Responsible Investment

(Asset) managers, supply chains & climate risks

January 24, 2013
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The research into supply chains was carried out by CDP and Accenture, a global management consulting, technology services and outsourcing company. They gathered information from 2,415 companies, including 2,363 suppliers and 52 major purchasing organizations who are CDP Supply Chain program members. These members include Dell, L’Oreal and Wal-Mart and represent a combined spending power of around US$1 trillion. The research marks CDP’s most comprehensive annual update on the impact of climate change on corporate supply chains.

Climate change presents near-term risks to businesses, according to the report. Fifty-one percent of the risks that disclosing companies associate with drought or extreme rain are already having an adverse effect on company operations, or are expected to within five years, say those businesses. Additionally, the destructive nature of extreme weather is likely a catalyst for company action on climate change, with physical climate risk identified in the report as a greater driver of investment than climate policy. Of the 678 companies investing in emissions reduction initiatives, three quarters (73%) say they feel that climate change presents a physical risk to their operations; just 13% identify regulation as a sole driver.

Performance gap companies & their suppliers

Most of the positive actions responding companies say they have taken in response to climate change are attributable to organizations that have been using CDP’s unique global system for at least two years demonstrating that customer pressure is driving change. However, the report identifies a performance gap between companies and their suppliers and claims that this is intensifying climate risk in the global supply chain models.

Suppliers are significantly less prepared than their clients in responding to climate change, potentially threatening customer relationships and heightening supply chain vulnerability. Suppliers demonstrate a lower level of ambition to mitigate climate change risk, with just 38% setting emission reductions targets in comparison to 92% of purchasing companies. Similarly, at 27%, the percentage of suppliers investing in activities to reduce emissions is less than half that of CDP member companies (69%).

Paul Simpson, CDP’s chief executive officer says: “This research illuminates fragility in the global supply chain model. The marked difference in the sustainable actions of companies and their suppliers highlights a missed opportunity for suppliers to reduce energy costs and risks. The 61% of suppliers that failed to provide information through CDP are an even greater concern since they and their clients are unable to make a full assessment of the substantial climate risks or opportunities they face.”

Financial benefits of carbon management

Not surprisingly, the CDP members who use the environmental information system are more likely to yield results from their environmentally sustainable business practices than suppliers, according to the survey. They are more than twice as likely to accomplish year-on-year emissions reductions (63% versus 29%) and are better positioned to capitalize on the financial benefits of carbon management. While 73% of members are achieving monetary savings, such as reduced energy costs from emission reductions activities, only 29% of suppliers are enjoying such returns.

The analysis of the information, processed through CDP’s global system for natural capital disclosure, demonstrates the attractive returns that leading companies are enjoying from addressing supply chain sustainability. The 29% of suppliers that have reduced their emissions have saved some $13.7bn as a result. CDP and Accenture expect aggregate potential savings of all 2,363 suppliers could reach three times that figure if the remaining proportion of suppliers were to achieve reductions at that rate.

References

The interview was recorded during ESG Europe 2012 conference, held in Amsterdam, October 2012, organized by the Responsible Investor.

This article may be reproduced according to our terms of use with attribution (and link, if online) to www.tias.edu. To be cited as: “(Asset) managers, CDP data & climate risks”, Paul Simpson, www.tias.edu, January 24, 2013.

Read more

CDP Supply Chain Report
Accenture
Carbon Disclosure Project

Author(s)

Paul Simpson
Paul Simpson is chief executive officer of the Carbon Disclosure Project.

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