Linking arms to create sustainable supply chainsLance Pierce
Every year we delay addressing climate change could cost the economy US$150 billion, say the White House. Yet major US-based supply chains trail the rest of the industrialized world in climate-risk management, leaving them exposed to climate shocks. US suppliers are also losing out on generating cost savings from greenhouse gas emissions (GHG) reductions, and many are not reporting their emissions data at all.
High quality data is the lifeblood of successful supply chain management, and emissions data in particular has become an important piece of the puzzle. Line-item GHG accounting, target setting and the management of climate risks in the US and around the world are not new, and in recent years have matured in the business manager’s toolkit. In an increasingly volatile world, these tools help companies build resiliency into their supply chains, taking climate change into account as a matter of course and competitive advantage.
The General Services Administration (GSA) – the US government’s leading procurer of goods and services – is linking arms with CDP, a US 501(c)3 not for profit organization, and over 70 leading global brands with a combined annual spend of over US$1 trillion, to help meet President Obama’s Executive Order to curb federal GHG emissions by 40% over the next decade.
Under the pilot program, the GSA will be inviting 120 of their largest suppliers to account for their environmental risks through CDP. In doing so they are demonstrating their desire to drive efficiencies in our marketplace by encouraging government vendors and contractors to be transparent and disclose their climate impacts and GHG reduction targets – a positive step and a natural progression for better procurement policy.
This is an inspiring model: the federal government working with an international NGO and leading global corporations to drive action in an efficient, cost effective way. From experience, we know disclosure helps unlock innovation, drives opportunity and generates superior returns on investment: S&P 500 leaders providing CDP with climate related data generate a 67% higher return on equity than their industry peers. In 2014, 33% of the 3,400 responding suppliers reported cost savings from emissions reduction activities totalling US$8 billion – the potential for further savings is immense.
President Obama’s newest Executive Order mandating a reduction in federal government and its supply chain’s GHG emissions by 40% by 2025 is achievable if the data is tracked and managed, and we all ensure it becomes indispensable in business and investment decision making.
Major purchasers are already embedding CDP data into a variety of traditional procurement mechanisms – from supplier scorecards to quarterly review meetings – as they seek to benefit from building a climate resilient supply chain. Some companies, like AT&T, have indicated they will no longer procure goods and services from companies who do not meet their requirements:
“We set a goal that by the end of 2015 the majority of our supply chain spend with strategic suppliers would be with those suppliers who tracked their own greenhouse gas emissions and have specific greenhouse gas goals”.
Interestingly, this mirrors what is happening in the financial community as more and more investors support the disclosure of GHG emissions and begin layering in a carbon analysis of their portfolios to mitigate the risk of a carbon constrained world impacting investments. Over 822 investors are now signatories to CDP’s annual climate change questionnaire, up from under 100 when it was first distributed, and products like Goldman Sachs’ GS Sustain, MSCI’s Carbon Portfolio Analytics and Bloomberg’s ESG tools are part of a new, growing market for this kind of information.
As the low-carbon economy continues to take shape, organizations that are already taking action to build climate-resilient supply chains will realize the greatest competitive advantages.
That is CDP’s core focus as we deliver daily on our mission to drive sustainable economies. We believe it is also an inevitable part of ensuring the future competitive advantage of corporate America. We welcome the GSA as a partner and are committed to ensuring our data helps shift capital towards a low carbon economy.