CDP Report Addresses Sustainable Supply Chain Transformation
In an era of increasing environmental scrutiny and regulatory pressure, managing supply chain emissions has become a critical priority for businesses across all sectors.
A new report from CDP, entitled 'Strengthening the Chain: Industry Insights to Accelerate Sustainable Supply Chain Transformation', underscores the urgent need for companies to address Scope 3 emissions – those generated upstream and downstream in their supply chains.
The Scope 3 opportunity
Corporate supply chain emissions (Scope 3) are, on average, 26 times greater than operational emissions (Scopes 1 and 2).
This disparity highlights a significant opportunity for companies to reduce their environmental impact and bolster long-term resilience by focusing on their supply chains.
CDP's report, funded by HSBC, draws on insights from more than 340 corporate buyers working with their suppliers through CDP’s Supply Chain Programme to identify practices driving climate action.
It demonstrates that the business case for addressing climate risks in supply chains is compelling, to say the least. Companies estimate the potential financial losses from supply chain climate risks to be approximately US$162bn – almost three times the US$56 billion it would cost to mitigate them.
Despite this clear financial rationale, only 25% of companies consider these risks in their risk management processes, suggesting that the true costs are likely much higher.
Driving supplier engagement
CDP's report highlights the critical role of collaboration between buyers and suppliers in reducing emissions.
Suppliers were 52% more likely to cut their emissions when their buyers provided financial incentives, compared to those who only received training.
However, there remains a significant gap in procurement processes. Only 13% of businesses include climate-related requirements in supplier contracts and less than 6% require suppliers to disclose climate data.
By setting clear climate-related expectations, companies can bridge the current gap in data disclosure and better manage supply chain risks.
It represents a crucial step towards building more resilient and sustainable supply chains.
Telstra's strategic approach
Australian telecommunications giant Telstra provides a compelling example of successful supplier engagement.
The company has implemented a strategic approach that includes setting ambitious benchmarks for suppliers and gradually increasing expectations to help them transition to higher standards.
Explains its collaborative approach, the firm says: "One of the best outcomes of this engagement has been opening the dialogue with suppliers. It has turned more into a collaboration piece where we can work together to reduce our emissions."
Telstra's strategy involves modelling supplier selection on industry peers and prioritising suppliers based on procurement spend and emissions. By setting high targets and engaging more suppliers each year, the company ensures continuous improvement and progress.
A path forward
As regulatory pressures mount and the financial implications of climate risk become increasingly clear, addressing Scope 3 emissions is no longer optional for businesses.
The CDP's report serves as a wake-up call for supply chain professionals to take urgent action.
By adopting a collaborative approach with suppliers, offering financial incentives and embedding sustainability into procurement processes, companies can make meaningful progress towards net-zero targets and mitigate the growing risks posed by climate change.
The time to act is now – and the benefits are clear.
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