CDP says 10 years of corporates requesting supplier transparency has triggered a step-change in environmental action.
With greenhouse gas (GHG) emissions in supply chains on average 5.5 times those of company’s direct operations, a new report by CDP reveals a step-change in corporate awareness and action on environmental impacts within their supply chains in the last decade.
In 2018, 115 companies — wielding a combined purchasing power in excess of US$3.3 trillion — requested environmental information from 5,500+ of their key suppliers. This is an increase from just 14 companies ten years ago. Suppliers reported CO2 emissions reductions of 633 million metric tonnes — greater than the emissions of South Korea in 2017 — leading to collective cost savings of US$19.3 billion. See the CDP website for the top 10 respondents, according to country.
The report, Cascading commitments: Driving upstream action through supply chain engagement, is based on data disclosed through CDP by 5,562 suppliers. It also reveals a 35 percent growth in targets for water use among suppliers, compared to 2017, while the number of companies disclosing information to their customers on their forest-related impacts has more than tripled, from 88 in 2017 to 305 in 2018.
The research finds that for some corporate giants, sustainability is now a major factor in their purchasing decisions: Nearly three quarters (73 percent) of a subset of 27 major purchasers answering a CDP survey said that they are now either deselecting, or considering deselecting, existing suppliers based on their environmental performance. In addition, 63 percent are either using, or considering using, data from CDP disclosures to influence whether or not they contract with suppliers — this is in stark contrast to the 4 percent and 9 percent, respectively, that were doing this a decade ago.
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“In the ten years that we have been working with purchasing organizations, we have seen a fundamental shift in expectations around business action on sustainability,” commented Sonya Bhonsle, Global Head of Supply Chain at CDP. “Leading purchasers are using disclosure to push positive change down the supply chain, with data playing an increasingly important role in their decision-making. If suppliers continue to cascade good practices further down the supply chain, this has the potential to play a huge role in the rapid transition to a sustainable, low-carbon economy.
“However,” she added, “with only 57 percent of suppliers reporting reductions activities, and less than half (47 percent) with emissions-reduction targets in place, the transformation in their customers’ expectations means that those suppliers failing to act sustainably may increasingly see it impact their bottom line.”
As organizations take a more holistic approach to environmental management, the number of companies demanding transparency on water security in the supply chain continues to grow:
43 major purchasing organizations — including Braskem, HP Inc, and Intel — asked their suppliers to report on water in 2018, up from 37 in 2017. 1,709 suppliers submitted responses, an 11 percent increase from last year.
There has been a rise in suppliers reporting water targets, growing from 51 percent in 2017 to 69 percent this year.
But with less than half of companies reporting board-level oversight of water issues — compared to 69 percent for climate issues — governance of water security remains low.
“At Braskem, we have seen financial benefits from implementing a water security strategy over the last six years. At the heart of this strategy has been our ability to value freshwater resources, and build that value into the way we make decisions on our operations and capital investments — this has made us more resilient to water risks,” Jorge Soto, Sustainable Development Director at Braskem, says in the report. “However, to be more fully prepared to operate in water-scarce regions, which are expanding by the day, it is important we ensure that resilience cascades down the supply chain.
“Working with CDP allows us to understand where our suppliers are on their water security journey, assess the risks that they may present to us, and — crucially — collaborate with them to reduce that risk. In 2018, having assessed our suppliers’ disclosures to CDP, we were able to tailor an approach to engage and help them improve. In the coming year, we are going to focus on helping suppliers to create a stronger business case for acting on water security.”
Meanwhile, with deforestation and forest degradation accounting for approximately 10-15 percent of the world's GHG emissions, protecting forests is rising up the corporate agenda:
This year, 305 suppliers provided disclosures to 14 purchasers — including Arcos Dorados, L’Oréal and McDonald’s — a 247 percent increase from the 88 businesses that responded to seven purchasers in 2017’s pilot phase.
However, just 17 percent of those suppliers report setting any sort of target related to deforestation, not enough to slow the 18.7 million acres of forests lost annually, according to WWF.
“As a major consumer goods manufacturer, we have an important role in the supply chain, with the opportunity to influence a wide range of suppliers across multiple industries and geographies. We take this responsibility seriously and joined CDP Supply Chain as a founding member for climate, water and forests,” said Alexandra Palt, Chief Corporate Responsibility Officer at L'Oréal, which was one of only two companies to top CDP’s A-Lists this year for climate, water and deforestation. “This involvement has influenced the environmental performance of some of our most important strategic suppliers — many are now engaging their own suppliers on these topics.
“In 2017, L’Oréal took its commitments a step further and set science-based targets, which include reducing our whole value chain (up and downstream) emissions by 25 percent by 2030. To help meet this target, we have integrated CDP data into our purchasing processes, and will be looking to collaborate with suppliers and drive emissions reductions further down the supply chain.”
To highlight best practice and spur further ambition, CDP has awarded over 120 companies — out of a total of 5,000 — a place on its third annual Supplier Engagement leader board, more than double the 58 highlighted in 2018. These leaders — which include Canon, Diageo, GlaxoSmithKline, Mastercard, National Grid and Tessy Plastics — are recognized for their work with suppliers to reduce emissions and lower environmental risks in the supply chain.
Examples of leadership among the 120+ companies include:
UK telecoms company BT Group collaborated with a supplier to simplify tool and molding use, reducing energy use and cutting 130 kg of CO2e for every month of production.
In Evian-les-Bains, Danone worked with local authorities and farmers to avoid contamination of the spring water by agricultural waste or fertilizers, creating a collective biodigester that converts 40,000 tons of organic waste each year into natural fertilizer used by local farmers, while producing biogas to provide power for 1,200 inhabitants.
Japanese chemical and cosmetics company KAO Corporationhas been actively encouraging suppliers to reduce their CO2 emissions; so far, at least 80 percent of its suppliers have set emissions reduction targets.
US technology company Microsoft invested more than US$1 million with one manufacturing supplier to install solar arrays and complete an energy-smart building retrofit, using sensor technology and data analytics tools to reduce energy consumption.
Working towards its science-based target of reducing scope 1, 2 & 3 GHG emissions 25 percent by 2030, from a 2016 base year, L’Oréal has been training and supporting its suppliers to answer to CDP — providing an online tool box, workshops, webinars and one-to-one meetings.
Swedish packaging company Tetra Pak requires third-party verification that its paperboard suppliers do not use wood from any form of deforestation that breaks the natural forestry cycle; a company cannot supply Tetra Pak if it fails to meet these requirements.
“Procurement teams have the power to create and amplify positive change,” commented Hugh Jones, Managing Director of Advisory at The Carbon Trust, which co-wrote the report. “But to exercise this power they must make sustainability a decisive factor in evaluating suppliers, elevating it to sit alongside cost, quality and security of supply. Only then can a business truly claim it has sustainability at its heart. And this means procurement teams must understand their most significant impacts, ask the right questions, and actively provide support to help their supply chain to take action. The good news is that there’s so much shared value to be found in greening the supply chain, which can help to increase efficiency, reduce resource costs, enter new markets, and make supply chains more resilient to the impacts of a changing climate and a changing world.”