Business Case
Report:
More Companies Seeing Near-Term Risk in Climate Change

Seventy percent of companies believe climate change has the potential to affect their revenue significantly, a risk which is intensified by a chasm between the sustainable business practices of multinational corporations and their suppliers, according to research published today by the Carbon Disclosure Project (CDP) and Accenture.

The report, Reducing risk and driving business value, is based on information from 2,415 companies, including 2,363 suppliers and 52 major purchasing organizations who are CDP Supply Chain program members. These members include Dell, L’Oreal and Walmart and represent a combined spending power of approximately US$1 trillion. The research marks CDP’s most comprehensive annual update on the impact of climate change on corporate supply chains.

Climate change presents near-term risks to businesses, according to the report. Fifty-one percent of the risks that disclosing companies associate with drought or extreme rain are already having an adverse effect on company operations, or are expected to within five years, say those businesses. Additionally, the destructive nature of extreme weather is likely a catalyst for company action on climate change, with physical climate risk identified in the report as a greater driver of investment than climate policy. Of the 678 companies investing in emissions-reduction initiatives, three quarters (73 percent) say they feel that climate change presents a physical risk to their operations; just 13 percent identify regulation as a sole driver.

Most of the positive actions responding companies say they have taken in response to climate change are attributable to organizations that have been using CDP’s unique global system for at least two years demonstrating that customer pressure is driving change. However, the report identifies a performance gap between companies and their suppliers and claims that this is intensifying climate risk in the global supply chain models.

Suppliers are significantly less prepared than their clients in responding to climate change, potentially threatening customer relationships and heightening supply chain vulnerability. Suppliers demonstrate a lower level of ambition to mitigate climate change risk, with just 38 percent setting emissions-reduction targets in comparison to 92 percent of purchasing companies. Similarly, at 27 percent, the percentage of suppliers investing in activities to reduce emissions is less than half that of CDP member companies (69 percent).

Not surprisingly, CDP members are more likely to yield results from their environmentally sustainable business practices than suppliers, according to the survey. They are more than twice as likely to accomplish year-on-year emissions reductions (63 percent vs 29 percent) and are better positioned to capitalize on the financial benefits of carbon management. While 73 percent of members are achieving monetary savings, such as reduced energy costs from emissions-reduction activities, only 29 percent of suppliers are enjoying such returns.

Paul Simpson, CDP’s chief executive officer says: “This research illuminates fragility in the global supply chain model. The marked difference in the sustainable actions of companies and their suppliers highlights a missed opportunity for suppliers to reduce energy costs and risks.”

CDP says its analysis demonstrates the attractive returns that leading companies are enjoying from addressing supply chain sustainability. The 29 percent of suppliers that have reduced their emissions have saved some $13.7 billion as a result. This implies aggregate potential savings of all 2,363 suppliers could reach three times that figure if the remaining proportion of suppliers were to achieve reductions at that rate.

“This report provides clear evidence that those who are most transparent about their climate change risks are more likely to achieve the greatest emissions reductions,” said Gary Hanifan, global sustainability lead for supply chain at Accenture. “And they are also more likely to enjoy monetary savings as a result of their responses to climate change risks. But the return on investment by the most proactive companies will not reach its full potential unless those companies can encourage their suppliers to follow their lead.”

Sustainable Brands guest editor Bill Baue recently spoke with CDP Technical Director Pedro Faria and Director of Technical Reporting Michelle O’Keeffe about the process behind the organization’s annual Leadship Indexes.

@Bart_King is a freelance writer and communications consultant.