Supply networks in some countries are less prepared for climate and water risk than in others
An interesting finding has emerged from a new CDP and Accenture survey of supply chain resilience. CDP, formerly the Carbon Disclosure Project, found that supply-chain vulnerability in the face of climate and water risks is not just a question of how well prepared individual supplier companies are.
There are marked differences in the preparedness of supplier networks in countries around the world.
The report used sustainability data from about 3,400 suppliers, which work with 66 multinational buyers with a collective procurement spend of $1.3tn. It found that Japan's supply network is the most exposed to climate and water risks but is at the same time the best prepared to manage these risks.
Meanwhile, suppliers in France, Germany, Spain and the UK have taken extensive measures to be more resilient against climate and water risks, even though they face low to moderate risk of climate and water-related disruption.
The survey measures the preparedness of suppliers based on their levels of emissions reporting, target setting, emission reduction initiatives, climate risk procedures, uptake of low carbon energy and water risk assessment.
Meanwhile, the Chinese, Italian and US supply networks are rated “vulnerable”, meaning that they are considered “susceptible to risk due to poor risk mitigation”. The most complacent country, according to the report, is Brazil, where suppliers are “unconcerned” about their risk exposure. Canada and India fall somewhere in the middle – moderately exposed to environmental risks but also somewhat unconcerned about the need for sustainability.
The main – and surprising – lesson of the report is that supply networks in some countries are not responding to the risks they face. Failure to adapt in the face of climate and water risk could jeopardise their future prosperity.
Brazil, for example, is currently in the grip of a disastrous drought, with water levels in the reservoirs that serve Sao Paulo at 5% of their normal level. According to CDP’s rating, Brazilian suppliers have done little to prepare for such situations.
CDP communications manager Catherine von Altheer says that purchasers have some responsibility for the preparedness and complacency levels of their suppliers. “The onus in the first instance lies with the customers – the large multinational companies whose procurement spend drives the global economy,” she says.
Working with suppliers to improve how they deal with climate and water risk can also pay dividends for companies at the top of the supply chain because of greater efficiencies, for example in the use of energy. Companies that engage with their supply chains on these issues are more than twice as likely to see financial returns from their emissions reductions investments than companies that don't, von Altheer says.
Should global buyers make supply chain decisions on the basis of the aggregate preparedness of countries? James Allan, head of environment and climate change at risk consultancy Verisk Maplecroft, says that since multinationals have to deal with thousands of suppliers, looking at risk at the country level can be a helpful short-cut.
“We would definitely advocate taking a country, as well as a supplier risk-based perspective,” he says.
The global companies at the top of supply chains can also seek to improve resilience and sustainability in countries where they have particular interests. Most likely, this will be done through wider industry initiatives rather than unilateral action. For example, global non-profit BSR convenes several working groups, including an ecosystem services group, in which large companies collaborate on key sustainability issues.
If there is a greater risk associated with the supply chain in a particular country, companies should not just get out of that country, Allan says. Though looking at risk at country level can be a useful indicator, companies should actively engage with their suppliers to promote change, rather than just abandon them to their fate.
The CDP report, Supply Chain Sustainability Revealed: A Country Comparison, is available at here.climate action supply chain Supply Chain best practice water conservation water management