Green Purchasing Power: Sustainability is Major Factor
The world’s biggest businesses cut 633 million metric tons of CO2 from their supply chains after a decade of purchasing power brings sustainability up the corporate agenda, according to a new report by the CDP.
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 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.
“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."
In 2018, 115 organizations wielding a combined purchasing power in excess of $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 tons of carbon dioxide – greater than the emissions of South Korea in 2017 – leading to collective cost savings of $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.
“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,” commented Sonya Bhonsle, Global Head of Supply Chain at CDP.
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.
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:
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.
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.
Chemical and cosmetics company KAO Corp. has been actively encouraging suppliers to reduce their CO2 emissions; so far, at least 80% of its suppliers have set emissions reduction targets.
Microsoft invested more than $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, L’Oréal has been training and supporting its suppliers to answer to CDP and improve their carbon footprint, providing an online toolbox, workshops, webinars and one-to-one meetings.
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.