What a difference a decade makes. A new report from CDP found that over the past 10 years, the world’s biggest purchasers requested transparency from their suppliers, resulting in significant environmental action.
The report, called Cascading Commitments: Driving Upstream Action Through Supply Chain Engagement is based on data disclosed through CDP by 5,562 suppliers. Purchasers include Bank of America, Dell, Kellogg Company, Unilever, and Walmart.
To learn more, we caught up with Sonya Bhonsle, the global head of CDP’s Supply Chain program.
What prompted the new report?
This year CDP’s Supply Chain program celebrates 10 years of driving environmental disclosure at the request of purchasers. The report was written by CDP in conjunction with Carbon Trust using CDP’s Supply Chain program data submissions. It features insights from the 115 member organizations with $3.3 trillion in annual procurement spend that requested suppliers report their current environmental information.
What are the main takeaways, especially around those supplier relationships?
The lesson is that large public and private sector organizations can drive effective change by using their substantial procurement spend as a powerful lever for action. If other corporate sustainability leaders follow their example and suppliers continue to cascade good practices and commitments further down the supply chain, this can play a huge role in the rapid transition to a sustainable, low-carbon economy.
It can also benefit the bottom line. Suppliers reported emissions reductions this year equivalent to 633 million metric tons of carbon dioxide, an amount greater than 1% of all current global emissions. And these were associated with annual monetary savings in excess of $19.3 billion for those companies.
Could you discuss some effective supplier relationships?
There have been numerous successful collaborations where sustainability commitments and positive change cascaded upstream through supply chains. This cascade can be illustrated with three members: Walmart, L’Oréal, and Firmenich.
The CDP Supply Chain program began with retailers and consumer goods. Walmart was a key champion, as they saw the benefits in disclosing to CDP. It helped them identify weaknesses in their strategy and opportunities to improve. They wanted this cascaded to their suppliers.
CDP and Walmart, alongside Tesco, then talked to some leading suppliers about whether they would take part. L’Oréal, having previously disclosed at the request of its investors, opted in as a founding member. They asked their suppliers to disclose.
Firmenich, a flavor and fragrance company supplying L’Oréal, had never heard of CDP before L’Oréal asked them to disclose. They went on a 10-year journey to achieve A scores across climate change, water security, and forests — and they achieved the top supplier engagement rating. They started engaging with their suppliers two years ago through CDP. So action on climate, water, and deforestation cascades down the supply chain.
Are there major challenges in general around supplier disclosure?
Despite the scale and reach of CDP Supply Chain program members, they need to extend their influence far beyond the suppliers they engage with directly. Their efforts need to ripple upstream through the supply chain. Currently this does not appear to be happening often enough.
Across the board, suppliers are still reporting low levels of engagement with their own supply chain on climate change, forests, and water security.
Have you seen solutions start to emerge?
Disclosure is the first step in engaging suppliers and prompting change, and we have seen that it does work. Since 2008, the level of engagement with the CDP Supply Chain program has grown rapidly. This has driven a fundamental shift in supplier behavior. The number of suppliers disclosing to CDP has increased year-on-year from 634 businesses in 2008 to 5,545 in 2018.
As organizations recognize financial and environmental benefits achieved in their own operations from becoming more energy and resource efficient, they feel confident asking suppliers to do the same. This has been supported through practical tools to evaluate upstream environmental impact and set measurable targets.
Science-based targets enable companies to reduce emissions on a path in line with meeting the Paris Agreement goals rather than setting arbitrary targets. Of the 5,500 suppliers that reported to CDP this year, 165 have committed to science-based targets.
What will supply chain disclosure be like in another 10 years?
CDP surveyed current program members about how supplier environmental performance factors into procurement decision-making. The results revealed that engagement on sustainability is becoming business-as-usual. In 2008, just 4% of the 27 major purchasing organizations said they were deselecting suppliers based on environmental performance. Today, 43% are doing that, with a further 30% considering implementing a similar process in the near future.
Over the same period, the relevance of environmental disclosures and data in the contracting process has exploded from just 9% that would have considered using this in 2008 to 63% this year. When asked to look ahead a decade into the future, this number grows to more than of 90% of members.
To meet the potentially devastating environmental issues the world faces, in the next 10 years we need every business to be engaged and taking action, not just a handful of leaders. The power of purchasing can play a huge role in bringing everyone to the table.