Carbon emissions don’t respect corporate boundaries, says Kealy Herman
You can’t meet your targets alone
Organizations are increasingly setting science-based targets to identify how much and how quickly they need to reduce their greenhouse gas (GHG) emissions based on the latest climate scenarios. And when they do, they often find that their value chain accounts for a substantial portion of the total. So to truly address climate change, it’s not enough to focus on direct emissions from company operations — you have to engage with suppliers too.
What you don’t know can hurt you
Developing targets for GHG emissions generated upstream is daunting, given the difficulty of obtaining quality data from thousands of potential sources. But that’s all the more reason to do it: supply chain disruption is a critical issue. As climate change increases the frequency and severity of extreme weather events, organizations are more vulnerable to disruption, often originating not from immediate suppliers but those a step or two removed. According to the Business Continuity Institute’s 2019 Supply Chain Resilience survey, more than a third of disruptions arose from tier 2 and 3 suppliers, and this proportion is rising.
Soon you may not have a choice
Climate science is rapidly changing the regulatory and political landscape too, as more jurisdictions implement GHG control mechanisms such as cap-and-trade, carbon taxes and mandatory disclosure. Setting supplier targets helps reduce exposure to regulatory risk. Companies that have proactively assessed their carbon risks will be better prepared to meet mandatory requirements and participate in voluntary schemes.
The reputational stakes are rising
More and more organizations are realizing the reputational risks that the actions of their suppliers can expose them to. For example, growing public concern over deforestation caused by commodities including palm oil, timber, cattle and soy is affecting consumer purchasing decisions, leaving companies scrambling to reduce these impacts from their supply chains. What will the next environmental scandal be? Organizations that do not fully understand the impact of their products and services could find themselves on the back foot.
Necessity is the mother of invention
The transition to a low-carbon economy means developing low-carbon processes, technologies, services and products — potentially creating new revenue streams. Working with suppliers to reduce emissions drives innovation, and encourages operational and material efficiency, all of which reduces cost and enhances profitability. Organizations that have already started innovating raise the bar for others to follow suit.
Kealy Herman is a project director in sustainability, energy and climate change at WSP in the US