2Sustain

Last week, the Carbon Disclosure Project (CDP) released a ground-breaking report on global supply chain carbon emissions and climate change risks. I’m using the word “ground-breaking” because this was the first-ever large-scale survey of its kind, and it gives us a baseline data point specific to suppliers and their climate change strategies. While I’ll admit that the results are somewhat disheartening, I can’t help but feel more pragmatic than discouraged. After all, this is information we needed to know. Sure, lots of people in lots of businesses are talking about sustainability these days. But, this report serves to remind us that really, we are only at the very beginning stages. There’s no doubt that we need to transition to a new type of business model, one that incorporates sustainability into everyday supply chain management. However, we’re not there yet; there’s still a lot of work to be done.

Th information in this CDP report can help get us started. For this global supply chain survey, 34 CDP member companies –including industry leaders such as Acer, Heinz, PepsiCo, Cadbury, Colgate-Palmolive, Johnson & Johnson, and P & G –asked their major suppliers to report on their carbon footprint and climate change strategies. 634 suppliers responded, and most (a full 71%) said this was the first time they had accounted for sustainability information in this way.

In particular, suppliers were asked to examine their:

• carbon risk and opportunities

• emissions

• reduction targets and plans

• governance

• product lifecycles

Here’s the disheartening part: Only 58% of suppliers considered climate change a risk to their operations. Even worse, another one-third said it posed no risk, at all. (Apparently, these companies are oblivious to the increasingly frequent research reports that point out in exquisite detail that precisely the opposite is true. For example, see last week’s post about the Ceres report urging action on water risk management.)

Since the majority of a company’s carbon footprint is embedded in its supply chain, it makes sense for corporations to look to their suppliers to understand the full extent of their climate change risks. Of course, this kind of scrutiny will continue to put pressure on suppliers. In my book, that’s a good thing, because it’s critical that all of the sustainability strategies listed above become incorporated into overall supply chain management.

“Procurement teams worldwide must take a role in developing more sustainable business practices and embed the issue of climate change into an organization’s core operations,” says Frances Way, Head of Supply Chain at CDP. “Risks posed to a company’s supply chain from the impacts of climate change include extreme weather events, water scarcity, regulation, and associated cost volatility. Companies must take steps to mitigate the impact of these risks to their business.”

There were some bright spots in the report. For instance, CDP found that Asian suppliers are leading the way with using governance and employee incentives to drive climate change initiatives. 77 of the 634 survey participants are based in Asia, and of these, 66% reported board level responsibility for climate change issues. The overall average for this issue was 54%. Not surprisingly, Taiwan and Japan dominated the sample; India, China and Thailand had much lower response rates.

In addition, I think this survey was something of a wake-up call to the 71% of suppliers who had never before accounted for climate mitigation strategies, and that’s a plus. The report also makes it clear that companies and their suppliers need to work together on sustainability initiatives. Not only is that good for the planet, it also means that costs and product improvement benefits can be shared by both parties.

As David Walker, Director of Environmental Sustainability at PepsiCo concluded, “The main accomplishments achieved by participating in CDP were raising supplier awareness and driving supplier initiatives of establishing long-term goals and strategy setting; suppliers now realize that climate change performance is important to us.”

Of course, that means climate change performance is going to have to be important to suppliers, as well.