leads to increasing water and nutrient needs. With rising temperatures and changing rainfall patterns, water availability is set to fall in many regions. The devastating 2011 drought alone led to the abandonment of 55% of Texas’ cotton fields and an estimated loss of US$2.2 billion. Major fashion companies like H&M are starting to look into changing how they source cotton and other textiles. With all signs pointing towards a significant reduction of global cotton production, H&M have pledged to use 100% sustainably sourced or recycled materials by 2030, in 2016 the share was 26%.

While the private sector’s efforts to adapt to climate change are absolutely crucial for global resilience building, governments also have an important role to play. In the first half of the 20th century, the US experienced a devastating drought that led and unsustainable farming practices led to the so called “Dust Bowl” in the Great Plains. The government then rolled out massive efforts to conserve soil and restore destroyed lands. One such effort consisted of planting a huge belt of 200 million trees from the Canadian border to central Texas. Without interventions and support from the public and private sectors, adaptation efforts and climate resilience building will only be partially successful.


Cover photo by Kimberly Vardeman (CC BY 2.0).
Climate-sensitive ‘chokepoints’ threaten global food trade

Climate-sensitive ‘chokepoints’ threaten global food trade

By Gracie Pearsall

A recent report published by the UK think-tank, Chatham House, has identified 14 critical locations that, while integral to global food trade, are also extremely at risk to the effects of climate change. The report dubs these locations “chokepoints,” and analyzes how disruptions from climate change could impact the food security of millions of people.

All 14 chokepoints are junctions on the global food transport system. The chokepoints encompass areas such as maritime corridors, ports, and inland transport infrastructure. The global food trade relies heavily on these chokepoints. For example, more than half the world’s staple crops (wheat, maize, rice, soybean) and fertilizers pass through at least one of the maritime chokepoints identified.

Increasing chokepoint risks

These chokepoints are exposed to distinct risks and hazards. Weather events, such as flooding and drought, regularly reduce efficiency, and damage infrastructure. Security, conflicts, and political dynamics can also disrupt trade at these chokepoints. Additionally, chokepoints face institutional risks if authorities choose to close a port, or restrict exports and imports. All but one of the identified chokepoints have been closed or severely interrupted at least once in the last 15 years. This report found that closings and interruptions such as these will occur more frequently as chokepoints risks increase.

Aside from climate change, two trends are increasing the chokepoint risks. First, dependency on chokepoints is growing. For example, in 2000, only six percent of crops and fertilizers relied on one of the maritime chokepoints as the only viable transit route. Now, this figure has risen to ten percent. This dependency increases risks because it concentrates a major amount of crops and fertilizers in a small number of vulnerable locations.

Second, there is chronic underinvestment in the infrastructure at these chokepoints. Inadequate infrastructure leaves these locations ill-prepared to handle the growing volume of trade, and also limits the infrastructure’s capacity to become resilient to the changing climate. For example, frequent heavy rains often render Brazil’s muddy roadways impassable.  Likewise, US waterways and Gulf ports are old and congested, making them especially vulnerable to flooding, droughts, and hurricanes. Countries that rely on food imports, such as those in North Africa and the Middle East, will become especially vulnerable as weather hazards intensify and as the international food trade grows

Climate-related risks

The Chatham House report identifies climate change as the biggest risk to chokepoints. Climate change will act as a “hazard multiplier,” by amplifying the effects of all the afore-mentioned risks. Moreover, climate change will bring risks of its own. Climate change will increase the frequency of extreme and severe weather events, such as floods, droughts, heavy rainfall, and heatwaves, which will block chokepoints and harm infrastructure. For example, flooding hit US waterways in 2016, which completely stopped transit. During a 2015 heatwave, major US rail lines kinked and derailed several trains and stopped transit.

Slow on-set climate consequence further threatens chokepoint infrastructure. For example, sea level rise poses a huge risk to maritime corridors and ports, and will require significant adaptation responses. Furthermore, climate change acts as a driver of instability because climate-related stress exacerbates social and political climates, and fuels armed conflicts.

