Supply Chain

CDP:
Supply Chains Hold Key to 1GT of Emissions Savings

Over 1B metric tons of emissions would be saved if suppliers to just 125 multinationals increased their renewable electricity by 20%. Meanwhile, those suppliers reported a combined US$1T of impact from environmental risks.

Published 5 years ago | About a 5 minute read

Image: Diana Parkhouse/Unsplash

A gigaton (one billion metric tons) of emissions savings can be unlocked if key suppliers to 125 of the world’s biggest corporate purchasers increase their proportion of renewable electricity by 20 percentage points1 This is according to new research released today by CDP, during the UN’s COP25 climate conference in Madrid.

CDP’s report, Changing the Chain, analyzes environmental data collected from almost 7,000 supplier companies on behalf of their customers — 125 big buyers including Walmart, L'Oréal and Samsung Electronics, along with data from 44 of these buyers that responded to a survey.

It finds that currently the average proportion of renewable electricity suppliers purchase makes up 11 percent of their total electricity. Increasing the proportion of the total electricity they purchase by 20 percentage points next year, (to an average of 31 percent) would cut a gigaton of greenhouse gas emissions in one year, according to CDP’s analysis1.

This would make a substantial contribution in the global effort to tackle the climate crisis. For comparison, global CO2 emissions from energy rose by around one gigaton between 2017 and 2018, from ~36 to ~37 gigatons. Put another way, a gigaton is equal to the 2017 fossil fuel CO2 emissions of Brazil and Mexico, combined.

“We stand at a critical crossroads: With supply chain emissions being on average over five times as high as a corporation’s direct emissions, this makes the trillions in procurement spend by large corporate buyers a critical leverage tool for driving climate action at scale,” said Sonya Bhonsle, Global Director of Supply Chains at CDP. “Our analysis shows a gigaton of emissions savings up for grabs if suppliers increase their proportion of renewable power by 20 percentage points on average. This would be a big step, but it is achievable. However, with just 4 percent of suppliers reporting a renewable energy target, we’re not seeing that level of ambition yet. We need to see all buyers engaging proactively with their suppliers to unlock this huge opportunity.”

Just 4 percent of analyzed suppliers (or 292 companies) reported a renewable energy target in 2019. To address this, 31 major buyers working with CDP (or 70 percent of respondents to a CDP survey), with over US$741.6 billion2 in purchasing spend, are actively engaging their suppliers to source more renewable energy.

These include global names such as AB InBev, Accenture, BT Group, Signify and The LEGO Group. These five companies have all committed to source 100 percent renewable electricity in their own operations by joining the RE100 initiative and are now taking steps to drive uptake of renewables in their supply chains.

“By using the CDP platform, Signify is connecting with strategic suppliers on climate change and carbon emissions,” said Luc Broussaud, Chief Procurement Officer at Signify. “We have set a target to have 200 strategic suppliers report on emissions reduction activities by 2020 in order to decrease environmental impact in our supply chain. This year, 160 of our suppliers reported carbon emissions reduction activities, including purchasing renewable electricity. We want to see our suppliers matching our ambitions, setting renewable electricity targets, and reporting progress towards achieving them year on year.”

“Sourcing renewable electricity is one of the swiftest ways to slash emissions and accelerate the global transition to lower carbon grids,” Bhonsle explained. “Suppliers just starting out should sign their first renewable electricity contract aiming to source at least 20 percent of their total power, while more intermediate companies should send a powerful market signal by committing to 100 percent through the RE100 initiative and report progress towards that north star. Meanwhile, corporations should be rewarding suppliers taking this action in their procurement processes, making renewable energy a matter of business competitiveness.”

Other key findings from the report include:

Suppliers reported a combined US$1 trillion of financial impact from environmental risks: $906 billion at risk from climate change, $78 billion for potential water security risks and $16 billion at risk from deforestation
42 large purchasing organizations (or 95 percent of respondents to a survey) say they have or will have integrated environmental metrics, including CDP data, into their supplier relationship management (such as 1 to 1 reviews or balance scorecards). (65 percent currently are, an additional 30 percent plan to within two years)
42 large purchasing organizations (or 95 percent of survey respondents) representing a combined purchasing power of US$1.9 trillion say that suppliers showing environmental leadership make better business partners

This report comes as world leaders gather for the second week of talks in Madrid for the COP25 climate conference. Governments are being called on to prepare to upgrade their national climate pledges in 2020 to achieve the goals of the Paris Agreement, limiting climate change to well below 2 degrees Celsius and aiming for 1.5 degrees.

Reaching global net zero greenhouse gas emissions by mid-century is needed to limit warming to 1.5 degrees, according to the IPCC. Current national pledges, if implemented, put the world on course for over 3 degrees. To fill the gap, climate action by so called ‘non-state actors’ such as companies, investors, cities and regional governments is understood to be essential in the transition to a net zero economy.

The methodology assessed the current percentage of renewable electricity suppliers report procuring, and then extrapolated what the emissions impact would be if those suppliers increased that by 20 percentage points For suppliers reporting 0-80 percent of non-renewable electricity CDP increased the proportion of renewable electricity by 20 percentage points (for example, 0-20 percent, 40-60 percent or 80-100 percent). For those that reported already purchasing over 80 percent renewable electricity CDP capped the extrapolation at 100 percent. CDP then calculated the total emissions that could potentially be saved from the increased uptake of renewables using the International Energy Agency’s 2017 global grid emissions factor.
Estimated based on the procurement spend of those companies who answered the CDP member survey and said they were actively engaging their supply chain on renewables.