Dexter Galvin of CDP says companies like Ajinomoto, Kellogg’s, and BT are trailblazers in engaging their suppliers in the battle against climate change
More and more global brands are taking concrete action to combat CO2 emissions in their supply chains. The number of companies recognised by CDP as demonstrating best practice on green procurement – and awarded a place on our supplier engagement leader board –doubled from 29 last year to 58 this year, according to our annual global supply chain report.
In the report, published earlier this month with analysis by McKinsey, we assessed the supply chains of nearly 100 major global purchasing corporations and found that total emissions reductions from over 4,800 suppliers in 2017 reached 551m metric tonnes of CO2, which is more than Brazil’s total emissions in 2016.
Collectively the suppliers reporting to CDP saved $14bn through carbon emissions reduction activities. Meanwhile, a separate analysis by STOXX found that companies on CDP’s Climate A List have outperformed the market by 6% over four years.
Emissions in supply chains average four times those of a company’s direct operations. There’s a need for greater engagement to help suppliers catch up
The bad news, however, is that there remains a big gap between leading companies and a large sub-section of their suppliers, with emissions in supply chains averaging four times those of a company’s direct operations. There is a need for greater engagement to enable suppliers to catch up.
One trailblazer in the fight to reduce greenhouse gas emissions is Japanese food, chemicals and pharmaceuticals corporation Ajinomoto. The firm worked with a key supplier to become the only company worldwide to sell drinks in 100% recycled heat-resistant PET bottles. This practice drastically reduces the use of virgin plastics from fossil fuels by about 2,000 tonnes a year.
Another corporation receiving a top grade is Kellogg’s Company. The global food company’s Origins programme supports more than 290,000 farmers in 21 countries to become more sustainable and build resilience to the effects of global warming. UK telecommunications firm Sky earns praised for pioneering a circular economy model for its new set-top box.
We carried out analysis of eight major economies (Brazil, China, France, Germany, India, Japan, the UK and US) to assess how well-prepared suppliers are to limit environmental risk.
France leads the pack, with its supplying companies the most likely to have climate change integrated into their business (80%). In total 74% of French firms reported board-level responsibility for climate change.
Japanese companies boasted the highest rates of disclosure, with almost 90% of suppliers responding to the CDP climate change questionnaire. Japanese firms are also the most likely to set emissions reductions targets (77%).
Despite withdrawal from the Paris Agreement, the US is the best-represented nation and well ahead of the UK, in second place with 15%
Despite the US administration withdrawing from the Paris Agreement, US firms are taking a leading role in combating climate change. A third of organisations on the supplier engagement leaderboard are from the US, making it the best-represented nation and well ahead of the UK, which is in second place, with 15%.
Brazil recorded the lowest level of target-setting among the eight countries we assessed. Only 21% of respondents in Brazil have set emissions-reduction targets and just 8% have renewable energy targets in place. Meanwhile, a mere 6% of supplying companies are engaging with their own suppliers on climate change.
China, the world’s largest emitter of greenhouse gases, is another laggard. Only 15% of Chinese respondents are engaging with their own suppliers in emissions disclosure, compared with a 23% global average. Similarly, China recorded the lowest percentage of companies reporting year-on-year emissions decreases.
As pressure on both governments and corporations grows following the Paris Agreement, global brands must now think far beyond their direct operations to consider the carbon emissions of upstream and downstream value chain links. With each passing year, businesses face greater indirect risks, such as regulatory and policy change, as well as further shifts in consumer behaviour to favour sustainable companies.
One way companies can prepare for these changes, and align their strategy with what science says is necessary to hold global temperature rise below 2 degrees Celsius, is by setting a science-based emissions reduction target. BT Group is one company leading the way here, having set a target to reduce its carbon emissions by 87% by 2030. As part of this target, BT aims to reduce emissions in its supply chain by 29% by 2030.
With opportunities and benefits abundant for global brands that get tough on supply chain emissions, green procurement will take an increasingly central role
The tremendous growth over the past year of global brands like BT incorporating industry-leading approaches to their supply chains is encouraging, and is bolstered further by more than 30% of suppliers reporting a significant year-on-year decrease in emissions over the past year.
It is further evidence that environmental issues have reached a tipping point in the private sector. For example, last year more companies than ever examined water security in their supply chains, with a 15% rise in suppliers disclosing water data to their customers through CDP. Meanwhile, in 2017, corporations such as Klabin, Brazil’s biggest paper producer, L’Oréal and McDonald’s became the first to work with CDP to tackle deforestation in their supply chains.
With economic opportunities and benefits abundant for global brands that get tough on supply chain emissions, expect to see green procurement taking an increasingly central role in the operations of corporate giants.
Dexter Galvin is global director, corporate and supply chains at CDP. The report is: Closing the Gap: Scaling up sustainable supply chain practices.