Poor environmental disclosure to add $120bn to supply chain costs
Businesses could face up to $120bn in additional costs across their supply chains from the impacts of climate and environmental breakdown in the next five years, new research from CDP has warned.
CDP’s Transparency to Transformation: A Chain Reaction report analysed data from more than 8,000 suppliers that are disclosing to end-user corporates via the CDP platform. The latest research warns that a combined $120bn of increased costs could come from supply chains by 2026, due to environmental risks.
Financial risks linked to the climate crisis, deforestation and water scarcity and quality could all be placed onto end-user businesses who fail to get suppliers to disclose environmental data and act on the findings.
CDP’s global head of value chains Sonya Bhonsle said: “With $120bn at stake, addressing environmental risks through supply chain engagement is vital for companies to be competitive and resilient in the changing market. Leading companies that address these risks will benefit from lower costs and better reputations.
“This gives them a more competitive edge today and helps them become more resilient for the economy of tomorrow. Meanwhile, laggard companies risk being left behind. As the climate and ecological crisis worsens and the economy shifts, it’s essential for both business and society that we have a Green Recovery from Covid-19 and build back better. Smart business procurement is key to that transition.”
CDP research shows that, on average, supply chain emissions are up to 11.4 times higher than operational emissions. Therefore, many businesses that have set net-zero or science-based targets are also aiming to reduce supply chain emissions.
Engagement with suppliers has seen those analysed by CDP reduce aggregate emissions by 619 million tonnes, which has saved them $33.7bn in the process.
With corporate buyers set to be impacted by this looming cost increase, many larger businesses are demanding action. More than 150 businesses worth more than $4.3trn in purchasing spend, such as Google, L’Oréal, Walmart, Braskem and Toyota, are working with CDP to request that suppliers disclose environmental data.
In fact, the number of suppliers that are disclosing data increased from almost 7,000 to more than 8,000 last year – a 16% increase. Additionally, the number of corporate purchasers requesting disclosure through CDP grew by 24%, with them requesting data from more than 15,000 suppliers. This is a 19% increase on 2020 levels.
However, only 37% of suppliers are engaging with their suppliers to cut emissions. As such the $120bn remains at risk, with manufacturing ($64bn), food and agriculture ($17bn) and power generation($11bn) the sectors facing the highest costs.
The warning comes just weeks after the World Economic Forum (WEF) urged businesses to do more to tackle their supply chain emissions. In response, the WEF published new guidance on how businesses can consider how they can work with policymakers, regulators and other businesses to scale up emerging technologies and reduce costs. It also encourages businesses to update their forecasted cost-return models in line will falling costs in fields like renewable electricity generation and low-carbon steel.
edie Explains Scope 3 emissions
What are Scope 3 emissions? How are they calculated? How can they be mitigated and reduced? And, what are the business benefits of doing so? This free edie Explains guide gives you everything you need to know.
Simply put, Scope 3 refers to all of the indirect carbon emissions which occur in an organisation’s value chain, which do not relate to the generation of purchased energy. Whilst Scope 1 and 2 carbon emissions tend to sit within the organisation, Scope 3 typically sits outside – both upstream and downstream.
Because Scope 3 carbon emissions are so wide-ranging in what they encompass, and vary so significantly for different types of organisation, they are the most complex part of
an organisation’s emissions.
The guide has been produced with assistance from supporting partners Carbon Intelligence and explains everything you need to know about Scope 3 emissions. It features a case study from Carbon Intelligence on the work they did with Nando's to combine animal welfare with carbon emission reductions.