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Engaging suppliers on sustainability works – and saves billions

Asking your suppliers for environmental information is an effective way of reducing emissions, water waste and environmental damage in the supply chain, according to a report by CDP, formerly the Carbon Disclosure Project, the non-profit global environmental disclosure platform.

Reductions greater than emissions of South Korea

The group gathered data from 5,562 suppliers and was able to calculate how many firms were actively requesting green data from their suppliers. It found that, among the organisations that submitted data to CDP in 2018, 115 companies, with a combined purchasing power of over US$3.3 trillion, requested environmental information from 5,500+ of their key suppliers. CDP noted that only 14 of the companies that submitted data 10 years ago were actively asking their suppliers for information. In 2018, the suppliers reported emissions reductions of 633 million metric tonnes of carbon dioxide – greater than the emissions of South Korea in 2017 – leading to collective cost savings of US$19.3 billion.

The research findings show that corporates are gaining more awareness about environmental impacts within the supply chain, according to CDP. This is important, as greenhouse gas (GHG) emissions in supply chains are on average 5.5 times greater than those from company’s direct operations.

The report (Cascading Commitments: Driving ambitious action through supply chain engagement) found that:

  • 10 years of the world’s biggest purchasers – including Bank of America, Dell, Kellogg Company, Unilever and Walmart – requesting transparency from their suppliers has triggered step-change in environmental action;
  • transparency on water security in the supply chain continues to grow, with 43 major purchasing organisations – including Braskem, HP Inc, and Intel – asking their suppliers to report on water in 2018, up from 37 in 2017;
  • however, fewer than half of companies report board-level oversight of water issues – compared to 69 per cent for climate issues – so governance of water security remains low;
  • hundreds of companies are now disclosing to their customers on use of timber, palm oil, cattle and soy, as major buyers look to eradicate deforestation from supply chains;
  • a transformation in purchasers’ attitude to sustainability sees companies now striking off suppliers for poor environmental performance.

Key factor in supplier selection and deselection

The research found that environmental performance is a major factor in purchasing decisions. Compared to a decade ago, more big purchasers are now taking this into account when selecting or deselecting a supplier. CDP's global head of supply chain, Sonya Bhonsle, said: “In the 10 years that we have been working with purchasing organisations, we have seen a fundamental shift in expectations around business action on sustainability. Leading purchasers are using disclosure to push positive change down the supply chain, with data playing an increasingly important role in their decision-making.”

She added: “If suppliers continue to cascade good practices further down the supply chain, this has the potential to play a huge role in the rapid transition to a sustainable, low-carbon economy. However, with only 57% of suppliers reporting emissions reductions activities, and less than half (47%) with emissions reduction targets in place, the transformation in their customers’ expectations means that those suppliers failing to act sustainably may increasingly see it impact their bottom line.”

Signals that reverberate through the economy

CDP's Supplier Engagement leader board recognises companies that are working with suppliers to reduce emissions and lower environmental risks in the supply chain. This year 120 companies made it onto the list, including Canon, Diageo, GlaxoSmithKline, Mastercard, National Grid and Tessy Plastics.

“By taking action along the supply chain, companies can send price signals that reverberate throughout the economy and embed climate action at all levels”, commented Yoshiaki Harada, Minister of the Environment, Government of Japan, who wrote a foreword for the report. “Members of the CDP Supply Chain program have set an example here, showing other organizations how to effectively create sustainable change through supplier engagement. As part of our commitment to driving climate action the Japanese government will be joining the 115 CDP Supply Chain members asking a selection of suppliers to disclose their climate change information to us through CDP in 2019.”


This item appears in the following sections:
Sustainable Green Treasury
Sustainable Business Models
SustainableTrade
Trade & FSC Management
Trade Transaction & Payment Services
Working Capital Management
Procure-to-Pay Cycle in WCM

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