Carbon Pricing “Creates Supply Chain Risks”
Carbon-reduction policies and marketing regulations are just some of the risks facing executives trying to green their supply chain, according to a report by Ernst & Young.
As carbon pricing becomes established in various jurisdictions, organizations will face risks from compliance obligations, according to the report.
This will impact cash management and liquidity, and carbon-intensive sectors may see an increase in the cost of capital.
The Federal Trade Commission’s proposals to crack down on greenwashing presents another regulatory and reputational risk for companies, Ernst & Young says.
Meanwhile, companies may need to make Securities and Exchange Commission (SEC) disclosures related to climate change. The SEC has said that companies should consider reporting the impacts that current and pending legislation, international accords and climate change itself may have on their business.
In general, Ernst & Young says companies should consider five categories of supply chain risk: strategic, compliance, financial, reputational and operational.
Supply chain sustainability is affecting shareholder value, company valuations and even due diligence during proposed mergers and acquisitions, the report said. It added that shareholder actions on sustainability performance and transparency were up 40% in 2009.
And it said that the Carbon Disclosure Project (CDP) Supply Chain program, an agreement between about 50 global companies, is pushing even more organizations to report on these issues.
In an Ernst & Young survey of 300 global executives last May, 36 percent said they are working directly with suppliers to reduce their carbon footprint.
Another 30 percent said they have started discussing climate change initiatives with their suppliers.
Picture Credit: Max Klingensmith via Flickr
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