The latest insights from the We Mean Business coalition

The data showing supplier engagement is driving climate action

Climate change is no longer a distant threat – in what is the hottest year on record, it is an everyday reality and one that every person, business and ecosystem is vulnerable to. From harvest failures to disruptions in logistics, the impacts of climate-related disasters such as severe flooding and extreme heat also mean greater costs for businesses and consumers in a globalized economy. 

It is increasingly urgent for companies to take effective action to decarbonize and build resilience in their supply chains. With corporate supply chain emissions on average 26 times greater than operational emissions, tackling scope 3 is critical for the growing number of companies that are working towards ambitious emissions reduction targets and net zero goals. 

The good news is that companies already engaged in initiatives to cut supply chain emissions are beginning to reap the benefits. A recent report from We Mean Business Coalition founding partner, CDP, revealed a strong business case for addressing climate-related risks in the value chain, based on data from over 23,000 companies that disclosed through CDP in 2023. These could represent up to US$162 billion in potential financial costs – 2.9 times greater than the cost of mitigating these risks. 

Meanwhile, insights from the CDP Supply Chain Membership reveal which buyer practices most closely correlate with supplier action on climate.

Making inroads with supplier engagement

Tackling emissions in the supply chain is not without its challenges. Supply chains are complex and can spread far from an organization’s direct control. Common issues include limited visibility of supply chain emissions, and a perceived lack of influence over emissions reduction measures. 

Last year, over 9,500 disclosers (41% of all responding companies) reported engaging their suppliers on climate-related issues, up slightly from last year’s 39%. This demonstrates more companies are opting to work closely with their suppliers to tackle scope 3 emissions, with some of the world’s biggest businesses developing large-scale supplier outreach, capacity-building and incentive programs to help meet their goals. 

For example, telecommunications company BT Group is engaging directly with its Tier 1 suppliers on their carbon emissions and has baked strict rules into contracts for its biggest suppliers: for new contracts over £25 million, suppliers must commit to a net zero science-based emission target and report on their progress. 

Meanwhile, over 330 companies are working with CDP to request data from their suppliers. While businesses can start engaging suppliers without exhaustive amounts of data, high quality data is an important tool for helping spot risks and opportunities in the supply chain. Moreover, there’s a strong link between disclosure and climate action, and data can have multiple uses including supporting access to capital, business competitiveness and compliance. 

Companies are using the data they gather to formulate ambitious targets to reduce scope 3 emissions, with the businesses that request supplier data through CDP 6.6 times more likely to have scope 3 targets with a 1.5°C-aligned transition plan.

From data to action

Furthermore, increasing numbers of companies are going beyond asking for data, and requesting their suppliers to make credible climate commitments themselves. Through the Science Based Targets initiative, companies are setting public targets for the proportion of their suppliers that must set science-based targets themselves within a five year timeframe. 

One example is pharmaceutical company AstraZeneca, which has committed that 95% of its suppliers by spend covering purchased goods and services and capital goods, and 50% of its suppliers by spend covering upstream transportation and distribution and business travel, will have science-based targets by financial year 2025. 

A new approach called Supplier Cascade is supporting companies to focus on the area of the supply chain where they have the most influence, by asking tier 1 suppliers to set a science-based target and ask the same of their own closest suppliers, thereby creating a domino effect of action through supply chains.

Support and incentives

But the buyer’s job does not end there. Many suppliers lack the resources, capabilities and knowledge required to meet the demands being made of them. Buyers can support them with capacity-building and education tactics such as Q&A sessions and forums, tools such as emissions calculators, and training on the basics of greenhouse gas accounting and science-based target setting. 

According to CDP, these kinds of efforts by corporate buyers are making a difference: suppliers who received training and support were 1.7 times more likely to complete climate-related risk assessments compared to those who did not. And suppliers who received buyer support on science-based target setting were 2.6 times more likely to set a target than those without such support. 

Companies are also using financial incentives, such as improved payment terms, longer term investments and performance-related pay. Telecoms company Vodafone has partnered with Citibank to offer preferential financing rates to suppliers performing highly on sustainability. And when used in addition to training, financial incentives can significantly boost the impact of that training: suppliers reporting to CDP were 52% more likely to reduce their annual emissions when their buyers offered financial incentives compared to when only training was provided.

Seeing the returns

While there is work to do, companies investing time, effort and resources in working with their suppliers on decarbonization is paying off. Companies can get started on supplier engagement today by consulting the wealth of tactics and guidance available, and by joining initiatives like CDP’s Supply Chain programme to build capacity and expertise, reduce costs, improve business performance, and reduce emissions.