Biggest firms acknowledge climate change risk but suppliers unwilling to respond

Posted on 22 Jan 2013

New research says that 70% of surveyed companies, including Walmart, EADS, Ford, Jaguar Land Rover and Nestle, believe that climate change is affecting their revenue but suppliers to these big firms are not setting emissions reductions targets.

Walmart, EADS, Ford, Jaguar Land Rover, L’Oreal, Nestle, Unilever, Phillips, Coca-Cola, Pepsi, Colgate Palmolive and Vodafone are among 52 multinationals who have placed a strong value on the business risks of climate change.

Risks to business from rising temperatures and freak weather is intensified by “a chasm between the sustainable business practices of multinational corporations and their suppliers”, according to a report published today by the Carbon Disclosure Project and Accenture.

While the biggest firms acknowledged the risks of climate change and have taken  action to reduce emissions, suppliers were far less prepared than their clients to respond to climate change, potentially threatening customer relationships and increasing supply chain vulnerability, the survey found.

The research, ‘Reducing risk and driving business value’ surveyed 2,415 companies, including 2,363 suppliers and 52 multinationals who are CDP Supply Chain programme members with a combined spending power of about $1 trillion.

The report is  the Carbon Disclosure Project’s most comprehensive annual update on the impact of climate change on corporate supply chains.

Fifty-one percent of the risks that surveyed companies associate with drought or extreme rain are already having an adverse effect on company operations, or are expected to within five years.

Destruction caused by extreme weather is a likely 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 678 companies investing in emissions reduction initiatives, 73% say they feel that climate change presents a physical risk to their operations; just 13% identify regulation as a sole driver.

Most of the positive actions companies have taken in response to climate change are indicate that customer pressure is driving change.

But 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 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%).

CDP members – who tend to be big companies – 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% vs 29%) and are better positioned to capitalize on the financial benefits of carbon management.

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.”