Dealing with the at-risk chokepoints

An example of a country successfully minimizing chokepoint risks is China. It imports a lot of food, but it has diversified supply routes. Although 87% of China’s grain imports travel through maritime chokepoints, only four percent move through chokepoints with no alternative routes. Chinese companies have also built railroads in South America as an alternative route to the Panama Canal (one of the 14 chokepoints). China’s actions epitomize the report’s recommended approach to handling increasing chokepoint risks.

In conclusion, the Chatham House report emphasizes the need to mitigate damage by investing in infrastructure at these chokepoints, and adapting to the risks by lessening reliance on the checkpoints. The report also advises governments and businesses to integrate chokepoint analysis into risk management planning, and create a “supply-sharing” network and plan, in case of chokepoint failure and trade emergency.


Cover photo: Maritime, coastal and inland chokepoints and major shipping routes identified in the report. Source: Chatham House.
Supply chains gain competitive advantages by becoming more climate resilient

Supply chains gain competitive advantages by becoming more climate resilient

By Maribel Hernandez, Senior Consultant at Acclimatise, and Svante Persson, Coordinator, PROADAPT/IDB

Can supply chains gain competitive advantages by becoming more climate resilient?

How can businesses, large and small, make their supply chains more climate resilient and simultaneously become more profitable? Almost any supply chain, but particularly those that are dependent on natural resources, will experience the impacts of a changing climate in all its parts. A recent study by Acclimatise for the IDB’s PROADAPT program, shows that assessing climate change risks and their effects helps businesses better understand their supply chains and strengthen their resilience, and in that process, give them a competitive advantage in the market.

PROADAPT was launched in 2013 and is co-sponsored by the Inter-American Development Bank (IDB) in partnership with the Nordic Development Fund to improve climate resilience among small and medium enterprises and to foster business opportunities to provide climate resilience solutions, or products and services that help buyers to reduce or transfer their vulnerability to climate risks. This study specifically looked at the effects on a dairy supply chain in Mexico.

Turning climate risks into opportunities

Climate change increases the occurrence of extreme weather events which means increased risks to business assets and operations. It can also reduce the availability and increase the price of certain inputs. Agrifood industries are particularly affected, as they are dependent on the climate. Contrary to what is commonly assumed, reducing these risks can lead to new opportunities. Companies that adapt their strategies become more resilient and thereby increase their competitiveness through more efficient production and cost reductions. The emergence of new products and solutions that improve climate resilience such as heat-resistant building material, drought resistant seeds, water harvesting services, low-drip irrigation, or new insurance schemes also generates new opportunities to local businesses.

Addressing climate change impacts on a supply chain

Being aware of climate change risks and their impacts on a company’s supply chain is the first step towards building climate resilience. The next step is to map the supply chain in detail, including geographic locations, to identify the most vulnerable parts of the chain and target the most appropriate adaptation measures. Finally, adaptation and resilience enhancing measures can be identified and prioritised, such as:

  • Mainstream climate change into the decision making processes and setting risk management procedures according to the identified vulnerabilities, etc.
  • Fine-tune the company’s supply strategy based on the analysis of the relative climate exposure of key commodities and suppliers; expand the supply to other possible suppliers and/or locations; switch to domestic suppliers to reduce risk inherent to long-distance transport logistics, etc.
  • Introduce institutional, commercial and financial arrangements, capacity building activities, awareness-raising and communication options, actions to support community development, social, economic and environmental sustainability, etc.

The implementation of climate adaptation measures can also have positive social and economic impacts on local economies through more sustainable businesses, technology transfers and new markets niches, which enable the development of new local technologies, products, and services at a lower price. Oftentimes, resilience improving measures also mean reducing carbon emissions, like for example biodigestors and clean energy, thus presenting a double benefit.

Download the report by clicking here.

Climate-related impacts on supply chains are widely acknowledged although large-scale action is still needed

Climate-related impacts on supply chains are widely acknowledged although large-scale action is still needed

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.

