Pressure to cut cradle to grave product emissions

A new study commissioned by the Carbon Trust Advisory of senior managers has found that 50% of multinationals look set to select their suppliers based upon carbon performance in the future

According to the research, 29% of suppliers are likely to lose their places on ‘green supply chains’ if they do not have an adequate performance records on carbon. Conversely, the research finds that 58% of multinationals will in the future pay a premium for low carbon suppliers to reduce their overall corporate carbon footprints.

The research found stark differences in the attitudes of UK and US supply chain decision makers towards carbon in the supply chain. In the UK, 56% of multinationals say that in the future they expect to drop suppliers based upon low carbon performance, whilst in the US, just 28% anticipated suppliers would be deselected on that basis.

The report suggests the heightened scrutiny on supplier performance is anticipated to come from increased external pressure from shareholders. In the UK, where carbon disclosure is more commonplace than in the US, shareholder pressure to cut carbon was identified by just 4% of respondents as a key driver. But in the future, 74% of UK respondents said shareholder pressure would be a key driver for them in tackling carbon emissions. In the US, currently 24% of multinationals cite shareholder pressure as a key driver in taking action on carbon – and this was only predicted to rise to 32% in the future.

The emissions generated by suppliers and customers in the development and use of products and services are recognised as one of the most significant contributors to company carbon footprints. And the research shows that supply chain carbon is the next key area to be tackled to enhance efficiency and reputation, and meet compliance:

93% of multinationals are addressing their own (direct) carbon emissions now;

40% are already addressing the (indirect) carbon emissions of their supply chain now;

42% of companies not addressing supply chain emissions, will do so within the next 12 months; and

A further 42% of companies not addressing their supply chain emissions, will do so within the next two - three years.

Hugh Jones, Managing Director, Carbon Trust Advisory, said: “Currently responsibility for carbon stewardship falls to CEOs and the board; so far they have catalysed many significant carbon reduction projects, especially internally, in order to exploit reputational and efficiency gains.

But going forward, as carbon becomes more widely understood as a commodity, there will be increasing pressure from external sources, particularly shareholders, to make companies address the carbon intensive area of supply chain emissions.”

Fortunately for suppliers, of those organisations tackling their indirect emissions, 43% currently provide training and education to help their suppliers improve efficiency. However, this type of support is expected to rise by only 18% in the future. This indicates that suppliers are more likely to be expected to drive their carbon stewardship independently to retain their place on supply chains in the future.

The research also shows the potential rewards for suppliers that can ensure their place on ‘green’ supply chains by meeting the criterion of carbon efficiency held by multinationals. Of those addressing supply chain emissions:

66% are willing to pay a premium of around 10% to purchase a product or service with low emissions

65% sell products and services that reduce the carbon footprint of their customers

71% procure key products from suppliers with lower carbon footprints

Pankaj Bhatia, GHG Protocol Director, the World Resources Institute (WRI), said: “By taking a systematic, long-term supply chain approach to managing emissions, companies can stimulate new business opportunities and strategic partnerships. For many companies, a majority of their emissions and cost reduction opportunities lie outside their operations. The companies that have a full understanding of their emissions, including from their suppliers and customers, will be better able to manage their emissions and be more efficient and competitive”.

In October, the GHG Protocol, a coalition led by the WRI and the World Business Council for Sustainable Development, will unveil the Corporate Value Chain (scope 3) Standard and the Product Lifecycle Standard, which will provide internationally agreed-upon approaches for companies to consistently measure and report their supply chain emissions and the lifecycle emissions of their products.

Despite the movement by multinationals to address supply chain efficiency through a ‘carbon lens’, the respondents highlighted a number of challenges to reducing carbon in the supply chain, including:

difficulty in demonstrating the financial business case (34%)

sustainability considerations being trumped by cost considerations (32%)

difficulty in getting suppliers to act (29%)

Hugh Jones, Managing Director, Carbon Trust Advisory, added: “The rewards are there for businesses to tackle emissions in the supply chain; in the form of new revenue streams, reduced risks, emissions and costs. But the going isn’t easy and requires significant commitment. Importantly, of those that have begun tackling this area - only 43% have a defined strategy; and just 60% have set targets to do so. These two steps are critical for organisations to plan and capitalise on green growth opportunities over the next 12 months.”

For more information, please see
www.carbontrust.com