Environmental Supply Chain Risks to Cost Companies $120 Billion by 2026

According to a report, Transparency to Transformation: A Chain Reaction, released on February 9 by the CDP, companies will face up to $120 billion by 2026 in costs that will occur from environmental risks in their supply chains.

The environmental risks causing cost increases stem from climate change, deforestation, and water-related impacts, the non-profit group said. The physical impacts can include both the severity and frequency of events such as cyclones and floods. Regulatory actions such as carbon pricing can increase costs. And even an increase in costs associated with product innovation based on changing customer demands could be a factor.

The sectors that report the most potential cost increase are manufacturing ($64 billion), food, beverage & agriculture ($17 billion), and power generation ($11 billion).

 “Addressing environmental risks through supply chain engagement is vital for companies to be competitive and resilient in the changing market,” said Sonya Bhonsle, Global Head of Value Chains at CDP in a statement. As the climate and ecological crisis worsen and the economy shifts, it’s essential for both business and society that we have a Green Recovery from COVID-19 and builds back better. Smart business procurement is key to that transition.”

Other key findings from the report include:

• Supply chain GHG emissions are 11.4 times as high as operational emissions on average. This is over twice as high as previous estimates, due to more comprehensive emissions data.
• The ratio varies drastically by sector: E.g., in retail, supply chain emissions are 28 times as high as operational emissions.
• Suppliers undertook activities that cut emissions by 619 million metric tons of C02e in the last year and saved $33.7 billion in the process. This is equivalent to emissions from 159 coal power plants running for a year.
• However, climate action is not yet cascading through the supply chain as needed: only 37% of suppliers are engaging their own suppliers to cut emissions.

“Climate change is a constant threat to the global economy and humanity more broadly,” said Ruth Porat, Chief Financial Officer of Alphabet in a release announcing the study. “Business must do our part to address the problem in our own operations and in the way we work with our supply chains. That is the focus we need to create a better future.”