Supply Chain
Companies Blind to Climate Risks in Half of Their Supply Chains

The largest ever study of climate data from suppliers and their corporate customers, the CDP’s Global Supply Chain Report 2016, found that less than half of suppliers have set a target to reduce their emissions and only one third have lowered their greenhouse gas (GHG) emissions in the past reporting year. What’s worse though, is that half of the suppliers that were asked for information failed to respond at all.

The CDP reached out to 7,879 key suppliers on behalf of its 75 supply chain member organizations. Despite that these members represent over $2 trillion in procurement spend, only 4,005 suppliers provided information – meaning 49 percent failed to fulfill their customers’ requests. As the CDP noted in the press release, this low response rate creates “a substantial blind-spot for those preparing for a carbon constrained world.”

“Collaboration between companies and their suppliers is crucial when it comes to understanding climate risks and opportunities and is key to building inclusive, resilient, and transparent global supply chains,” Aron Cramer, the president and CEO of BSR, said. BSR wrote the report in partnership with CDP.

Companies are rallying to action following the international agreement at COP21, the United Nations climate conference, but with a lack of cooperation from their suppliers, it will be extremely challenging for them to meet carbon reduction targets. Supply chains are responsible for up to four times the GHGs of a company’s direct operations, representing significant risks and opportunities.

“We believe there is a great opportunity to be captured if the millions of suppliers not yet reporting follow the lead of those who are. Widening the circle of reporters will spread the message further, wider and deeper, with decisive action that aids business, climate, and public health,” Cramer added.

Interestingly, the results from the participating suppliers suggests that there is a high level of awareness of the risks presented by climate change. Nearly three quarters (72 percent) of respondents stated that climate risks could significantly impact their business operations, revenue or expenditure, and 64 percent specifically identified climate regulation as a risk. These results align with those from the World Economic Forum’s newly-released Global Risks Report 2016, which identified “failure of climate change mitigation and adaptation,” as the global risk with the greatest potential impact.

Yet, only 45 percent of suppliers that responded for the CDP report have set emissions reduction targets and only 34 percent have lowered their GHGs in the past reporting year.

“The science and the policy have never been clearer. Greenhouse gas emissions must decrease to net zero as early as possible in the second half of the century. Companies have a vital role to play in implementing the Paris agreement. Those that are unable to do so risk being the losers from this inevitable transition.” Paul Simpson, the CEO of CDP, said.

The report, which includes commentary from McKinsey & Company, provides insight into how new climate policy will impact supply chains, how disclosure leads to emissions reductions, and how companies and suppliers can better collaborate. It suggests that emissions management is increasingly factored into procurement decisions and are changing corporate customers’ relationships with their suppliers. It also demonstrates how the performance of suppliers that disclose to CDP improves over time: about three quarters of the 1,850 participants who have disclosed for three years or more have climate risk management procedures in place and are actively reducing emissions, while only about half of first-time disclosers can claim the same. Financial returns also increase: repeat participants have achieved an average of $1.5 million in annual savings for each carbon-cutting project, while first-time disclosers average annual savings of $900,000 per initiative.

The CDP plans to score companies on the management of carbon and climate change across their supply chains this year, and will publish the results in the 2017 supply chain report. The 75 current supply chain member organizations include Dell Inc., Ford Motor Company, General Motors, L'Oréal, Microsoft, Nestlé, Unilever, the U.S. General Services Administration, and Wal-Mart Stores, Inc..


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