The start of 2016 has been delivering some good news as well as some bad for sustainability practitioners. Much of the good news relates to the adoption of the Paris Agreement in December to limit global temperature rise to 2°C and the ambitious corporate commitments to reducing GHG emissions that accompanied it.
But hold the celebration. The CDP has just released its 2016 Supply Chain Report. It shows that many of those commitments may be in trouble.
For most companies (and certainly for those in the services sectors), the largest source of GHG emissions remains in their supply chains. According to CDP estimates, carbon emissions attributable to supply chains are at least two times (and often much more) an average company’s own operational emissions. There’s no doubt that companies need to have their supply chain partners on board, now. Suppliers must be fully engaged in emission reductions if their B2B customers are to meet their commitments. Suppliers should be measuring, and starting to manage and reduce, their emissions. But the CDP Report casts doubt on whether this is happening.
Seventy-five companies participate in the CDP Supply Chain reporting program. The member companies include some of the biggest brands across multiple sectors (Microsoft, General Motors, Goldman Sachs, Dell, Bank of America, Pepsico, and Wal-Mart, among others). Through those companies, nearly 8,000 suppliers were requested to provide emissions information. Only about half (approximately 4000) of the suppliers even responded to the information request. For those who did respond, the results were somewhat less than encouraging:
- While a majority (72%) of the responding suppliers acknowledge that climate poses risks that could significantly affect their operations;
- A significant percentage (35%) have not assessed that risk or put any management processes in place; and
- Most (66%) of US suppliers have not yet set emissions targets and measured progress.
As the Report notes, this performance is from the suppliers to some of the largest, most sustainability-engaged purchasing organizations in the world. The performance among those suppliers who did not respond is likely to be much worse. Overall, the Report paints a rather dismal picture of what is not occurring among suppliers across the globe. While suppliers appear to understand the risk, they do not appear to know what to do about managing and reducing it.
As the CDP notes, “These trends suggest a significant and potentially growing gap between suppliers’ climate risk perception and reality. Without understanding their risks, supplier climate resilience will be limited, which increases their customers’ own supply chain risks.”
The disconnect between suppliers’ perception of the risk and their ability to address and manage those risks also presents opportunities to educate and engage suppliers to adopt sustainability risk management processes. As supply chain engagement ramps up to meet ambitious Paris Agreement targets, companies that fail to seize those opportunities risk being unable to meet their own emissions reduction goals.