Procurement organizations need to motivate suppliers to understand the impact they are having on climate change and properly manage climate-related risks, according to a new report from the nonprofits CDP, formerly the Carbon Disclosure Project, and BSR. Companies should be using their “purchasing power” to create a more sustainable supply chain, the report said.
CDP has 75 organizations as members with $2 trillion of procurement spend. These organizations reached out to their suppliers through CDP to see which suppliers gather climate data to assess environmental footprints. About 50% of the suppliers CDP members engaged with did not report this data and about 50% said they implement climate risk management measures. With only half of suppliers reporting climate-related risks, companies are unable to effectively address and manage climate risks in their supply chain, the report said.
“Such limited reporting, management and emissions reductions will not be nearly enough to ensure supplier resilience in the face of climate change,” the CDP report said. “Without supplier action, purchasers cannot effectively mitigate their supply chain risks.”
Suppliers are Aware of the Risks, but Fail to Act
Most suppliers included in the report are aware of the risks associated with climate change, but many still do not have proper risk management procedures in place.
The majority (72%) of suppliers participating in CDP’s supply chain program said they were aware of physical, regulatory and other climate risks and acknowledged the impact these risks can have on the business. Almost 40% of suppliers identified regulatory climate risk specifically as having a high, medium-high or medium impact on the business. These suppliers also said more than 80% of the high-impact risks were likely to occur, according to the report.
Nearly half of the suppliers identified physical risks of climate change like sea levels rising and the occurrence of storms as a significant risk to business. Forty percent of suppliers also pointed to other climate risks like changing consumer behaviors as posing a risk to a company reputation.
Despite the acknowledgement to these risks, the report stated 35% of the suppliers do not have climate risk assessment and management procedures in place. Sky UK Limited, one CDP supply chain program member, said in the report once suppliers begin measuring their climate change risks, they are more likely to begin managing those risks.
Overall, CDP said the report shows suppliers are underprepared to address climate change risks and too few purchasing organizations are engaging with their suppliers on these issues. To create a more resilient supply chain, companies must engage with suppliers.
“We know that supply chain emissions comprise twice the emissions of a company’s own operations on average, which means that direct supply chain engagement is critical for reducing emissions,” the report said. “It is time for more companies to follow suit and use their purchasing power to encourage positive climate action in their supply chain. This will greatly contribute to the global transition to a low-carbon economy.”