Suppliers are significantly less prepared than their clients to respond to climate change, potentially threatening customer relationships.
NEW YORK—Seventy per cent of companies believe that climate change has the potential to significantly affect their revenue.
This risk which is intensified by a chasm between the sustainable business practices of multinational corporations and their suppliers, according to research published today by the Carbon Disclosure Project (CDP) and Accenture.
The study Reducing risk and driving business value is based on information from 2,415 companies, including 2,363 suppliers and 52 major purchasing organizations who are CDP Supply Chain program members. These members include Dell, L’Oreal and Walmart, and they represent a combined spending power of US$1 trillion.
Climate change presents near-term risks to businesses, according to the report.
Fifty-one per cent of the risks that disclosing companies associate with drought or extreme rain are already having an adverse effect on company operations, or are expected to within five years, say those businesses.
The destructive nature of extreme weather is likely a catalyst for company action on climate change, with physical climate risk identified in the report as a greater driver of investment than climate policy.
Of the 678 companies investing in emissions reduction initiatives, three quarters (73 per cent) say they feel that climate change presents a physical risk to their operations; just 13 per cent identify regulation as a sole driver.
The research found suppliers are significantly less prepared than their clients to respond to climate change, potentially threatening customer relationships and heightening supply chain vulnerability.
Suppliers demonstrate a lower level of ambition to mitigate climate change risk, with just 38 per cent setting emission reductions targets in comparison to 92 per cent of purchasing companies. Similarly, at 27 per cent, the per centage of suppliers investing in activities to reduce emissions is less than half that of CDP member companies (69 per cent).
CDP members are more than twice as likely to accomplish year-on-year emissions reductions (63 per cent vs. 29 per cent), and are better positioned to capitalize on the financial benefits of carbon management. While 73 per cent of members are achieving monetary savings, such as reduced energy costs from emission reductions activities, only 29 per cent of suppliers are enjoying such returns.
The analysis of the information processed through CDP’s unique global system for natural capital disclosure—now the largest and most comprehensive in the world—demonstrates the attractive returns that leading companies are enjoying from addressing supply chain sustainability.
The 29 per cent of suppliers that have reduced their emissions have saved some $13.7bn as a result. This implies aggregate potential savings of all 2,363 suppliers could reach three times that figure if the remaining proportion of suppliers were to achieve reductions at that rate.
The report is freely available from the CDP and Accenture websites and provides advice on how companies can use data, process and governance to create a more sustainable supply chain and capitalize on the correlations between climate risk, performance and accountability.
The Carbon Disclosure Project (CDP) is an international, not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information.