Navigant Research Blog

Weak Supply Chain Commitment Undermines Climate Change Efforts

Marianne Hedin — January 31, 2013

Source: Ludwig von Mises InstituteHurricane Sandy, which brought devastation to New York, New Jersey, and large sections of the East Coast, resulted in significant losses to businesses in the area that are home to 85 Fortune 500 headquarters experiencing power outages for many days, if not weeks.  The total number of business establishments was nearly 750,000.  With more severe storms, flooding, and droughts predicted, companies are taking steps to reduce their own carbon emissions.

According to a recent supply chain study by Accenture in collaboration with the Carbon Disclosure Project (CDP), about 51% of the respondents in the study of 2,415 companies stated that extreme weather is already having an adverse effect on their business or is expected to in the next 5 years.  Nearly three-quarters (73%) of the companies that have implemented carbon emissions programs believe that climate change presents a risk to their operations.  This sense of business risk is a major catalyst for businesses to take action to mitigate their carbon footprint –a much stronger driver for carbon emission reduction than any government policy and regulation.

What’s most disturbing about the findings of this research, which focuses on corporate supply chains, is the significantly lower level of commitment among suppliers to reduce emissions compared to their clients or purchasing companies.  For example, only 38% of the suppliers have adopted carbon emission reduction targets, compared to 92% of their purchasing organizations.  Although 69% of their clients have taken action to reduce their carbon footprint, only 27% of the suppliers  have done so.  Similarly, only 29% of the suppliers versus 63% of their clients have been able to achieve year-over-year carbon reduction results.

This chasm between companies and their suppliers highlights the challenge of being able to manage climate risk in the global supply chain.  Unless businesses can influence their suppliers to follow their example, they will not be able to achieve their overall emission reduction goals.  As Accenture points out in this report, it’s essential for businesses – like Starbucks and DuPont, which have already embarked on programs to reduce carbon emissions across their products’ full lifecycles –  to actively engage suppliers in a discussion about climate change and the potential risks it entails. With increased awareness and understanding of these risks, suppliers are more likely to implement carbon reduction.

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