Supplier Awareness Of Climate Change Threats Needs Improvement, Supply Chain Report Reveals

Of 634 suppliers surveyed globally by the Carbon Disclosure Project (CDP), only 58% considered that climate change posed a risk to their operations, while one third said it posed no risk, showing there is still a lack of understanding from suppliers of the business threats from climate change.

Cadbury, Colgate-Palmolive, Johnson & Johnson, Juniper Networks, P&G, Unilever and Vodafone are amongst the 34 member companies (listed below) using the CDP system to request major suppliers report on their carbon footprint and climate change strategies in order to maintain a resilient and sustainable supply chain. The findings from the 2008 CDP Supply Chain Report, written by PricewaterhouseCoopers LLP, were released March 5 in New York.

Between 40-60% of organisations' total greenhouse gas emissions are recognised as residing outside their direct control and are found within the supply chain through activities such as processing, packaging and transportation. It is therefore critical that senior management understand climate change risks within their supply chain and how suppliers are managing those risks.

This CDP process is the first to bring together the huge purchasing power of global corporations to provide a standard reporting model for suppliers to advance carbon disclosure in the supply chain. Suppliers were invited to complete an information request examining their carbon risks and opportunities, emissions, reduction targets and plans, governance and product lifecycles. 634 suppliers responded globally, with the proportion of response rates from invited suppliers highest from North America.

Suppliers to the 34 member companies span multiple sectors and countries. The report indicated that Asian suppliers are using governance and employee incentives to drive positive action in carbon and climate change activity. Of the 77 responding suppliers based in Asia, 66% cite board level responsibility for climate change issues, above the 54% average. In addition 39% of responding Asian companies reported the use of employee incentives, which can be a key lever for change. Internal board level ownership and understanding of climate change risks and opportunities is vital to make real progress. However supplier engagement on climate change in Asia differs significantly by country, with Taiwan and Japan dominating the sample and India, China and Thailand demonstrating much lower response rates.

J.T. Wang, Chairman at Acer, a global IT corporation headquartered in Taiwan commented: "Acer has used CDP Supply Chain to identify suppliers' understanding of energy and climate change, to verify the potential climate risks in the coming carbon-constrained age and see opportunities for innovative carbon management within the supply chain. It was notable that there was a high level of engagement and interest from our Asian based suppliers who were willing to work with Acer towards becoming climate-friendly suppliers."

The respondent suppliers represented a cross section of industries, with the largest single group of respondents (31%) in Industrials. Other industries included Retail (Consumer Staples and Consumer Discretionary), Information Technology, Materials, Telecoms, Utilities, Health Care, Financials and Energy.

Frances Way, Head of Supply Chain at CDP said: "Procurement teams worldwide must take a role in developing more sustainable business practices and embed the issue of climate change into an organisation's core operations. Risks posed to a company's supply chain from the impacts of climate change include extreme weather events, water scarcity, regulation and associated cost volatility. Companies must take steps to mitigate the impact of these risks to their business.

"However, with the current lack of awareness and preparedness on climate change risk there is a clear requirement for greater collaboration with suppliers to create transparency and also encourage a willingness to improve. This can only be done through long term relationships, where ideas are shared and solutions developed in partnership. Collaboration is vital if organisations are to future proof their business."

Alan McGill, partner, PricewaterhouseCoopers LLP sustainability and climate change practice commented: "The report is demonstrating that sustainability governance, planning and reporting is not a 'nice to have' – it can be the difference between whether you win or maintain your business with major corporations.

"Business improvement, cost reduction, long term business risk management and reduction: these are the benefits of applying the same discipline and rigour of traditional business processes and reporting to the supply chain. This CDP report is giving senior management the tools to start the conversation within their own company and with their suppliers."

The report findings confirm that corporations do not see dealing with climate change as a one way street. The aim of member companies through this year's CDP Supply Chain Report was to raise supplier awareness around the importance of tackling the business impact of climate change. Discussion on waste or emissions reduction, product improvement, and risk management means cost and product improvement benefits can be shared by both parties.

David Walker, Director of Environmental Sustainability at PepsiCo commented: "The main accomplishments achieved by participating in CDP were raising supplier awareness and driving the supplier initiatives of establishing long-term goals and strategy setting; suppliers now realise that climate change performance is important to us."

Few large businesses have yet developed an effective way of truly addressing climate change impact within their supply chains, but it is vital that they lay the groundwork now so they are prepared for future reporting and emissions reduction targets. The report provides guidance for companies on managing carbon and climate change in their supply chains, including:

• Recognise that many suppliers are looking at climate change risk for the first time; start by engaging with suppliers to raise their awareness of the issue
• Identify the areas where the greatest difference can be made in carbon reduction, to maximise efficiency
• Clearly communicate what information is required and how it will be used
• Obtain supplier support at board level
• Align carbon, climate change and procurement objectives
• Embed carbon and climate change into overall supply chain management processes, rather than treating it as a bolt-on to traditional procurement processes.

Member Companies

Acer; Boeing; BT Group; Cadbury; Carrefour; CELESC; Colgate-Palmolive; Dell; Exelon; FIJI Water; Heinz; HP; IBM; Imperial Tobacco; Johnson & Johnson; Johnson Controls; Juniper Networks; Kellogg Company; L'Oréal; Merrill Lynch & Co; National Grid; Newmont Mining; PepsiCo; Procter & Gamble; Prudential; Reckitt Benckiser; Royal Mail; SSL International; Tesco; Unilever; Vale; Vodafone.