1 March 2021
CDP Estimates Environmental Supply Chain Risks to Cost Companies USD 120 Billion by 2026
Photo by Markus Spiske on Unsplash
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The report finds that supply chain GHG emissions are 11.4 times as high on average as operational emissions.

In 2020, suppliers cut 619 million metric tons of CO2e of GHG emissions, saving USD 33.7 billion.

Yet since only 37% of suppliers are engaging their own suppliers to cut emissions, “climate action is not yet cascading”.

CDP’s annual global supply chain report 2020 finds that environmental risks to companies’ supply chains will cost up to USD 120 billion within the next five years. According to the publication, supply chain engagement is critical for companies to stay competitive and resilient a rapidly changing market and to build back greener from COVID-19.

Titled, ‘Transparency to Transformation: A Chain Reaction,’ the report analyzes data from 2020 CDP disclosures to corporate customers of over 8,000 supplier companies. It finds that the highest potential cost increases will occur in the manufacturing sector (USD 64 billion), followed by food, beverage, and agriculture (USD 17 billion), and power (USD 11 billion). As supply chain companies typically operate under tight profit margins it is presumed that these increased costs will be passed on to buyers and, ultimately, to consumers. Reported cost increases stem from climate change, water-related impacts, and deforestation, and are associated with physical impacts (such as increased frequency of severe weather), regulatory and market changes to address environmental risks, and increased costs of raw materials. Additionally, the report finds that supply chain greenhouse gas (GHG) emissions are on average 11.4 times higher than operational emissions, twice as high as previous estimates.

In order to address these risks, over 150 major buyers representing over USD 4.3 trillion in purchasing spend, including Google, L’Oréal, Walmart, Braskem, and Toyota, are requesting that their key suppliers annually disclose their environmental data through CDP. Buyers use this data in procurement decisions and supplier engagement. In 2020, despite COVID-19-related disruptions, the number of supplier companies disclosing their data increased by 16%, from 7,000 to 8,000. Suppliers also undertook activities that reduced emissions by 619 million metric tons of CO2e, which saved USD 33.7 billion. The number of buyers requesting disclosure through CDP increased by 24%, driven in part by the fact that large companies have increasingly set science-based targets. Still, since only 37% of suppliers are engaging their own suppliers to cut emissions, “climate action is not yet cascading.”

With USD 120 billion at stake, it is vital that companies address environmental risks through supply chain engagement if they wish to remain competitive and resilient in the changing market, stated Sonya Bhonsle, Global Head of Value Chains at CDP. “Leading companies that address these risks will benefit from lower costs and better reputations” and “become more resilient for the economy of tomorrow.”

CDP is a non-profit that runs a global environmental disclosure system for companies, cities, states, and regions. Holding the world’s largest environmental database, in 2020, CDP received disclosures from over 10,000 organizations, worth 50% of global market capitalization, and over 940 cities, states, and regions representing 2.6 billion people. [Publication: Transparency to Transformation: A Chain Reaction] [CDP Report Landing Page] [CDP Press Release]

By Gabriel Gordon-Harper, Thematic Expert on Climate Change and Sustainable Energy

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