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January 29, 2015
Climate Resilient Supply Chains Remain a Work in Progress
    by Robert Kropp

CDP's new report comparing corporate supply chains by countries finds that the response of US suppliers to climate risk exposure is insufficient, while China and India offer the best financial returns from emissions reduction activities in supply chains.


When Scope 3 emissions—those that originate from indirect sources such as the supply chains of corporations—are accounted for, the responsibility for emissions and worsening climate change changes, often to a considerable degree. Environmental rankings that account for Scope 3 emissions, for example, often place some of the world's largest financial firms at or near the bottom, because their lending portfolios include environmentally destructive projects such as the construction of new coal-fired power plants.

Since so many multinational corporations outsource their manufacturing, measuring their greenhouse gas (GHG) emissions on the basis of their own business operations provides an incomplete picture. With the help of the UK-based consulting firm Accenture, CDP offers an interesting take on on supply chain emissions in its most recent report by comparing them by countries. Doing so, the report states, “allows a picture to emerge of the climate resilience of supply chains at the national level – and allows those countries to be compared with each other.”

“The sustainability risk matrix takes climate change mitigation strategies, carbon emissions reporting, target setting, emission reduction initiatives, climate risk procedures, uptake of low-carbon energy, water risk assessment efforts and collaboration into account,” CDP states.

Overall, the findings of the report reveal a mixed response to climate change threat on the part of the companies in corporate supply chains. A total of 3,396 companies on behalf of 66 multinational purchasers submitted data on climate resilience strategies to CDP. The number of supply chain companies taking part in CDP's program has increased by 40% over the last three years.

Yet, while the number of companies reporting has seen a dramatic increase, the quality of what is contained in those reports has not. “Emissions disclosure is down, and collaboration has fallen back compared with last year,” the report states. “Water risk remains a concern – despite its potential for shocks – with 45% of exposed companies not carrying out a water-risk assessment.”

“Despite the increase in the number of companies assessing and reporting on their emissions, the data suggests that suppliers are making either marginal or no improvements in their development of sustainable supply chains capable of weathering climate risks and other natural disasters," Gary Hanifan of Accenture said of the findings.

Of countries facing the highest risk of climate effects, suppliers in three—China, Italy, and the US—are lagging in mitigation efforts as well. On the other hand, along with those from India, Chinese suppliers “demonstrate a high propensity to collaborate with supply chain partners to reduce climate risk,” and “deliver the greatest return on investment in terms of carbon and monetary savings reported.”

The report also draws clear parallels between effective regulation and meaningful mitigation efforts. Suppliers in Japan and several countries in the European Union, where regulation ensures a high level of corporate reporting, are the best equipped to address climate risks, the report states.

The US, of course, presents a different regulatory scenario. The Obama administration has made modest strides in bypassing legislative stonewalling by issuing regulations addressing aspects of air emissions. “Opposition remains strong to cap-and-trade programs at the national level, while there remains considerable mainstream political resistance to any meaningful action on climate change,” according to the report. In the absence of clear policy guidance, climate risk in domestic supply chains is increasing.

 

 
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