Report: Key Suppliers Ignore Climate Change Risks

Greening the global supply chain would help combat climate change and make companies more viable in a carbon-capped world. That's accepted as true by many in big business – except, oddly, by suppliers of major global companies.

It turns out, out of 634 global suppliers surveyed by the Carbon Disclosure Project (CDP), one-third believe climate dangers pose "no risk" at all to their operations, while just 58 percent see warming as a potential danger to business.

The findings were released this week in a first-of its-kind survey by CDP, Supply Chain Report 2009. The respondents service some of the biggest companies on Earth, including IBM, Johnson & Johnson, Unilever, P&G and Colgate.

Here's why the results are disturbing, via CDP:

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.

In other words, it takes an entire supply chain to green a large company. At the moment, that's clearly not happening.

True, corporate giants are starting to green practices within their own walls. In September, CDP reported that 75 percent of the top 500 global companies are now reporting emission reduction targets. More and more, businesses see the risks and opportunities of climate change and are taking mitigation seriously. In many cases, shareholders demand it.

But the fact, CDP says, is:

"Few large businesses have yet developed an effective way of truly addressing climate change impact within their supply chains."

Indeed, the report, written by PricewaterhouseCoopers LLP, was not just developed to raise supplier awareness of threats but to help companies bring carbon disclosure into their own supply chains. "It is vital that [businesses] lay the groundwork now so they are prepared for future reporting and emissions reduction targets," CDP warned.

It provides them the following guidance:

• Recognize 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 maximize 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

CDP has been in the carbon disclosure business since 2000, pressing companies to reveal potential risks and liabilities they may be exposed to as the planet warms. It represents 475 pension funds, investment managers and other institutional investors. Last year, it collected data from 1,550 corporations that were reporting emissions.

This week's report sounds a warning about the importance of greening the global supply chain. It should be heeded.

Concerns over climate change are triggering shifts in consumer demand and capital markets. And coming government regulations will force major cutbacks in emissions.

Large companies and suppliers that aren't prepared for these changes will suffer a hit to their bottom-lines when – not if – they occur.