Bangalore: Athird of the suppliers to the world’s 34 large corporations don’t perceive any risk to their business from climate change, says a new study.
That’s an alarming find because experts say no matter how well an organization manages its operations, if its suppliers don’t deal with future challenges, particularly the effect of climate change on their businesses, its ability to operate in the marketplace could be seriously affected.
The UK-based Carbon Disclosure Project’s CDP Supply Chain 2008, a report which for the first time looks at how businesses are responding to the call for action in managing carbon and climate change in their supply chain, says Asian suppliers are the leaders in having appropriate governance and remuneration incentives to drive this forward. Asia is followed by Europe and North America. The not-for-profit CDP maintains the world’s largest database of corporate climate change information.
Good work: The CDP report says Asian companies are responding well to a call for action in managing carbon emissions and climate change in their supply chains, a critical component in their performance. Ramesh Pathania / Mint
“This may indicate that climate change is still an emerging issue for North American businesses, and one that has yet to reach the majority of boardrooms,” says the report, which involved 2,318 suppliers selected by CDP members that include The Procter and Gamble Co., Unilever Plc, International Business Machines Corp., Dell Inc., Hewlett-Packard Co., Juniper Networks Inc., Vodafone Group Plc., Kellogg Co. and Cadbury Plc.
From India, 57 suppliers were selected, but only 14% responded to the survey, which had an average response rate of 27%. The highest response rate, country-wise, was from Sweden (88%), South Korea (67%), Taiwan (65%), Japan (63%) and Denmark (63%).
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Industry-wise, the financial sector has the highest level of awareness of physical and general risks at 78% in both cases, with health care and the discretionary consumer goods sectors lagging behind.
“It is an important exercise which will create awareness and competition among companies,” says Prabhat Upadhaya, research associate at The Energy Research Institute in New Delhi. He is not surprised at India’s poor response or, for that matter, Asia’s leadership in having carbon management awareness at the top executive level.
“India and China occupy about three-fourth of the global market in Clean Development Mechanism (CDM), with more than 1,000 projects already under execution in India,” which, Upadhaya says, has created more awareness. CDM is a global environmental investment and credit scheme. As for low response from the suppliers, it’s a function of the local regulatory environment. “Carbon measurement or management is not mandatory in India, so there is no pressure on the companies.”
But if the companies undertake these measures, says Upadhaya, they will have a first-mover advantage when the regulation comes in place or if anything “drastic” happens at the Copenhagen climate change meeting in December, meant to decide a new international protocol.
This is precisely the purpose of the supply chain report, says Paul Simpson, CDP chief operating officer in London, as he thinks businesses and suppliers may not remain financially sustainable if they are not prepared for the “evolving climate change regulatory landscape”.
Many of the CDP member companies are hoping to use their suppliers’ responses to this survey to identify the strengths, weaknesses and climate change adaptation strategies in their supply base. “Regulations are ever increasing and there are no more supplier margins to squeeze for cost,” says the report, written by advisory firm PricewaterhouseCoopers. It hasn’t publicly disclosed the names of suppliers.
Started with the objective to identify the highest impact areas in the supply chain so that they can be jointly addressed, the report will be an annual exercise. “This year, we’d like to include at least two-three large Indian companies from retail, information technology and the consumer goods sector as our members,” says Simpson.
Many suppliers have expressed concern that open disclosure of what they are and aren’t doing may result in penalties or loss of contract. But, Simpson says, this report is meant only to increase engagement with the suppliers, though he doesn’t rule out some enforcement later on.
Experts say carbon and climate change management is a serious issue with critical financial, operational and brand implications. According to Global Futures 2009 estimates, released by the UK-based energy analyst firm New Energy Finance, or NEF, on Wednesday, the economic downturn’s direct impact on CO2 emissions is likely to be “moderate”. It will reduce the total emission by 3%, which is not enough to avert continued climate deterioration. Nor is the present investment in clean energy sufficient to mitigate the climate change impacts.
Clean energy investment—in renewables, energy efficiency, carbon capture and storage—increased from $34 billion (Rs1.8 trillion) in 2004 to around $150 billion in 2007 and 2008 each. NEF expects the global investment to hover around $150 billion per year through the economic crisis.
Graphics by Paras Jain / Mint