Download the report by clicking here 

UK experiences #CourgetteCrisis as rationing hits vegetable shoppers

UK experiences #CourgetteCrisis as rationing hits vegetable shoppers

By Caroline Fouvet

Food rationing has hit UK supermarkets, as bad weather affected much of southern Europe, leading to shortages of certain lines of fruit and vegetables. Customers were faced with empty shelves, and requests for broccoli, iceberg lettuce and courgettes were often made in vain. On Twitter, the hashtag #CourgetteCrisis was trending last week, as customers struggled to come to terms with the lack fresh vegetables, all year round.

Many of the supply problems can be traced back to a series of unusual weather events affecting Spain. Spain accounts for 25% of the UK’s fresh produce imports but pre-Christmas floods and cold weather, together with heavy snow episodes hit the south-eastern coast, devastating crops in the region. The Murcia area, where most of the Spanish lettuce is produced, was one of the worst hit zones. In winter the region supplies 80% of Europe’s fresh produce however, after suffering its heaviest rainfall in 30 years, only a third of Murcia’s vegetable crop is useable.

Other countries in Europe, notably Italy, are also being forced to unexpectedly import vegetables due to poor growing conditions, increasing competition for Spanish produce and putting further pressure on supplies. The product shortages provide a clear example of weather disruptions have a direct impact on UK consumers.

Speaking to the BBC, vegetable seller Mark Gregory said: “Whereas normally courgettes are £6 or £7 [a crate], they’re now 20-22 quid and we’re struggling to get them.” Within days vegetable prices soared. Price rises were also seen in major retailers; the supermarket chain Lidl, for example, was forced to almost treble the price of its lettuces, which rose to £1.19 from £0.42.

While climate change may not be directly linked to the difficult conditions Spain has been experiencing in recent months, these supply shortages give a clear indication of the types of impacts that climate disruption can cause to vulnerable supply chains.


Cover photo by ADJoell/Pixabay (Public Domain)
World’s largest chocolate company invests in climate risk management

World’s largest chocolate company invests in climate risk management

Climate change poses a threat to many global food commodities, with crops such as coffee, rice and cereals all affected by extreme weather events and shifting growing seasons. In what is worrying news for chocoholics everywhere, cocoa is another crop that is highly climate sensitive – posing a threat to the world’s US$ 100 billion chocolate industry. It is a threat that the world’s largest chocolate maker, Mars Chocolate, is taking very seriously, investing heavily in order to ensure a resilient supply, which could give them the edge over competitors.

Mars, makers of the famous Mars Bar, but also of other confectionary brands including M&M and Snickers, is event employing its own climate scientists and meteorologists to help them better understand climatic impacts on their business.

In an interview with Business Insider Magazine, Katie Johnson, a senior manager on the commercial applied research team, expressed concern that “if climate conditions in these growing areas begin to change over time, it may influence both the supply and quality available of an ingredient that we use in our products.”

Weather patterns are very important to Mars. The company’s meteorologists analyse global weather in order to predict where to expect the best yields, and the best quality of their core ingredients. These ingredients extend beyond cocoa beans for chocolate making. Nuts such as peanuts and almonds for example, are widely used by the company in its products.

Being able to predict the quality and yield of these crops allows Mars to plan for possible shortages and make contingency arrangements. However, the short-term weather analysis, is becoming increasingly difficult thanks to climate change. This is because climate change is making local weather patterns far less predictable, increasing the uncertainty for Mars, and therefore making their business more risky.

In the short-term climate change is likely to continue to be a headache for the chocolate industry, making weather forecasting less predictable and increase supply chain insecurity. However in the medium term, climate impacts could pose a far greater threat to the industry.

Cocoa farmers face rising threats from extreme weather events and crop disease, while ‘slow onset’ changes like gradually increasing temperatures are making traditional areas of cocoa production less suitable. For Mars, understanding and planning for climate risks is about more than being a responsible company from an environmental and social perspective; it simply makes business sense.

 


Cover photo by Pixabay (Public Domain)
Investing in climate resilience should be a business fundamental

Investing in climate resilience should be a business fundamental

By Edward Cameron and Samantha Harris

In September 2015, Mark Carney, governor of the Bank of England, gave a speech at Lloyd’s of London warning about the dangers of climate change. He described climate change as “the tragedy of the horizon” and outlined in detail the very real human, environmental, economic, and financial costs if we fail to understand climate risk and delay preparing strategies for resilience. In seeking to persuade his audience, he said, “The more we invest with foresight, the less we will regret in hindsight.” In short, a holistic understanding of climate risk and resilience must become a key aspect of business strategy, from inside the business all the way up and down the supply chain.

