According to new research published today, supply chain progress on reducing carbon emissions is stalling as a result of regulatory uncertainties.

Written by global management consulting, technology services and outsourcing company Accenture, the CDP Global Supply Chain Report 2014, ‘Collaborative Action on Climate Risk’, shows that while companies are increasingly recognizing climate risk in their supply chains, investment in emissions reductions programs is going down.  

For the first time ever, the report combines analysis of climate change and water related information disclosed by thousands of companies.

According to the report, more companies than ever are reporting on their emissions reductions programs and there are clear financial benefits from investment in sustainability measures.  However, average monetary savings from emissions reductions efforts have fallen 44 % in the past 12 months.

The report points to an ever widening gap – highlighted last year – between measures taken by large corporates who are members of CDP’s supply chain program and those by suppliers.

The research is based on information from 2,868 companies including some of the world’s largest corporates, reflecting a rise in participation of more than a fifth since last year. These produce some 14% of 2013’s global industrial emissions. The 64 CDP supply chain members behind the request to this supply chain represent a combined annual spending power of almost US$1.15 trillion.

The report reveals that:

• Regulatory uncertainty is making companies cautious about investing in emissions reductions and supply chain sustainability. Ninety percent of companies that identify a current or future risk cited regulatory risk as a barrier to investment;
• Investment in emissions reductions programs has declined in the past year and is shorter term in focus. Seven out of 10 sectors report investment falling from earlier years. Shorter pay-back initiatives (less than three years) are on the rise with these almost doubling between 2011 and 2013. The average sum invested per reporting company has dropped 22% since last year;
• Almost three quarters of companies, including some of the world’s largest, identified a current or future risk related to climate change while 56% of companies said that consumers are becoming more receptive to low-carbon products and services;
• To address policy uncertainty, the survey asked which policy programs would be most supported by businesses. Of the companies reporting engagement with policy makers, support was strongest for policies promoting energy efficiency and clean energy generation, supported by 81%. Mandatory carbon reporting was supported by 67% but cap and trade programs received the unqualified support of just 43%;
• The most important determinant of improved performance is collaboration across the supply chain. There is enormous scope for more collaboration: program participants identified 2,186 collaborative opportunities. Companies that engage with two or more suppliers, customers or other partners are more than twice as likely both to see a financial return from their emissions reduction investments and to reduce emissions.

Supply chain mismatch on emissions efforts

The research also shows that companies are often misdirecting their emissions reductions efforts with investment not closely correlated with proven emissions or monetary savings.  Interestingly, it also reveals a supplier and member companies mismatch. While suppliers identified process emission reduction and product design as the most promising collaborative approaches, member companies on the other hand favoured behavioural change initiatives and transportation and fleet investments.

To address this, a new CDP supply chain initiative has been launched to incentivize suppliers: Action Exchange will drive targeted action on the most cost effective emissions reductions. Companies that have already joined the initiative and are asking their suppliers to participate include Bank of America, L’Oreal, Philips and Walmart.

Questioned for the first time by CDP on water risk, suppliers recognize the need for a broader view of supply chain sustainability, with linkages made between water and carbon emissions. More than half the companies cite water scarcity as the greatest water-related concern.

CDP’s chief executive officer Paul Simpson commented:

“This report establishes that although companies recognize that climate and water risks are on the rise, a mixed regulatory regime is making decisive action difficult.

“However growing participation in our supply chain program and the positive reception to Action Exchange demonstrates that businesses want to leverage their relationships with their suppliers to realize opportunities and minimize climate and water related risks.

“When governments introduce a more realistic global price on carbon we expect significantly more investment in emissions reductions from corporates.“

Gary Hanifan, global sustainability lead at Accenture said that the report provided clear evidence that organisations who were most transparent about their climate change risks were more likely to achieve the greatest emissions reductions. They were also more likely to enjoy monetary savings as a result of their responses to climate change risks. However, return on investment by the most proactive companies would not reach its full potential unless those companies could encourage their suppliers to follow their lead.

CDP is working with market forces, including 722 institutional investors with assets of US$87 trillion, to motivate companies to disclose their impacts on the environment and natural resources and take action to reduce them.  The not-for-profit body now holds the largest collection globally of primary climate change, water and forest risk commodities information.