CDP research reveals urgent need for smaller firms in supply chains of larger firms to disclose their emissions and set robust climate targets

Leading corporates “have blinkers on” when it comes to assessing the environmental impacts of their value chains, with many struggling to secure meaningful climate commitments from their suppliers.

That is the stark conclusion of the latest report from CDP, which today sees the environmental data disclosure non-profit warn that there is “concerning” evidence that many major firms are still failing to “cascade measurement and action” down their entire supply chain at the speed and scale needed to tackle the interlinked climate and biodiversity crises.

As a result, most smaller companies in corporate supply chains are failing to step up to the plate with robust, ambitious, and science-aligned climate goals, despite the growing number of multinational firms that are publicly committed to cleaning up their value chain – or Scope 3 – emissions, the report argued.

CDP drew its conclusions after assessing 2021 supply chain data provided by more than 200 major companies that collectively represent $5.5tr in procurement spend. The companies which responded to data requests from the investor-backed CDP on the environmental performance of their supply chains disclosed information on more than 11,400 suppliers. Major brands disclosing to CDP include BT Group, McDonald’s, Barclays, LEGO Group, Nike, BMW, PepsiCo, SSE, and many others.

Encouragingly, the more than 200 corporates covered by the study together requested environmental and climate data from almost 23,500 of their suppliers, marking a huge 71 per cent increase on the number of information requests compared to 2020. And, the 11,400 responses received from suppliers reported that they had reduced their emissions by 1.8 billion tonnes – roughly equating to the impact of over 450 coal plants – resulting in financial savings of $29bn, the non-profit said.

However, it also stressed that while these figures confirm progress has been made in the past year, the rate of disclosure and robust target setting from companies across corporate supply chains remains far off the pace required to put the global economy on track to meet the goals of the Paris Agreement.

Today’s report detailing CDP’s latest findings, which has been drawn up in collaboration with Boston Consulting Group (BCG), reveals the number of suppliers setting any climate targets at all – science-based or otherwise – is increasing on average by just five per cent a year.

As it stands, more than half of suppliers disclosing to CDP last year did not have any climate targets in place whatsoever, which if extrapolated forward, would mean it could take at least another decade to ensure all suppliers merely have a climate target in place, let alone a science-based target (SBT), CDP warned. Only 28 per cent reported having a transition plan in place to meet their climate goals at present, while the number of suppliers with an approved SBT is even lower, at just one in every 40, or 2.5 per cent, of the total disclosing to CDP last year.

The organisation accused major corporates of failing to fully assess their supply chain impacts, despite value chains usually accounting for the lion’s share of a company’s environmental footprint, with these emissions on average more than 11 times greater than from within their own core operations.

Moreover, CDP said these corporates were also failing to deliver the requisite combination of pressure and support needed to encourage firms in their value chains to ramp up efforts to tackle a host of key environmental issues.

For example, only 38 per cent of disclosing companies engaged with their suppliers on climate change in 2021, a proportion which drops even further to 16 per cent for water security, CDP’s research found. It also discovered that just 47 per cent of downstream companies – traders, manufacturers, and retailers – were working beyond their first-tier suppliers to manage and mitigate deforestation risks.

Sonya Bhonsle, CDP’s global head of value chains and regional director of corporations, said the supply chain data disclosed for last year “shows that corporate environmental ambition is still far from being ambitious enough”.

“Alongside that, companies have blinkers on when it comes to assessing their indirect impacts and engaging with suppliers to reduce them,” she added. “Companies must act urgently to cascade action and manage environmental impacts throughout their supply chains to scale the level of action to secure a 1.5C future. This is essential for the transition towards a sustainable net zero, deforestation-free and water-secure economy.”

CDP’s findings underscore the huge complexity major corporates face in assessing their value chain impacts and stewarding suppliers towards robust climate goals and action, all of which is coming in for increasing scrutiny from investors and campaigners.

Indeed, the report comes in the same week as a number of major corporates faced fierce criticism over their allegedly lacklustre efforts to tackle emissions across their value chains, after independent researchers at the New Climate Institute on Monday accused some of the world’s most high profile multinationals of setting net zero goals that have ‘low integrity’ and routinely fail to cover the bulk of their value chain emissions. Green business groups hit back at the report, arguing that efforts were already underway to strengthen net zero targets and strategies, with a particular focus on how best to work with suppliers to curb emissions.

But experts also noted that it remains a hugely challenging task for multinationals to locate, measure, engage with, and encourage their complex web of suppliers towards more ambitious environmental action. Any attempt to accurately understand the environmental impact of a modern supply chain is beset by both the risk of double counting and questions as to who is ultimately responsible for emissions produced by one company to serve another company that then sells its products to a third business.

In acknowledgment of the challenges presented by Scope 3 accounting, the Science Based Targets initiative, is currently exploring new types of “target formulations”, which would allow companies to drive emissions reduction across their supply chain without relying on Scope 3 greenhouse gas targets that are hard to practically deliver against, it revealed earlier this week.

CDP has similarly developed new guidance – the Sustainable Procurement Pathway tool – to support companies getting started with measurement and reporting across their supply chain, in a bid to help businesses go beyond their first-tier suppliers to manage and mitigate environmental risks. And, under its partnership with Boston Consulting Group, the organisations are plotting the launch of a new product lifecycle platform to enable companies to collaborate and securely share their product-level sustainability data.

Writing in the CDP report’s foreword, Nicolas Hieronimus, CEO of L’Oréal, said the firm was actively working with its suppliers and business partners to improve their environmental performance, adding that “we cannot address these challenges alone”.

“We want to inspire others to act, and be a catalyst of change in the beauty sector and beyond,” he said. The hope is that the hundreds of thousands of businesses that make up multinational supply chains are feeling similarly inspired.

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