Companies facing $120bn in environmental supply chain risks by 2026

Multinational companies are exposed to environmental risks in their supply chains that could altogether cause costs of up to $120bn by 2030, new CDP research today indicates.

The climate disclosure non-profit said sectors facing the steepest cost increases as a result of environmental threats to their supply chains were manufacturing ($64bn), food, drink and agriculture ($17bn) and power ($11bn), stemming from risks such as climate change and deforestation.

Analysis released by CDP today looked at data disclosed to it by more than 8,000 supplier companies in 2020, finding cost increases from a range of supply chain disruptions including increased severity and frequency of cyclones and floods, rising raw material costs, increased spending on product innovation, and the impacts of regulatory and market changes – such as carbon pricing – as governments seek to address multiple environmental crises.

As supply chains run on tight profit margins, the increased costs it anticipates are likely to be passed up the value chain, firstly to corporates, then onto consumers, according to CDP.

Consequently, it said an increasing number of buyers are demanding transparency and action from their suppliers in order to tackle the environmental impacts in their supply chains. More than 150 major buyers with over $4.3tr in purchasing spend – including global giants such as Google, L’Oreal, Walmart, Braskem and Toyota – request thousands of their suppliers to disclose their environmental data through CDP each year, which they then use in their procurement decisions and supplier engagement, according to the report.

The study shows that for many mulitnationals, supply chains contain the bulk of their exposure to climate and environmental risk, calculating that on average supply chain greenhouse gas emissions are more than 11 times higher than operational emissions. This is twice as high as previous estimates, CDP notes, due to more comprehensive emissions data.

In some sectors the disparity is even greater. It cites the example of firms in the retail sector, where supply chain emissions are 28 times higher than operational emissions.

CDP’s global head of value chains Sonya Bhonsle, who led the research, said that with $120bn at stake, addressing environmental risks should be a top priority for companies in order to ensure they remain competitive and resilient within a rapidly changing market.

“Leading companies that address these risks will benefit from lower costs and better reputations,” she added. “This gives them a more competitive edge today and helps them become more resilient for the economy of tomorrow. Meanwhile, laggard companies risk being left behind.”

The number of supplier companies disclosing data to CDP increased by 16 per cent through 2020, the organisation said, growing from 7,000 to 8,000. Collectively, it said these firms reduced their aggregate emissions by 619m metric tons of carbon dioxide equivalent, matching the emissions of 159 coal power plants running for a year, saving $33.7bn in the process.