Businesses see climate change as ‘physical risk’ to operations

Seventy percent of companies believe that climate change has the potential to affect their revenue significantly, according to research published today by the Carbon Disclosure Project (CDP) and Accenture.

The CDP said this risk from climate change is intensified by a “chasm between the sustainable business practices of multinational corporations and their suppliers”.

The research, Reducing risk and driving business value, is based on information from 2,415 companies, including 2,363 suppliers and 52 major purchasing organisations who are CDP Supply Chain program members.

Members include Dell, L’Oreal and Walmart and represent a combined spending power of around $1tn (£631bn).

Climate change presents near-term risks to businesses, according to the report. 51% 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.

Additionally, the destructive nature of extreme weather is a likely 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, 73% say they feel that climate change presents a physical risk to their operations, while just 13% identify regulation as a sole driver.

Responding companies say the most positive actions they have taken in response to climate change are attributable to organisations that have been using CDP’s unique global system for at least two years demonstrating that customer pressure is driving change.

However, the report identifies a performance gap between companies and their suppliers and claims that this is intensifying climate risk in the global supply chain models.

Suppliers are significantly less prepared than their clients in responding 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% setting emission reductions targets in comparison to 92% of purchasing companies.

Similarly, at 27%, the percentage of suppliers investing in activities to reduce emissions is less than half that of CDP member companies (69%).

Unsurprisingly, CDP members are more likely to yield results from their environmentally sustainable business practices than suppliers, according to the survey. They are more than twice as likely to accomplish year-on-year emissions reductions (63% vs 29%) and are better positioned to capitalize on the financial benefits of carbon management.

While 73% of members are achieving monetary savings, such as reduced energy costs from emission reductions activities, only 29% of suppliers are enjoying such returns.

CDP’s chief executive officer Paul Simpson, says: “This research illuminates fragility in the global supply chain model. The marked difference in the sustainable actions of companies and their suppliers highlights a missed opportunity for suppliers to reduce energy costs and risks.

“The 61% of suppliers that failed to provide information through CDP are an even greater concern since they and their clients are unable to make a full assessment of the substantial climate risks or opportunities they face,” he adds.

Leigh Stringer

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