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Suppliers Trail Multinationals in Sustainability

A persistent gap exists between the sustainable business practices of multinational corporations and their suppliers, highlighting a lack of preparation to respond to climate change and the near-term risks it presents to businesses, according to research published by the Carbon Disclosure Project and Accenture.

The study “Reducing Risk and Driving Business Value,” which breaks down the results from the CDP’s survey of 52 major purchasing companies and more than 2,363 of their suppliers around the world, found 70 percent of companies believe that climate change has the potential to affect their revenue significantly. The purchasing companies, who are CDP Supply Chain program members, include Accenture, Bank of America, Coca-Cola Co., Dell, Ford Motor Co., Juniper Networks, L’Oreal, Microsoft, PepsiCo and Walmart.

More than half (51 percent) of the drought and precipitation-related supply chain risks identified by responding companies are already affecting respondents’ operations or are expected to have an effect within the next five years. For instance, an incessant drought has plagued Texas, the southern Plain states and the Midwest, ruining crops and driving up feed costs for meat producers and, in turn, consumers. Cargill has just announced it is closing one of its beef processing plants because the drought has tightened cattle supplies.

The survey found suppliers are significantly less prepared than their multinational clients in responding to climate change, potentially threatening customer relationships and heightening supply chain vulnerability. Just 35 percent of suppliers have set emissions reductions targets, compared to 92 percent of purchasing companies, according to the survey.

The same disparity exists when it comes to taking action, with 27 percent of suppliers investing in activities to reduce emissions, compared to 69 percent of multinational purchasing companies.

CDP member companies also are more likely to yield results from their sustainable business practices, with 63 percent reporting year-on-year emissions reductions, compared to 29 percent of suppliers indicating such an achievement.

Of the 678 suppliers and purchasing companies investing in emissions reduction initiatives, three quarters (73 percent) say they feel that climate change presents a physical risk to their operations.

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One thought on “Suppliers Trail Multinationals in Sustainability

  1. What I find incredibly telling about the findings of this report is one sentence on page 20 of the report itself. Only one company participating in the study stated they are willing to enforce their supplier standards by severing business relationships. One. After how many years of CDP’s existence? Maybe there are other companies like this, but if so they were not brought forth in this report.

    The report contains discussions about the ROI of sustainability investments similar to the business cases we have heard about for more than 20 years. Sometimes those are valid; but sometimes they are smoke and mirrors, are small numbers or rely on intangibles, which has created doubt in many about making these investments. Perhaps real successes are not as prevalent – or ultimately persuasive – as we hope.

    So if the carrot isn’t effective at getting the job done, what about the stick?

    In contrast to GHG/water (and other sustainability topics) – and in a far shorter timeline – the conflict minerals supply chain has already seen business/supply ties severed just in the past 3-4 years since this issue came forward. In an unfortunate turn of events – seemingly overnight – a key pillar of an entire country’s economic base was all but eliminated from global commerce as a result of businesses enforcing their standards by severing supplier ties. Not that I am condoning what resulted, but that clearly sent a message about how serious US business was on the matter of conflict minerals.

    In response, companies have built completely new and successful business models around the desired behavior/outcome. Industry associations ha crafting a range of specific solutions to assist their members in addressing the requirements for both regulatory compliance and customer demands. And a range of third party solutions for consulting, supplier engagement and data management/analysis have come to market. Contractual requirements concerning metal/ore sourcing are rapidly proliferating through the supply chain from OEMs down to the smelter/refiner and beyond. And enforcement of those terms and supplier codes of conduct has the attention of those in the supply chain.

    How realistic is it to expect suppliers to aggressively “move the needle” when they realize (rather quickly) that there are no material negative business implications for being passive towards climate change, water use, or other sustainability matters? It is no different than parenting a child – if you never impose punishment, then the words “I’m watching you”, or “If you keep it up you’ll get in trouble” are quickly seen as hollow threats. To be perfectly blunt, the desired behavior then becomes discretionary and can be acted upon at the supplier’s (or child’s) own pace. Put them in time-out, or take away their toy, and they experience consequences.

    The lack of corporate will for supplier “enforcement” on other CSR/sustainability matters has been tied to recent tragedies at clothing manufacturing operations in Bangladesh and Afghanistan. Even WalMart acknowledged they did not adequately enforce their supplier standards.

    So I am left wondering – what is it about conflict minerals that has resulted in such dramatic short term progress in the supply chain in comparison to GHG/water or even supplier worker safety/working conditions? Could it be that the market knows that supplier relationships are at risk for real rather than at risk for more hollow threats? What is the relationship between a US federal mandate on conflict minerals (and the lack of such on other sustainability matters) and the speed of propagation? In this case, is the stick a more powerful catalyst for change than the carrot? To some extent, these questions harken back to Michael Porter’s 1995 Toward a New Conception of the Environment-Competitiveness Relationship.

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