Environmentally sensitive companies are sadly not yet the norm but a study by Carbon Trust Advisory has found that in the future, as much as 50 percent of multinationals will select their suppliers based on carbon performance.
The research found that 29 percent of suppliers are likely to lose their places on ‘green supply chains’ if they do not have an adequate performance records on carbon. Add to this the finding that 58 percent of multinationals will in the future pay a premium for low carbon suppliers to reduce their overall corporate carbon footprints, and you start to see the value.
Managing director of Carbon Trust Advisory, Hugh Jones, said:
“Currently responsibility for carbon stewardship falls to CEOs and the board; so far they have catalysed many significant carbon reduction projects, especially internally, in order to exploit reputational and efficiency gains.
But going forward, as carbon becomes more widely understood as a commodity, there will be increasing pressure from external sources, particularly shareholders, to make companies address the carbon intensive area of supply chain emissions.”
The strong preference for greener suppliers is not however a universal trend, especially when comparing the US and the UK. The study found that in the UK, 56 percent of multinationals say that in the future they expect to drop suppliers based upon low carbon performance, whilst in the US, just 28 percent anticipated suppliers would be deselected on that basis.
Heightened scrutiny on supplier performance is anticipated to come from increased external pressure from shareholders, said the report. In the UK, where carbon disclosure is more commonplace than in the US, shareholder pressure to cut carbon was identified by just 4 percent of respondents as a key driver. But in the future, 74 percent of UK respondents said shareholder pressure would be a key driver for them in tackling carbon emissions. In the US, currently 24 percent of multinationals cite shareholder pressure as a key driver in taking action on carbon – and this was only predicted to rise to 32 percent in the future.
The emissions generated by suppliers and customers in the development and use of products and services are recognised as one of the most significant contributors to company carbon footprints. And the research shows that supply chain carbon is the next key area to be tackled to enhance efficiency and reputation, and meet compliance:
* 93 percent of multinationals are addressing their own (direct) carbon emissions now
* 40 percent are already addressing the (indirect) carbon emissions of their supply chain now
* 42 percent of companies not addressing supply chain emissions, will do so within the next 12 months.
* A further 42 percent of companies not addressing their supply chain emissions, will do so within the next two - three years.
The research also shows the potential rewards for suppliers that can ensure their place on ‘green’ supply chains by meeting the criterion of carbon efficiency held by multinationals. Of those addressing supply chain emissions:
* 66 percent are willing to pay a premium of around 10% to purchase a product or service with low emissions
* 65 percent sell products and services that reduce the carbon footprint of their customers
* 71 percent procure key products from suppliers with lower carbon footprints