When companies look to reduce their environmental impacts, they very quickly realise that there is a limit to what they can achieve by focusing solely on their own operations.
For many businesses, their main impacts on issues such as resource scarcity, water and energy use come either through how their products are used once they have been sold or in their supply chains.
It used to be thought that there was nothing a customer could do about its suppliers’ business practices and impact on the environment, but there is a growing realisation that purchasing organisations have the power to change the way their suppliers behave.
Nowhere is this more evident than in the latest report on supply chains by CDP, the global environmental data platform. The Missing link: Harnessing the power of purchasing for a sustainable future report reveals that suppliers cut greenhouse gas (GHG) emissions by 434m tonnes in 2016, more than the annual emissions of France, saving themselves $12.4bn in the process, double the amount of savings revealed the year before.
The reductions were disclosed at the request of 89 of the world’s largest purchasing organizations, including General Motors, BMW, Johnson & Johnson, Microsoft and Walmart. Between them, these 89 big buyers wield a combined purchasing power of US$2.7 trillion.
“Almost half of the top 100 projects by savings were related to energy efficiency, and with a payback period of three years or less, the majority of projects had an attractive investment profile too,” CDP said, but despite the huge savings made, suppliers are still failing to seize the opportunities on offer. Almost half of those questioned failed to reply to the survey.
Suppliers will face growing pressure to act following the ratification of the Paris Agreement on climate change, not least because supply chains are responsible for, on average, four times a company’s direct emissions. But it is not just regulation that will push companies to act – businesses in years to come will face resource constraints, water scarcity and disruption from extreme weather events as the impacts of climate change become ever clearer. On top of that, consumers are increasingly unwilling to support brands that are not seen to be taking steps to become as sustainable as they can. As a result, companies looking to avoid the risks and capitalize on the opportunities presented by the low-carbon transition will be scrutinising their suppliers and demanding changes to the way they operate.
One example of this is they way that growing numbers of companies are committing to procure all of their electricity from renewable sources either independently or through initiatives such as RE100.
The report also reveals 29 companies, out of a total of 3,300 that were assessed, that have been recognized as leaders in supplier engagement. They include Hewlett Packard, the US IT company, which helped its suppliers avoid 800,000 tonnes of emissions and save more than $65m by developing energy-saving action plans. Brazilian petrochemicals group Braskem runs workshops with its suppliers to identify opportunities to cut emissions and costs, while and Dutch technology group Royal Philips identifies “risk suppliers” that it targets to enrol in its supplier sustainability programmes.
Nicola Kimm, head of sustainability at Philips Lighting said: “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.”
But even though end customers are asking for more information and action from their supply chains, even those suppliers that are taking steps to become more environmentally-friendly are not pressing their own supply chains to cut carbon emissions and water use.
This is due to a lack of experience in managing their own emissions, fears over the amount of resources that will be involved and a feeling that they have no leverage over their business partners (even though they themselves are often acting in response to pressure from their own customers).
They may well be justified in this last factor. “Around half of the 4,300 companies we surveyed didn’t report any emissions reduction activities at all. So think what the impact could be – on costs and carbon levels – if they all took action?” said CDP’s head of supply chain Dexter Galvin. The non-respondents included some of the world’s biggest brands, such as Amazon, Caterpillar and LVMH.
“Supply chain is the next frontier in sustainability. Managing the environmental impact of your own operations is expected behaviour,” said Tom Delay, chief executive of the Carbon Trust. “But the greatest opportunities for reductions are typically outside of direct operational control, in the supply chain.”
Galvin adds: “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.”