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The findings are a stark warning of the financial impact of environmental risks for both companies and consumers, as firms rally around the need for better management of environmental risks in product supply chains.
According to new research released today by CDP — the global non-profit
behind the world’s leading environmental disclosure platform — companies face up
to US$120 billion in costs from environmental risks in their supply chains by
Transparency to Transformation: A Chain
analyzes data from 8,000+ supplier companies disclosing to their corporate
customers via CDP in 2020. The sectors that report the most potential cost
increase are manufacturing (US$64 billion), food, beverage &
agriculture (US$17 billion), and power generation (US$11 billion).
As most supply chains running on tight profit margins, increased costs are
expected to be passed up the chain in a domino effect from suppliers to their
buyers — and then, onto consumers.
“With US$120 billion at stake, addressing environmental risks through supply
chain engagement is vital for companies to be competitive and resilient in the
changing market,” says Sonya Bhonsle, Global Head of Value Chains at
CDP. “Leading companies that address these risks will benefit from lower costs
and better reputations. This gives them a more competitive edge today and helps
them become more resilient for the economy of tomorrow. Meanwhile, laggard
companies risk being left behind.”
The environmental risks causing cost increases stem from climate change,
deforestation and water-related impacts — including physical impacts
such as increased severity and frequency of cyclones and floods, and increased
cost of raw materials; and regulatory and market changes as the world addresses
environmental crises, such as carbon
and increased spending on product innovation due to changing customer demands.
Corporate buyers could be impacted by this looming cost increase. To address
this risk, buyers are increasingly demanding transparency and action from their
suppliers to tackle environmental impacts in their supply chains. These include
150+ major buyers with over US$4.3 trillion in purchasing spend, such as
Alphabet, Bank of America, Braskem, Coca-Cola, Colgate
Google, LEGO, L’Oréal,
Mastercard, Stanley Black & Decker, Toyota and
Walmart. As CDP supply chain members,
they request thousands of their key suppliers to disclose their environmental
data through CDP each year and use this data in their procurement decisions and
The good news is, despite the disruption of the pandemic, the number of supplier
companies disclosing data to CDP increased 16 percent — from almost 7,000 to
over 8,000 — in 2020; and those suppliers cut emissions by 619 million metric
tons of C02e — equivalent to emissions from 159 coal power plants running for a
year — in the past year, saving US$33.7 billion in the process.
So, with such obvious financial benefits, why isn’t supply chain decarbonization
already being done on a wider scale? As a World Economic Forum
released last month explains, a variety of factors still prevent companies from
effectively reducing emissions in their supply chains — including lack of
transparency about these emissions — and the mechanisms for establishing greater
transparency at the supplier level are still immature; CDP reports only 37
percent of suppliers are engaging their own suppliers to cut emissions.
But the drastic rise in the setting of approved science-based
by large companies requires require them to become aware of and greatly reduce
their supply chain (Scope 3) emissions — making it an imperative to engage and
gain that transparency from their suppliers.
Read more findings from the CDP report here.
Published Feb 9, 2021 7am EST / 4am PST / 12pm GMT / 1pm CET