A major piece of managing corporate climate risks involves managing — and improving — suppliers’ environmental sustainability. It also presents a slew of challenges, with financing initiatives to improve the environmental performance of suppliers’ operations being high of the list.
“Companies face a variety business risks as a result of climate change,” said Business for Social Responsibility associate director Marshall Chase in an earlier interview. “Some of the most significant — such as regulatory impacts on the cost or availability of materials and energy, or business continuity of suppliers during extreme weather events — are supply chain risks.”
Supply chains are responsible for up to four times the greenhouse gas emissions of a company’s direct operations and yet half of major companies’ key suppliers don’t provide requested climate data to their corporate customers, according to a study produced by CDP (formerly Carbon Disclosure Project) and written in partnership with BSR.
“One of the barriers we have identified for responding suppliers under emissions reduction activities has been the availability of financing,” said Dexter Galvin, head of CDP’s supply chain program in an interview with Environmental Leader.
To help fix this, CDP will soon launch a program that will give suppliers that want to minimize their environmental impact access to financing at preferential rates.
“We are in very early stages of development of this concept but we are very excited to be working with a number of major financial institutions and we are in discussion with some of the major development banks,” Galvin said.
Galvin said CDP expects final commitments from the banks in the fall and plans to make this financing available to suppliers at the end of CDP’s climate-questionnaire disclosure period in 2017, which runs April through the end July.
Eighty-nine multinationals representing more than $2.7 trillion in buying power work with CDP to seek data from 8,300 key suppliers on their carbon emissions and climate risk strategies.
Suppliers that report on their carbon disclosure strategies are better able to manage risk — and see financial benefits, CDP says. Around three quarters of the 1,850 repeat participants in CDP’s supply chain program have climate risk management procedures in place and are actively reducing emissions, compared to fewer than half the 1,258 first time disclosers.
“Suppliers that took part in our program for the first time last year averaged $900,000 of savings as a result of each initiative to reduce emissions,” Galvin says. “That number jumps to $1.5 million when suppliers have been disclosing through CDP for three years plus.”
Once they have easier access to low-rate financing, we expect to see the number of suppliers participating in CDP’s supply chain program — and investing in low-carbon operations — grow, which means improvements in businesses and environmental performance across the value chain.
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