Climate change, deforestation and water insecurity will threaten supply chain revenue worth U.S. $1.6 trillion over the next five years, according to an annual report by CDP. The side effects include changing consumer preferences, loss of access to capital and increased costs, the London-based environmental impact organization found.
Of that $1.6 trillion, an estimated $120 billion will likely be passed along the chain to buyers, as suppliers try to mitigate the costs of physical environmental impacts on their operations, compliance with regulations and market changes.
The report was based on environmental impact data collected from more than 8,000 suppliers through CDP’s online disclosure platform. These suppliers service 154 major buyers participating in the CDP Supply Chain Program, which include companies such as Microsoft, Coca Cola Corp. and Lego. Together, they have combined annual procurement spending of $4.3 trillion.
The report also found that emissions from a company’s supply chain, known as scope 3 emissions, are on average 11.4 times higher than operational emissions, roughly double previous estimates, due to more comprehensive emissions accounting.
As companies look to decarbonize and improve their environment, social and governance ratings, they may increasingly look to their suppliers to reduce their carbon footprint. One of the fastest and simplest ways to decarbonize is to procure renewable electricity, and to encourage suppliers to do the same, Sonya Bhonsle, CDP’s global head of value chains, told Lubes’n’Greases.
“Last year’s supply chain report found that scaling up renewable energy in the supply chains of major companies could save a gigaton of carbon emissions,” Bhonsle said.
CDP, formerly known as the Carbon Disclosure Project, provides a framework for businesses, organizations and governments that want to disclose their environmental impact.
“Financial risks have a domino effect throughout the chain, and corporate buyers will pay the price. Most supply chains run on very tight margins with suppliers often passing cost increases on to their customers,” said the report.
CDP cautions that companies that do not manage their supply chains’ environmental impact risks will also experience greater reputational and regulatory risks than those that do.
“Managing the direct environmental impact of your operations is no longer enough. Businesses must put the spotlight on – and engage – their supply chains,” the report said.
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