Current CDP report provides new information

Companies could face costs of up to US$120 billion within the next five years if they fail to address environmental risks within their supply chains. Addressing scope 3 emissions and engaging with supply chains is key for companies to remain competitive and resilient in the future – this is the key message from CDP’s latest report: Transparency to Transformation: A Chain Reaction.

The report explores environmental risks present in supply chains and what approaches businesses should take to mitigate them. These risks fall under three categories: climate change, deforestation and water-related impacts. Examples include increased cost of raw materials, regulatory and market changes, as well as increased natural disasters. The research is based on data from over 8,000 supplier companies who disclosed through CDP in 2020. These companies responded to requests for transparency from the 154 current members of their CDP Supply Chain program, who currently represent US$4.3 trillion annual procurement spending.

The figures behind supply chain emissions

One major finding in the report is the difference between a company’s own carbon footprint and that of its supply chain. In the 2019 report, it was thought that supply chain emissions are 5.5 times higher than operational emissions. However, the 2020 report shows that, on average, supply chain emissions are actually closer to 11.4 times higher. In some sectors, such as retail and apparel, this increases to 25-28 times higher than operation emissions.

In absolute figures: In 2020, those reporting to CDP cut their emissions by 619 million tons, which is equivalent to the annual emissions of 159 coal plants. However, whilst CDP members were reducing their own emissions, only 37% were engaging with their supply chains to reduce emissions and a mere 7% of reporting companies made it to the Supplier Engagement Rating Leader board.

Whilst the new statistics are worrying in their representation of the true impact of supply chains, they are also promising as they show that more companies are measuring their supply chain emissions.

“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.“

Sonya Bhonsle, Global Head of Value Chains at CDP

Engaging with the supply chain

Whilst public commitments are a critical first step in decarbonization, these statements must be followed up with concrete actions by companies and their value chains. So how should companies engage their suppliers? CDP gives 4 simple steps:

1. Ask questions
Ask your suppliers to assess and report their environmental data. You cannot manage what you haven’t measured.

2. Collaborate with others
Supplier companies are more likely to act if multiple customers are demanding the same thing. Collaborate with peers, investors and stakeholders to influence supplier behavior.

3. Set public targets for the supply chain
Set public targets to give buyers and suppliers clear climate, deforestation and water security goals.

4. A chain reaction
Ask suppliers to engage with their own suppliers so that decarbonization happens throughout the entire value chain.

With US$120 billion at stake, it is vital that companies engage with their supply chains to benefit from lower costs and better reputations. As the carbon footprint of a supply chain is more than ten times the size of that for operational emissions, taking an active approach to reducing and mitigating these emissions will have a real impact on climate change and meeting the goals of the Paris Agreement.

Further information on this topic can be found at:
https://www.cdp.net/en/research/global-reports/transparency-to-transformation

Vincent Erasmy

“At First Climate, we are well-versed in covering the entire value chain. We can support you in measuring, reducing and offsetting your emissions. As a CDP Silver Partner and Science Based Targets Partner, we can guide the way in setting ambitious climate goals, meeting them and disclosing your climate data to CDP. Get in touch to see how we can help you address your Scope 3 emissions.”

Vincent Erasmy, Key Account Manager Green Energy & Climate Neutral at First Climate Markets AG

First Climate is an CDP Accredited Provider 2021:
We are a Silver Renewable Energy Partner as well as a Science Based Targets Partner to CDP offering expert services that meet CDP quality standards.
CDP Partnership renewed and expanded >>