Lack of preparation has left supply chains in Brazil, China, India and the United States more vulnerable to climate risks than those in Europe and Japan. However, suppliers in China and India deliver the greatest financial return on investment to reduce their greenhouse gas emissions and demonstrate the strongest appetite for collaboration across the value chain. This according to research released Tuesday by CDP and Accenture.
CDP supply chain report 2014–15 is the most comprehensive overview of the climate risks and opportunities that exist for supply chains globally. The new research, which also incorporates information from the United Nations’ World Risk Report, is based on data collected from 3,396 companies on behalf of 66 multinational member companies that work with CDP to better understand and manage the environmental impacts of their supply chains; they account for $1.3 trillion in procurement spend and include organizations such as Cisco, Philips, L'Oréal, Unilever and 62 others taking action to mitigate climate change.
Climate and water data disclosed by suppliers to CDP were scored and evaluated to create a sustainability risk/response matrix (above). This offers a visual comparison of how well-prepared suppliers across 11 major economies are to mitigate and manage environmental risk.
"While climate and water risks are apparent, the implications for businesses and economies reliant on complex supply chain models are less understood," says CDP CEO Paul Simpson. "That multinationals are engaging with thousands of suppliers to better manage environmental challenges and opportunities is encouraging. These companies are catalyzing progress in response to global problems."
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"It is particularly exciting to see such a strong appetite for collaboration and superior financial returns on initiatives to reduce emissions from Chinese and Indian suppliers,” Simpson added. “This should attract investment, which in turn will drive greater action within these high emitting markets."
"What is concerning is that, despite the increase in the number of companies assessing and reporting on their emissions, the data suggests that suppliers are making either marginal or no improvements in their development of sustainable supply chains capable of weathering climate risks and other natural disasters," says Gary Hanifan, managing director of Accenture Strategy. "The good news is that as companies transform their supply chains into digital supply networks they will gain greater end-to-end visibility, traceability and access to information to report on their compliance progress and mitigate climate risks."
The sustainability risk matrix takes climate change mitigation strategies, carbon emissions reporting, target setting, emission reduction initiatives, climate risk procedures, uptake of low-carbon energy, water risk assessment efforts and collaboration into account. It reveals that:
Suppliers in France, the UK, Spain and Germany — in that order — are identified as the most sustainable. These countries have taken extensive measures despite comparatively low levels of exposure to climate risk. However, the report notes a year-on-year decline in the percentage of German suppliers implementing a number of key environmental performance indicators, such as having a climate risk management processes in place, which has dropped from 82 to 72 percent.
Japan is the only country with suppliers that are well-equipped to respond to high climate risks. It has some of the highest levels of emissions reporting, target setting and climate risk awareness.
Suppliers in China, Italy and the US are found to be vulnerable. An imbalance between high exposure to climate risk and the steps that suppliers have taken in response leaves room for improvement in these geographies.
Even so, the United States has been identified by CDP as a polarized market, given that the majority of companies highlighted in CDP's Supplier Climate Performance Leadership Index — suppliers identified as taking the most positive actions to address climate change — are headquartered in America, and the climate-mitigation efforts of dozens of US cities were highlighted in CDP’s 2014 Global Cities report.
Brazil, Canada and India must do more as suppliers there who participated in the research report fewer emissions-reduction initiatives than the global average.
A collaborative approach and profitable emissions-reductions initiatives give China and India a competitive edge. Suppliers in China and India offer the best ROI in terms of emissions reductions and monetary savings. Further, suppliers in both markets demonstrate the highest propensity to collaborate with partners across the value chain in order to reduce climate risk.
The global picture, which is presented alongside the country-by-country analysis, establishes some encouraging signs of global progress. More organizations than ever are assessing and reporting to CDP on their environmental impacts. The 3,396 companies that took part in the program this year represent a substantial increase of more than 40 percent in the past three years.
The research also notes that the quantity and percentage of suppliers setting emissions targets, which is a crucial component of climate risk management, shows a steady upward trend: nearly half (48 percent) of suppliers set targets last year, compared to 44 percent in 2013 and 39 percent in 2012. There has also been an increase in the number of suppliers achieving emissions reductions since 2012, with the percentage rising from 34 percent to 40 percent in 2014. As suppliers become more advanced at carbon management, the number of companies realizing monetary savings from their actions to reduce emissions mirrors the rising trajectory, jumping from 29 percent in 2012 to 33 percent in 2014.