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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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One thought on “Carbon Pricing “Creates Supply Chain Risks”

  1. The article illustrates the impediments to forward-looking management in an environment controlled by politicians linked to the obsolete energy sources and conversion technologies of the 19th and 20th Centuries.

    Our primary world trade competitor appears to be facing the future with game changing political decisions, absent the illusion of market-based solutions relying on casino-like lotteries, such as Cap and Trade.

    Sustainable energy policies are needed to predict costs with certainty to assure investment. The energy game needs to be changed by simple, predictable economic policy. This is not mysterious, socialist plot because it has been done by progressive capitalistic democracies, using tools such as published, long-term, annually incremented tax rates for continued use of obsolete energy sources and conversion technologies. Often the targeted sources and technologies benefit from stealth subsidies at public expense. Likewise, fiscal policy is needed to offset anticipated energy tax revenues to reduce income taxes and National Debt.

    Intelligent leadership by accountable, qualified decision-makers who rely on science, visionary economics, and political sensitivity is needed. This approach seems far more agile and on-target than leadership by 500+ blubbering politicians, and a cadre of treasonous pundits.

    American business must recognize that they are partners in necessary economic/technology transition to ensure America’s continued role in world trade competitiveness.

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