Carney’s warnings have seemed very real in recent months. July 2016 was the hottest month ever recorded, the six-month period from January to June was the planet’s warmest half year on record, and 2016 is on course to be the hottest year, resulting in power blackouts, severe droughts, and destructive wildfires. Also in July, NASA’s Goddard Institute for Space Studies in New York revealed that two key climate change indicators—global surface temperatures and Arctic sea ice extent—have broken numerous records through the first half of 2016.

Climate change is a key risk deserving business attention, strategy, and action. It is the highest-impact risk to business, according to the World Economic Forum’s 2016 Global Risk Assessment Report, and presents major implications both inside individual companies and across the full supply chain. Key business functions including operations, finance, infrastructure, procurement, human resources, marketing and sales, and strategy can be undermined by the impacts of climate change. Moreover, climate risk affects every step of the supply chain from raw materials extraction, through manufacturing and logistics, and all the way to consumer distribution.

And yet, it is clear that action to build companies’ resilience to climate risk is falling short. Our analysis of global supply chains and climate change revealed 72 percent of suppliers believe climate risks could significantly affect their business operations, revenue, or expenditure, but only half of them are currently managing this risk.

The perception of climate risk is also flawed. Companies often understand climate risk as the exposure of operations to a physical hazard (such as an extreme weather event, flood, drought, or sea-level rise). As a result, their strategies for resilience have typically focused on building infrastructure to withstand physical hazards and protect core operations. This overlooks the importance of vulnerability assessments in any effective understanding of risk. Similarly, companies have focused on their own operations when determining material risks, which means they have underestimated risks across the supply chain. And finally, companies have underestimated their capacity to build resilience through their innovations, products, and services and are therefore missing out on opportunities to demonstrate leadership, gain reputational value, and grow their business.

Essentially, companies have been using a one-dimensional approach to tackle a three-dimensional problem. This limited view fails to account for the broad range of climate impacts on companies and can skew risk assessments—creating false alarm in an area where a company may be relatively secure, or completely missing important vulnerabilities. For example, experts say climate change could significantly decrease the production of coffee beans in key growing areas (and many other staple crops across the globe). As a leading company responding to this climate risk, Starbucks is looking beyond its direct operations and helping suppliers enhance their climate resilience through alternative, but innovative, growing methods. Companies should replicate this holistic approach to climate resilience, which will create the climate-resilient businesses of the future.

To help companies address this challenge, BSR’s Resilience and Adaptation Initiative (READI) will build collaboration among companies and leading adaptation experts. In the coming years, we will work to equip business with a greater understanding of climate risk and actionable methods for greater climate resilience inside companies, across supply chains, and within vulnerable communities. Recognizing that climate risk is unique across industries, we will work to create an actionable, three-dimensional strategy framework for resilience. This approach will arm companies with the foresight they need to ensure continuity and growth, avoid cascading risks across the supply chain, and build or support broader societal resilience.

Business success requires constant attention to the fundamentals: products that meet consumers’ evolving demands, competitive pricing, focused marketing, cash flow management, and a talented team to lead the company’s innovation forward. Increasingly, we understand that companies must also proactively calibrate corporate strategy for climate risk because the ability to perceive of, and respond to, these risks can mean the difference between success and struggle. And so, in this record-breaking year, it’s time for companies to add climate risk and resilience to the fundamentals.


Edward Cameron is a specialist in climate change and human rights. He leads BSR’s climate change practice with a focus on driving greenhouse gas emissions reductions and enhancing business and societal resilience.
Samantha Harris deploys her climate change expertise through work on climate resilience and emissions reductions for BSR’s climate change practice and related work with the We Mean Business coalition.
This article was first published on the BSR website and has been republished here with permission. To read it in its natural habitat please click here.
Cover photo by Cpl. Robert J. Maurer – Defense Video & Imagery Distribution System: III Marine Expeditionary Force / Marine Corps Installation Pacific (Public Domain)