As the global economy moves towards implementation of its new climate goals, the world’s largest purchasing organizations are using their buying clout to drive down emissions across their supply chains. The Missing link: Harnessing the power of purchasing for a sustainable future report from CDP, written in partnership with BSR and the Carbon Trust, reveals that reductions equivalent to 434 million tonnes of carbon dioxide – more than France’s total greenhouse gas (GHG) emissions in 2014 – were achieved by suppliers worldwide in 2016.
The reductions were disclosed to CDP, the not-for-profit global environmental data platform, at the request of 89 of the world’s largest purchasing organizations, including BMW, Johnson & Johnson, Microsoft and Walmart. These 89 big buyers wield a combined purchasing power of US$2.7 trillion.
The Paris Agreement on climate change, now in international law, requires global GHG emissions to be reduced to net zero well before the end of the century. With supply chains responsible for on average four times a company’s direct emissions, they are a critical focus area for global corporations seeking to avoid the risks and capitalize on the opportunities presented by the low-carbon transition.
The new report – which includes commentary from McKinsey & Company – also reveals the names of the 29 companies awarded a position on CDP’s first ever supplier engagement leader board. Selected from over 3,300 companies that were assessed, they are recognized as leaders for their work with suppliers to reduce emissions and lower climate-related risks in the supply chain.
They include:
- Braskem S/A: The Brazilian petrochemical company runs targeted workshops with its suppliers, which provide training and technical support on identifying opportunities to reduce emissions and lower costs. Nearly 44% of emissions outside Braskem’s direct control (scope 3) are now reported to the company.
- Hewlett-Packard: The American IT company has helped its suppliers avoid 800,000 tonnes of CO2e emissions and save more than US$65 million through development of energy-saving action plans targeting local efficiency improvements.
- Royal Philips: The Dutch technology company identifies so-called ‘risk suppliers’ that it targets for participation in its numerous supplier sustainability programs. It has also developed a tool to help suppliers with less experience in disclosure to quantify their carbon emissions.
Dexter Galvin, Head of Supply Chain, CDP said: “We congratulate the 29 leading companies that are using their buying clout to drive change across their supply chains. Companies have a critical role to play in delivering on the Paris Agreement, and as well as setting their own house in order, it is essential they turn their attention to the risks and opportunities outsourced to their supply chain.”
“By harnessing their purchasing power, big buyers have the potential to deliver the large-scale, rapid change that is needed and lead the way towards our sustainable future.”
Nicola Kimm, Head of Sustainability, Philips Lighting said: “We are delighted to be recognised as global leaders for our work driving down emissions and improving efficiency in our supply chain. Lower emissions in the supply chain isn’t just about helping the environment, it’s a business imperative which boosts our competitive advantage and builds our resilience for a low carbon future.”
The report, which analyses climate and water-related data disclosed by more than 4,300 companies, also indicates that the sustainability commitments and practices of leading organizations are not being replicated at scale downwards through the supply chain. Despite a 20% increase since 2015 in the number of big buyers requesting climate and water-related data from their suppliers, this is not translating into downstream action, with only 22% of responding companies currently engaging with their own suppliers on carbon emissions and 16% engaging with their suppliers on water use.
Common barriers to engagement include companies’ lack of experience in calculating and managing their own emissions, a perceived lack of leverage over business partners, costs associated with managing an engagement program and an absence of mandatory requirements from customers or regulation.
Where companies are proactively engaging with their suppliers, they face a serious lack of transparency, with nearly half (47%) of suppliers not responding to their customers’ requests for climate and water-related disclosure.
The data also reveal that suppliers are failing to capitalize on the myriad opportunities presented by the low-carbon transition. While they reported a combined US$12.4 billion in savings from emissions reduction projects, fewer than half (47%) have set climate targets and just 34% reported achieving a decrease in emissions in the past year. Only one quarter of respondents are realizing climate opportunities by enabling their own suppliers to reduce emissions, or growing revenue through sales of low-carbon products or services.
Tara Norton, Managing Director, BSR, said: “Large buyers have a tremendous opportunity to catalyze supplier climate action, both through addressing the drivers of inaction and by elevating and rewarding those suppliers that demonstrate leadership. This year’s report provides practical insights on how buyers can partner with suppliers for mutual benefit, including facilitating access to tools and resources that enable emissions reductions, providing incentives for good performance, and supporting suppliers to improve climate risk management, including setting science-based targets.”
The report contains a four-part framework, developed by the Carbon Trust, for companies to catalyze change within their supply chains. The framework sets out the journey to cascading sustainability throughout the supply chain, from understanding the risks and opportunities, to planning and taking action to embed sustainability within procurement processes.
Tom Delay, Chief Executive, Carbon Trust, said: “Supply chain is the next frontier in sustainability. Managing the environmental impact of your own operations is expected behaviour. But the greatest opportunities for reductions are typically outside of direct operational control, in the supply chain. While some are showing what can be done today, the majority do not yet have a clear understanding of how to measure their impact or find the value in working with suppliers. Large public and private sector organizations can deliver change at the scale and speed required to address the challenges of climate change and resource scarcity. We hope that our insight and the examples from the leaders engaged with CDP help to accelerate the shift to a more sustainable, low carbon economy.”