News 04 February 2016 News from SKAO
8 reasons to improve the climate impacts of your supply chain
Following the release this week of a report that showed that even green-minded multinationals can struggle to keep tabs on their supply chains carbon footprint, Dexter Galvin of CDP — one of the organizations behind the report — discusses how and why businesses should be looking at where they are buying as well as where they are selling.
1. Supply chains account for the bulk of corporate emissions
If a company is aspiring to cut the carbon impact of its products, looking only within its own four walls wont cut it. The CDP research reveals most supply chain emissions are around four times the operational emissions for most companies (with the exception of energy or mining firms).
"Essentially a lot of big purchasing organizations around the world have effectively outsourced their emissions to their supply chains," said Galvin, head of CDPs supply chain program. "We think one of the solutions is to get more and more companies to start measuring, managing and disclosing their carbon emissions."
2. Engagement takes time, and is trickier than you think
Many suppliers are still turning a blind eye to the climate debate — leaving many big firms in the dark as to the true impact of their business. Of the almost 8,000 key suppliers contacted through CDPs study on behalf of the multinationals, only 51 percent even gave a response. "These are the key suppliers for some of the worlds largest corporations," said Galvin. "In light of the Paris Agreement, we think that theres very significant risk in corporate supply chains from suppliers who have no awareness of climate risk at the moment."
3. Major internationals are spearheading supply chain reform
While the high carbon impact of supply chains presents significant risk, it also presents a huge opportunity. Many big corporations are already beginning to take their supply chain impacts more seriously, and companies who dont could risk being left behind. CDP has 75 major multinationals — including Coca-Cola, Goldman Sachs and Walmart — signed up to its program and collecting data from their suppliers every year. Collectively, these organizations account for around $2 trillion of annual spending. Even the U.S. federal government is signed up, as well as the electronics industry through its industry group the Electronic Industry Citizenship Coalition (EICC).
More than half of these companies are already using CDP data to assess their suppliers. LOréal, for example, has made a commitment that its top 300 suppliers will have a carbon reduction target in place by 2020 — and has made clear it isnt afraid to deselect suppliers who dont perform. Dell has a similar set of demands, and even requires suppliers to engage their own supply chain in turn.
4. Regulation is lurking around the corner
Following the Paris Agreement many countries are already beginning to take swift action on emissions. Only last week China announced that the list of industries set to be covered by its national carbon market will include petrochemicals, power, the construction and steel industries, and even aviation.
All this means companies that use a take-it-as-it-comes approach may find themselves disadvantaged down the line, as a world striving to keep up with an ambitious global agreement could have trouble finding the time to bring the laggards up to speed, said Galvin.
"Theres a huge amount of risk out there in the world at the moment on climate change," said Galvin. "Waiting for regulation can cause a lot of problems, not least cost increases in the supply chain, [while] companies that have been managing this issue in their own operations for a number of years will naturally be more prepared for regulation."
Meanwhile, although many companies believe their "global sourcing strategy" means they can just source their supplies from elsewhere, it may not be as simple as this. "If we look at regulatory risk specifically, the Paris Agreement means that regulation will be implemented across the world in order to meet [the agreements] ambitions," said Galvin. "The regulatory frameworks in most emerging markets would need to change very significantly." All this means those areas companies typically may have moved to could be at the most risk of fast-rising cost increases, as regulation rapidly comes into play.