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Suppliers to big corporations say they face $906B in climate risks

Nearly 7,000 of the companies that supply such things as meat, produce and raw materials to some of the world's largest companies have reported they face a combined total of $906 billion in climate change-related risks, according to a new report by CDP, formerly the Climate Disclosure Project.

For most companies, most of their environmental impacts and exposures are in their supply chain, so engaging with those suppliers is one way to address those risks, said the report released Dec. 9. One notable exception is the electric utility sector, which produces most of its emissions directly at power plants. CDP gathered its data from answers suppliers gave on questionnaires regarding climate change, water risks and deforestation, as well as a related survey.

Currently, 125 corporate purchasing organizations from nearly every sector are participating in the supply-chain engagement initiative, including Microsoft Corp., Stanley Black & Decker Inc., Walmart Inc., Bank of America Corp., NRG Energy Inc., CVS Health Corp., National Grid PLC, Johnson & Johnson and Nissan Motor Co. Ltd.

The 6,891 suppliers that responded to CDP's climate change questionnaire in 2019 reported combined emissions from direct operations and purchased electricity of 7,976 metric tons of carbon dioxide equivalent emissions, which CDP said is greater than the annual greenhouse gas emissions of the U.S. and Canada combined. And while those suppliers reported a total of 563 metric tons of CO2e emissions savings in 2019, that total was less than the emissions reductions suppliers reported to CDP in 2018. Moreover, only 29% of suppliers reported absolute decreases in emissions in 2019.

One way to reduce emissions is by purchasing power from renewables such as wind and solar projects instead of from fossil-fueled generation. But the report found that the suppliers purchased only an average of 11% of their electricity from renewables.

The report estimated that if all suppliers to the CDP’s 125 supply chain member companies were to increase the proportion of the electricity they buy from renewables by another 20%, annual global emissions would be reduced by a gigaton. CDP based that finding on the International Energy Agency's 2017 global grid emissions factor. Also, just 4% of suppliers, or 292 companies, indicated they have a renewable energy target.

As for water-related risks, suppliers indicated they have a combined total of $78 billion at risk. "For buyers, this raises the prospects of disruption to the delivery of goods and services, increased costs and reputational damage," CDP said.

Most water risks reported are physical and related to drought, flooding and severe weather events, CDP said. Suppliers said potential regulatory risks related to water include the potential regulation of discharge quality and volumes, higher water prices, and difficulties in obtaining water permits.

Nearly 2,000 suppliers answered questions on water risks and another 334 supply companies provided information on the production and use of five commodities linked to deforestation: timber, palm oil, cattle products, soy and rubber.

"The extent to which these suppliers are addressing deforestation risks remains limited," CDP said.

Only 47% have taken the initial step of making a forest-related risk assessment and building internal staff capabilities to address those risks. More broadly, suppliers reported a total potential financial impact of at least $15.8 billion related to the production, consumption and trade of forest commodities.