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February 14, 2011
Carbon Disclosure Project Publishes Third Supply Chain Report
    by Robert Kropp

The 57 corporate members of the CDP Supply Chain program received responses on emissions reduction from over 1,000 supply chain companies, a 40% improvement over 2009.


As the CDP Supply Chain program of the Carbon Disclosure Project (CDP) points out, greenhouse gas (GHG) emissions from companies in the supply chains of major corporations often exceed those of the corporations themselves.

According to the recently published Carbon Disclosure Project 2011 Supply Chain Report, "Over 50% of an average corporation's carbon emissions are typically from supply chain." A 2008 analysis published in the McKinsey Quarterly found that as much as 60% of corporate GHG emissions originate in supply chains.

The report, the third since CDP Supply Chain was launched in 2007, details the results of engagement by 57 corporate members of the program with over 1,000 suppliers. In 2009, the program had 44 corporate members.

"In 2010," the report states, "Supplier response to CDP grew by 40%." Furthermore, the report continues, "In the emerging markets…the response rate for the CDP Supply Chain questionnaire was twice as high as for the Investor CDP questionnaire," demonstrating the influence of CDP Supply Chain members.

Twenty-five of the current members are headquartered in the US. Of them, three—Dell, PepsiCo, and Wal-Mart—have been designated as lead members by the program. According to the report, lead members have driven the development of "a roadmap for supplier assessment," which consists of "a common sub-set of questions that will be used to assess a supplier’s performance in carbon and climate change management against three stages" of progress.

Zoe Tcholak-Antitch, Director of the Americas for CDP, told SocialFunds.com, "What we've found this year is that companies that are part of our supply chain management group have been a lot more active in engaging with their suppliers. They've been giving them practical help, providing workshops and seminars for them."

"It's a difficult thing, to fulfill a CDP questionnaire," Tcholak-Antitch continued. "It takes a lot of work, a lot of preparation. Suppliers are now getting more support and becoming more comfortable with the process."

Although the report warns that only one-third of suppliers have emissions reduction targets in place, almost 90% of the corporate members have committed to such targets, an increase from the 82% reported in 2009. Even so, the report observes, the targets currently in place fail to meet the reduction targets established by the Intergovernmental Panel on Climate Change (IPCC).

"Urgent change is therefore required to meet the necessary economy-wide carbon reduction requirements," the report states. However, the report continues, member corporations and their suppliers increasingly consider a climate change strategy to be a strategic opportunity. Reporting of scope 1 (direct) and scope 2 (purchased electricity) emissions have increased from 60% in 2009 to 80%, and 60% of suppliers are now engaged in reducing carbon emissions.

Reporting on scope 3 emissions, which include such indirect sources as supply chains, "Remains a challenge for most companies," according to the report. "However, significantly more members now track and report their own supply chain emissions – this more than doubled in 2010 to 45%."

Tcholak-Antitch said, "Businesses are starting to see a return on their investment from embedding sustainable procurement practices. More than 50% of large businesses and more than 25% of their suppliers are already seeing cost savings as a result of carbon management."

As an example of the cost savings gained by carbon management, the report describes the efforts of PepsiCo, a member since 2007. "PepsiCo's own operations have seen a 16 percent reduction in per-unit energy use in beverage plants since they have begun implementing more than $60 million in energy savings opportunities," according to the report.

The report recommends that corporations use differentiated levers for reducing emissions in their supply chains. The levers described in the report include reductions in external demand for carbon, the integration of sustainability criteria into Requests for Proposal (RFPs), collaboration to improve performance, and the design of products that reduce carbon impacts.

The report also calls for improvements in data accuracy to help suppliers commit to meaningful emissions reduction targets. To this end, CDP has redesigned its own questionnaire for 2011, to reduce "the reporting burden on responding companies."

"CDP expects that the shorter and more specific questionnaire will improve the quality of reported data," the report states.

In 2010, CDP requests for climate change information were sent to more than 4,700 of the world's largest corporations, on behalf of 534 institutional investors with $64 trillion in assets under management. Almost 2,500 organizations responded.

Yet, "It is important that CDP does not just ask for increased disclosure, but also works to drive emissions reductions," and the report includes a supplier roadmap intended to improve performance through three stages in the areas of strategic awareness, carbon reduction ambition, reporting capabilities, and implementation practice.

By the time a supplier reaches the third stage of the roadmap, it will identify long-term risks and opportunities, commit to long-term reduction targets, disclose emissions intensity and whether the figure has been externally verified, and demonstrate emissions reductions on a yearly basis.

"Climate change is not going to wait for a global agreement," Tcholak-Antitch said. "Corporations, and particularly our supply chain members, know that business can't wait and are going ahead. In the future, they will be better positioned competitively as a result."

 

 
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