Carbon management set to be key link in corporate supply chain

Source: Carbon Disclosure Project

Suppliers are now expected by some of their global customers to demonstrate greenhouse gas emissions management, awareness and action, in order to maintain business relationships, a Carbon Disclosure Project (CDP) report shows.

The second annual CDP Supply Chain Report, produced by A.T. Kearney, summarizes climate change information* from 710 suppliers. Members, who include global customers, such as Dell, Juniper Networks, National Grid, PepsiCo and Reckitt Benckiser are requesting their suppliers to disclose data via the CDP Supply Chain program. Although this report shows significant improvement in best practices over last year's results, suppliers still have a long way to go.

The 44 CDP Supply Chain member companies (see below) are leading in carbon management within their own businesses and expecting their suppliers to demonstrate strong carbon management strategies too:

* 89% of CDP Supply Chain members have an established strategy to engage with suppliers on carbon related issues.
* 91% of members have a board level executive responsible for climate change, compared to 80% within the Global 500 constituents.**
* 90% have an emissions or energy reduction plan in place, compared to 51% in the Global 500.**

The majority of CDP Supply Chain members (56%) have also stated they actually expect to deselect some suppliers in the future for failing to meet carbon management criteria set by the companies. This is an increase from just 6% of members who would deselect suppliers today for failure to manage carbon. Some also indicate that they intend to develop contracts which require improved carbon management. These companies are choosing to take these steps ahead of regulation, because they make good business sense.

"We see carbon management as an increasingly important part of supplier engagement. It makes good business sense for us to work with suppliers who understand how climate change is impacting their business and manage these issues properly," said Brad Minnis, director of Environmental, Health, Safety and Security at Juniper Networks.

The report shows that the importance granted by CDP Supply Chain members to managing carbon targets versus classic procurement taentent targets is expected to triple in the next five years.

"It is clear that some companies are now requiring their suppliers to address carbon management as a core business issue. This is no longer a 'nice to have' for the leaders, it is becoming a 'need to have' and we expect to see this trend growing across the whole business sector," said Paul Dickinson, CEO, CDP.

However, the report shows that despite the fact that a significant proportion of carbon emissions are typically found in the supply chain, it is still a challenging area for member companies to measure and just 20% report figures for supply chain emissions.

A.T. Kearney partner and study co-leader Daniel Mahler said, "Major corporations are taking carbon reduction seriously and are developing strategies to address carbon emissions in their supply chains. Corporate CEOs and boards of directors are demanding results from company carbon reduction programs not only for the environmental benefits, but for cost-reduction benefits as well. The challenge moving forward is for additional corporations and suppliers to operationalize their carbon-reduction strategies."

In 2009, of the 710 suppliers disclosing to their customers through the CDP Supply Chain program, 48% were reporting for the first time. The majority (60%) have appointed a board member responsible for climate change and while 56% have a reduction plan, 38% have committed to clear targets; which tend to be short term (majority under two years). Companies are also reporting considerable cost benefits of carbon reduction programs - HP and Allianz report significant commercial benefits in addressing climate change related issues.

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