Week of 14 February 2022
Momentum on climate, water and forests must be driven through supply chains
Our key takeaway: How can companies significantly reduce their environmental footprint? Look to supply chains, where most impacts on climate, water and forests occur. Companies should not only set ambitious science-based targets, zero-deforestation targets and water security targets for themselves, but should also engage with suppliers, set high expectations and urge transparency in their supply chains.
CDP’s Supply Chain program (representing more than 200 companies with US$5.5 trillion in annual procurement spend) reports on supplier progress in setting and meeting targets in three core areas tracked by CDP—GHG emissions, deforestation and water:
- Robust environmental action in the supply chain makes a big difference: According to CDP, the average GHG emissions in a company’s supply chain are 11.4 times higher than the company’s own operational emissions. But this doesn’t need to be a glass half-empty: “This chain of environmental risk is not just an opportunity to look beyond companies’ own emissions and cascade their ambition; it is now the only way to leverage change at the scale required.” For this reason, a growing number of companies are beginning to ask suppliers to set their own Scope 3 emissions targets and report on performance. However, these companies are still in the minority. CDP has identified “a pattern of companies assessing their own operations and not looking at wider impacts.” For instance, “only 20% of suppliers reported Scope 3 emissions from purchased goods and services” and “only 13% of suppliers confirmed that they have procedures in place for identifying and assessing water-related risks that fully cover their supply chains.” That said, in terms of deforestation, “78% of suppliers have a traceability system in place for at least one commodity,” including traceability to country level.
- Target-setting needs to happen “at a larger and faster scale than ever before”: Impact measurement is only one piece of the puzzle; suppliers should leverage their data to set ambitious, timebound targets on emissions, water and deforestation. But this process needs to be amplified and accelerated. For example, only around a third of suppliers reported setting timebound climate targets, while less than half of suppliers have set internal climate goals. In terms of water, 72% of suppliers who disclosed on water have set water targets, but only 46% “indicate that these targets are quantifiable and timebound.” The quality of deforestation targets is more difficult to assess, as suppliers demonstrate “fluctuating ambition levels depending on the specific commodity to which their deforestation targets are linked.”
- Company engagement with suppliers is key to driving action: CDP reports that around 90% of CDP Supply Chain program members are “engaging their suppliers on improving environmental performance, with an additional 9% planning to do so soon.” What’s more, CDP finds that engagement is working: suppliers “reported almost 1.8 billion metric tons of GHG emission reductions last year, saving over US$29 billion. This is great progress and also shows that, in most cases, climate action makes business sense.” At the same time, “there is a time lag between companies assessing impact and the action that is driven by doing so,” suggesting that the scale of action needs to be accelerated. CDP found that “it often takes years from initial engagement to setting appropriate targets and taking necessary action” so companies should be engaging earlier, more frequently and with heightened expectations for suppliers.