Despite improving their own carbon performance, multinational companies are not yet demonstrating significant emissions reductions in their supply chains, according to research published by the Carbon Disclosure Project (CDP) and Accenture. The report on CDP member companies, including L'Oréal, Philips and Walmart, and more than 1,800 of their suppliers revealed that while 43 percent of responding companies have achieved year-on-year emissions reductions, only 28 percent of suppliers have done so.

The information is contained in A new era: supplier management in the low-carbon economy, the CDP's fourth annual global study of the preparedness of company supply chains for climate change impacts.  The gulf between company emissions and those of their suppliers exists despite the fact that 39 percent of responding companies have realized monetary savings from their own emissions reductions activities and over a third (34.5 percent) of responding companies have benefited from new revenue streams or financial savings as a result of their suppliers' carbon reduction activities.

Extreme weather events disrupted 30 percent of responding companies' supply chains in the past year alone and more than half (53 percent) of the suppliers identify certain or likely exposure to increased operational costs as a direct result of climate change, compounding the need for greater action to reduce Scope 3 emissions - those emissions that occur beyond direct operations and account for as much as 86 percent of a company's carbon footprint.

The report does reveal, however, that leading businesses are changing their operating models.  It shows a marked rise in the proportion of responding companies with climate change strategies that incorporate procurement guidelines (90 percent, up from 74 percent in 2009 and 79 percent in 2010) and that 67 percent of responding companies include carbon management in procurement policy.

The proportion of responding companies that claim they will deselect suppliers who fail to meet formal environmental criteria within five years has more than doubled from 17 percent in 2009 to 39 percent in 2011 and two thirds (63 percent) of responding companies are also investing in training their procurement staff in supply chain carbon management, a dramatic rise from 26 percent in 2009 and 41 percent in 2010.

"Companies are evolving the way they operate to better capitalize on the opportunities presented by carbon efficient supply chains," says Frances Way, program director for CDP. "Such a large shift in companies' procurement models is encouraging but since these trends are only now emerging, we are yet to see a transformational impact on suppliers’ emissions."

The proportion of responding companies that use incentives, such as positive external communications or preferential treatment, to reward suppliers with good carbon management has increased more than threefold within a three-year time frame.  Sixty-two percent of responding companies now also report an incentives policy for those suppliers with effective emissions reduction strategies, a figure which stood at just 19 percent in 2009 and 28 percent in 2010.

Additionally, 50 percent of responding companies have, or are developing, contractual obligations for suppliers to include information on their greenhouse gas emissions management in response to requests for proposals.

This is the first year that CDP has scored suppliers on their carbon performance as well as disclosure.  The scores, awarded by FirstCarbon Solutions, reflect the transparency of suppliers' climate change strategies and their action to reduce carbon emissions.  The results suggest that North American suppliers are likely to be superseded in capitalizing on the opportunities of climate change.  Asian and European suppliers received an average score of 52 and 53 for disclosure but North American suppliers scored just 45 of a possible 100.  The pattern is reflected in performance scores where, on average, North American suppliers were placed in the D band while Asian and European suppliers achieved C bands.

Despite effective carbon management creating the opportunity for operational cost reductions, less than a quarter (24 percent) of responding companies help their suppliers to quantify the return on their low-carbon investments.  This is identified in the report as a critical way to help companies improve emissions reductions across their supply chains.  The other focus areas are improving supplier evaluation, more effective communications with suppliers and more stringent procurement criteria.

"Those companies that use this information to create sustainable, profitable growth through climate resilient and emissions efficient supply chains will be better positioned in the long term, as companies increasingly make carbon emission reductions not only the price  of market entry, but a point of competitive differentiation," says Gary Hanifan, global sustainability lead for supply chain, Accenture. "As companies examine and modify their supply chains to make them more flexible and able to withstand change and the ripple effects of natural disasters, they need to also consider how their supply chains will stand up under environmental scrutiny."

Source: Carbon Disclosure Project, Accenture