A Decade of Purchasing Power Brings Sustainability up the Corporate Agenda
Ten years of the world’s biggest purchasers – including Bank of America, Dell, Kellogg Company, Unilever and Walmart – requesting transparency from their suppliers triggers step-change in environmental action.
633 million metric tonnes of CO2 emissions reductions and collective cost savings of US$19.3 billion reported by over 5,500 suppliers.
120+ organizations named as Supplier Engagement leaders, including Alphabet,Honda Motor Company, HP Inc., Nestlé, and Samsung Electronics.
Suppliers feel the squeeze on water security, with a 35% growth in targets for wateruse compared to the previous year, though C-suite oversight of water issues remains low.
Hundreds of companies now disclosing to their customers on use of timber, palm oil, cattle and soy, as major buyers look to eradicate deforestation from supply chains.
Transformation in purchasers’ attitude to sustainability sees companies now striking off suppliers for poor environmental performance.
With greenhouse gas (GHG) emissions in supply chains on average 5.5 times those of company’s direct operations, a new report by CDP, the non-profit global environmental disclosure platform, reveals a step-change in corporate awareness and action on environmental impacts within the supply chain in the last decade.
In 2018, 115 organizations wielding a combined purchasing power in excess of US$3.3 trillion, requested environmental information from 5,500+ of their key suppliers. This is an increase from just 14 organizations ten years ago. 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 report, Cascading commitments: Driving upstream action through supply chain engagement, is based on data disclosed through CDP by 5,562 suppliers. It also reveals a 35% growth in targets for water use among suppliers, compared to 2017, while the number of companies disclosing information to their customers on their forests-related impacts has more than tripled, from 88 in 2017 to 305 in 2018.
The research finds that for some big buyers, sustainability is now a major factor in their purchasing decisions. Nearly three quarters (73%) of a subset of 27 major purchasers answering a CDP survey said that they are either currently deselecting, or considering deselecting, existing suppliers based on their environmental performance. In addition, 63% are either currently using, or considering using, data from CDP disclosures to influence whether they contract with suppliers or not. This is in stark contrast to the 4% and 9% respectively, who were doing this a decade ago.
“In the ten years that we have been working with purchasing organizations we have seen a fundamental shift in expectations around business action on sustainability,” commented Sonya Bhonsle, Global Head of Supply Chain at CDP. “Leading purchasers are using disclosure to push positive change down the supply chain, with data playing an increasingly important role in their decision-making.
“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.”
As organizations take an increasingly holistic approach to environmental management, the number of companies demanding transparency on water security in the supply chain continues to grow:
43 major purchasing organizations – including Braskem, HP Inc, and Intel – asked their suppliers to report on water in 2018, up from 37 in 2017. 1,709 suppliers submitted responses, an 11% increase from last year.
There has been a rise in suppliers reporting water targets, growing from 51% in 2017 to 69% this year.
But with less than half of companies reporting board-level oversight of water issues – compared to 69% for climate issues – governance of water security remains low.
Meanwhile, with deforestation and forest degradation accounting for approximately 10-15% of the world's GHG emissions, protecting forests is rising up the corporate agenda:
This year, 305 suppliers provided disclosures to 14 purchasers – including Arcos Dorados, L’Oréal and McDonalds – a substantial 247% increase on the 88 businesses that responded to seven purchasers in 2017’s pilot phase.
However, just 17% of those suppliers report setting any sort of target related to deforestation; not enough to slow the 18.7 million acres of forests lost annually.
“Sustainability is not an added extra,” commented Andrew McMullen, The LEGO Group. “It has become a key strand of our approach for supplier relationship management. In particular, we know that disclosure through CDP is a great lens for looking at energy and resource efficiency. If we can help suppliers to improve this then there is a huge amount of shared value to be gained, where we can both benefit from reduced environmental impact and cost savings.”
To highlight best practice and spur further ambition, CDP has awarded over 120 companies – out of a total of 5,000 – a place on its third annual Supplier Engagement leader board, more than double the 58 highlighted in 2018. These leaders – which include Canon, Diageo, GlaxoSmithKline, Mastercard,National Grid and Tessy Plastics – are recognized for their work with suppliers to reduce emissions and lower environmental risks in the supply chain.
Examples of leadership among the 120+ companies include:
UK telecoms company BT Group collaborated with a supplier to simplify tool and moulding use, reducing energy use and cutting 130 kg of CO2e for every month of production.
In Evian-les-Bains, French food company Danone worked with local authorities and farmers to avoid contamination of the spring water by agricultural waste or fertilizers, creating a collective biodigester which converts 40,000 tons of organic waste each year into natural fertilizer used by local farmers, while producing biogas to provide power for 1,200 inhabitants.
Japanese chemical and cosmetics company KAO Corporation has been actively encouraging suppliers to reduce their CO2 emissions; so far, at least 80% of its suppliers have set emissions reduction targets.
US technology company Microsoft invested more than US$1 million with one manufacturing supplier to install solar arrays and complete an energy-smart building retrofit, using sensor technology and data analytics tools to reduce energy consumption.
Working towards its science-based target of reducing scope 1, 2 & 3 GHG emissions 25% by 2030, from a 2016 base year, French cosmetics company L’Oréal has been training and supporting its suppliers to answer to CDP and improve their carbon footprint, providing an online tool box, workshops, webinars and one-to-one meetings.
Swedish packaging company Tetra Pak requires third-party verification that its paperboard suppliers do not use wood from any form of deforestation that breaks the natural forestry cycle. A company cannot supply Tetra Pak if it fails to meet these requirements.
“Suppliers are critical partners as we work to transform our supply chain and deliver positive, lasting impact for our planet, people and communities,” commented Stuart Pann, Chief Supply Chain Officer at HP Inc. “For nearly a decade, we’ve used supplier environmental data in our procurement scorecard to help our suppliers advance from awareness and measurement to setting goals and taking action to reduce negative environmental impacts, including GHG emissions. Engagement through the CDP Supply Chain program supports our efforts to reduce our upstream emissions and strengthen the long-term security of supply. HP is proud to be named to CDP’s Supplier Engagement Rating Leaderboard for the third consecutive year, recognizing our continued focus on driving sustainable impact into our supply chain.”
“Procurement teams have the power to create and amplify positive change,” commented Hugh Jones, Managing Director, Advisory, at The Carbon Trust, which co-wrote the report. “But to exercise this power they must make sustainability a decisive factor in evaluating suppliers, elevating it to sit alongside cost, quality, and security of supply. Only then can a business truly claim it has sustainability at its heart. And this means procurement teams must understand their most significant impacts, ask the right questions, and actively provide support to help their supply chain to take action. The good news is that there’s so much shared value to be found in greening the supply chain, which can help to increase efficiency, reduce resource costs, enter new markets, and make supply chains more resilient to the impacts of a changing climate and a changing world.”
“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 has written 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.”