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Sunday, October 1, 2023

How firms cut supply chain emissions, save money – Report

The number of companies forging ahead with an industry-leading approach to tackling emissions in the supply chain has doubled in a year,according to new research by CDP, the non-profit global environmental disclosure platform, with analysis provided by McKinsey & Company.

Patricia Espinosa, Executive Secretary of the UNFCCC, wrote the foreword in the report

CDP has awarded 58 companies – out of a total of +3,300 – a place on its second annual Supplier Engagement leader board, double the 29 identified in 2017. These leaders – which include Bank of America, BT Group, Nestlé, Panasonic, Rolls Royce, Société Générale, Tokyo Gas Co. and Unilever – are recognised for their work with suppliers to reduce emissions and lower environmental risks in the supply chain.

The leaders are announced as more companies than ever before are looking at water security in their supply chains – leading to a 15% rise in suppliers disclosing water data to their customers through CDP in 2017 – and organisations including Klabin, L’Oréal and McDonald’s are among the first to work with CDP to tackle deforestation in their supply chains.
Examples of leadership among the 58 companies include:

  • Ajinomoto: the Japanese food, chemicals and pharmaceuticals corporation worked with a key supplier to become the only company worldwide to sell drinks in 100% recycled heat-resistant PET bottles, reducing the use of virgin plastics from fossil fuels by around 2,000 tonnes a year.
  • Kellogg Company: the global food company operates its Origins programme across 21 countries, supporting around 294,000 farmers to become more sustainable and build resilience to the impacts of climate change.
  • Sky: in partnership with a key supplier, the European entertainment and telecommunications company is pioneering a circular economy model for its new set-top box, using sustainable product design to create a closed loop system with zero waste to landfill.

Gabrielle Ginér, Head of Sustainable Business Policy at BT Group, said: “We’re proud to be recognised on CDP’s Supplier Engagement leader board for our efforts to engage suppliers on climate change. Reducing our supply chain emissions is an essential component of our ambitious science-based target to help keep global temperature rise below 1.5°C. Working with suppliers through CDP’s supply chain programme is crucial to driving this change.”

Closing the Gap: Scaling up sustainable supply chain practices, CDP’s Global Supply Chain Report 2018, is based on climate, water and deforestation-related data collected from 4,872 supplying companies across global supply chains at the request of 99 of the world’s largest purchasing organisations. Wielding a combined purchasing power in excess of $3 trillion, these organisations include Accenture, BT Group, Cisco, KMPG UK and Philips Lighting.

Last week’s discussions at Davos concerning international trade – which is projected to grow fourfold by 2050, from a baseline year of 2010 – and the World Economic Forum’s recently published Global Risks Report 2018 – which confirmed environmental risks as the most significant facing humanity – has all highlighted the importance of addressing supply chains when tackling environmental challenges. This is especially significant because greenhouse gas emissions located in the supply chain are on average four times higher than those arising from direct operations.

“Delivering on the ambitions of the Paris Agreement will require businesses to play a key role to reduce emissions, manage water resources and limit deforestation within their operations and their supply chains,” commented Patricia Espinosa, Executive Secretary, United Nations Framework Convention on Climate Change, who has written the foreword in the report.

“I am pleased to see that an ever-increasing number of companies reporting to CDP are integrating sustainability-thinking into their business models and applaud the members of the CDP supply chain program for being pioneers in this regard. I encourage businesses to work with suppliers to raise ambition across their supply chain.”

The report – which includes commentary from The Carbon Trust – reveals that this leadership is paying dividends, as awareness of climate change-related risks and opportunities is increasing down the supply chain. Over three quarters (76%) of suppliers responding to CDP have identified some inherent climate change risks to their business and more than half (52%) report that they have integrated climate change into their business strategy.

There is huge potential for positive impact. Reductions equivalent to 551 million metric tonnes of carbon dioxide – more than Brazil’s total emissions in 2016 – were reported by suppliers worldwide in 2017. This is an increase from 434 million metric tonnes reported in 2016. Cost savings amounting to $14 billion were reported in 2017 as a result of emissions reduction activities.

Yet, this impact is only a fraction of what could be achieved if all organisations at each tier of the supply chain were engaged and working to drive down emissions. Currently, less than a quarter (23%) of supplier respondents are in turn engaging with their own suppliers to reduce emissions, suggesting that many may be missing out on business opportunities and financial savings.

Dexter Galvin, Global Director of Corporates and Supply Chains at CDP, said: “Big businesses have for some time understood the importance of managing their Scope 1 and 2 emissions, but Scope 3 emissions, hidden in the value chain – and far greater in volume – are just as vital. While it’s encouraging that awareness of climate-related risk is filtering down the supply chain, it’s crucial that engagement and action follows. As our findings show, this not only makes sound business sense, but can result in considerable cost savings for both purchasing organisations and their suppliers.”

In addition to a global analysis, the report looked more closely into eight major economies to compare how well-prepared suppliers are to mitigate environmental risk. It found that suppliers in some countries are taking a clear lead, while others are lagging behind:

  • France: Reflecting the national momentum signalled at the recent One Planet Summit in Paris, supplying companies in France are the most likely to have climate change integrated into their business (80%), while 74% report board-level responsibility for climate change
  • Japan: Despite the government’s historic focus on energy security over climate change, Japanese companies have the highest rates of disclosure – 87% of suppliers responded to the CDP climate change questionnaire – and are the most likely to set emissions reduction targets (77%).
  • United States: The US administration might be withdrawing from the Paris Agreement, but American corporates are saying ‘We are Still In’ and stepping up on climate: 33% of organisations on the Supplier Engagement leader board are US, making it the best-represented nation, ahead of the UK at 15%.
  • Brazil: Abundant in national resources, but plagued by economic and political instability, Brazil has the lowest level of target setting (just 21% of respondents have set emissions reduction targets and a mere 8% have set renewable energy targets) and only 6% of supplying companies are engaging with their own suppliers on climate change.
  • China: While it has above-average disclosure rates for Scope 1 and 2 emissions – awareness of which will likely be bolstered by the recently announced national emissions trading system – only 15% of Chinese respondents are engaging with their own suppliers on the issue.

Steven Swartz, a partner in the McKinsey & Company Southern California office, said: “We’re seeing investors and businesses placing substantial capital into the low-carbon economy, driven by the expectation of sound long-term economics. This is a major opportunity for businesses to take the lead, and an especially good time for them to have impact as cost of clean technology continues to fall.”

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