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Feb. 3, 2010

Green Supply Chain News: Review of the New Supply Chain Report from the Carbon Disclosure Project and ATKearney

 

Second Annual CDP Supply Chain Report Details what Suppliers of Member Companies are Doing; A Little too Much Self-CDP Promotion Gets in Way of the Data, We Find

 
By The Green Supply Chain Editorial Staff

This week, consulting firm ATKearney and the Carbon Disclosure Project (CDP) released their 2010 supply chain report, based on analysis of reporting from CDP member companies and their suppliers. (To better understand the CDP, see Understanding the Carbon Disclosure Project.) The full report is available here: 2010 CDP Supply Chain Report.

 

The report takes some time to get to important points (a common trait among CDP documents, we’ve found) and makes little attempt to provide any sense of balance among different views on global warming and carbon emissions; that aside, there are some worthwhile data points as to what companies are actually doing.

 
The Green Supply Chain Says:
Among suppliers who have a CO2 target in place, 70% are working toward an absolute target while 30% use an intensity target.

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ATKearney reviewed the responses from suppliers of the 44 members of the CDP’s supply chain sub-group, which totaled 710 in all (which equals about half the number of suppliers which received the standard CDP supplier survey). It also reviewed data provided by about half of the 44 members themselves. The number of suppliers participating was up about 24% from the previous year.

 

Perhaps not surprisingly, 44% of respondents were from Europe, versus 34% from the US, and 17% from Asia. IT-related companies represented nearly half the respondents. That’s important to note because it skews the results versus the average supplier. It also is likely that since many IT companies have taken the lead in CDP participation (e.g., Dell, HP) versus other sectors, their suppliers are more likely to respond to the CDP survey.

 

The report correctly notes the role of the total supply chain in reducing carbon emissions.

 

“To achieve genuine results, however, companies must address the carbon impact of their supply chains, because 50 percent of a product’s value, and often upwards of 70 percent, is typically derived from suppliers,” the ATKearney authors observe.

 “Companies are finally realizing that consumers are aware that they do not just buy products – they also buy the supply chains that deliver the products,” they add.

The report also says that “In 16 of the 18 industries examined, companies recognized as sustainability-focused (as defined by inclusion in the Dow Jones Sustainability Index or the Goldman Sachs SUSTAIN focus list) outperformed their industry peers and were well-protected from value erosion.”

 

That’s interesting, but could use some back-up detail (though we can assume it is correct); the report, however, does not address logical “chicken or egg” questions that would follow that data, such as whether more financially successful companies can perhaps more afford Green supply chain initiatives, or if there are other cross correlation factors that lead to both better financial performance and Green leadership.

 

We also believe the results of the survey have to be taken in the context that companies active in Green initiatives or anxious to impress their customers are clearly more likely to respond to the survey than those that are less active. This simply means the results are only valid for the suppliers group that responded, not the entire supplier survey population.

 

The report looked at data across four key dimensions:

 

  • Strategic Awareness
  • Carbon Reduction “Ambition”
  • Reporting Capabilities
  • Implementation Practices

 

Strategic Awareness

 

This is a bit of a loaded category, as it seeks to measure “how companies demonstrate awareness of climate change related-risks and who are able to identify specific types of risks that their businesses are exposed to.”

In other words, if you have any doubts about the global cataclysm predicted by the CDC from global warming, a company answering honestly is sure to score “low” from the survey perspective.

The study found that awareness was little changed from last year, especially with regards to the risks that regulatory changes might have on their businesses. All told, 58% of supplier respondents feel exposed to potential future carbon emissions regulations.

We actually think the number of respondents, at 38%, who see themselves as exposed to other regulatory requirements such as water usage controls and product labeling, is probably lower than it should be, as more rules in these areas are certainly coming.

We think the questions asking suppliers if they see themselves at risk of “extreme weather events” from global warming is simply over the top, and probably drives many to answer Yes just to look good.


Carbon Reduction “Ambition”

 

The number of suppliers who have clearly committed to reducing their company-wide emissions is relatively low, the report says. 56% have a reduction plan in place but only 38% describe clear and detailed reduction targets. The number of suppliers that have an emissions or energy reduction plan in place, however, is up 27% from last year’s levels.

As the report notes, however, there is a big gap between CDP member companies and their suppliers in terms of such plans. 82% of the 22 member company respondents say, for example, that they are committed to clear carbon emissions reduction targets.

Among suppliers who have a CO2 target in place, 70% are working toward an absolute target while 30% use an intensity target (meaning lower levels of CO2 per some metric, such as units of output (see graphic below).

 

Noting that 52% of respondents have CO2 reduction targets that go out only two years, the reports says that “This suggests that businesses, before setting longer term reduction goals, are waiting to hear the outcomes of the United Nations Climate Change negotiations that are intended to define the targets to meet from 2012,” after the Kyoto protocol expires.

 

Reporting Capabilities

 

Reporting of carbon emissions (and soon water usage) is obviously at the heart of the CDP’s reason for being, and central to any process and/or regulations used to reduce levels of either CO2 or water usage.

 

As noted above, the percent of suppliers which responded to the supply chain survey increased substantially for this edition, up from 27% in 2008 to 51% in 2009; in other words, participation in the CDP reporting program is itself is viewed as an important measure of reporting capabilities.

 

In 2008, less than one third of participating suppliers were able to report Scope 1 (direct CO2 emissions from operations) and Scope 2 (emissions from utilities used by the business). The report says this year’s results show a significant improvement in supplier capabilities to report Scope 1 and Scope 2 emissions. The numbers have more than doubled – 62% of suppliers currently report Scope 1 emissions and 63% report Scope 2 emissions (see graphic below).

The number of suppliers now reporting Scope 3 emissions (emissions from a company’s suppliers and other categories, such as company travel) has increased compared to 2008, but only marginally, as shown in the graphic below.

 

Implementation Practices

 

While many suppliers have made progress in developing plans and raising carbon emission reduction as a board-level issue, “the depth, commitment and sustainability of implementation across the full supply base are questionable,” the report notes.

An increasing number of suppliers are establishing governance within top management to ensure the completion of carbon reduction activities currently in place. 60% of suppliers have elected a board committee member or other executive who has overall responsibility for carbon management and climate change issues, the report also found.

 

However, the report is critical of the fact that 28% of suppliers have incentives in place for attainment of carbon emissions goals, up just 2 points from 2008. To us, this number seems like good progress, especially considering the economic tsunami most companies faced in 2009.

 

The survey found that 33% of these supplier respondents themselves had strategies to engage their own supply based relative to emissions issues.

 

Summary

 

We wish the CDP reports, including this one, would tone down the self-promotion. This one ends, for example, with this thought: “Member companies are without a doubt at the forefront of carbon management.” There is a lot of that in the report.

 

The problem is that you are left unsure whether this is an objective analysis or mostly a recruiting vehicle for the CDP. Given where we are at in this CO2 reduction movement, we think that if accurate the numbers for what the supply base is doing are actually quite impressive.

 

Nonetheless, the report seems to provide a reasonable snapshot not of what most companies are doing, but what those most aggressive about CO2 emissions are saying and doing, especially those within the high tech industry.

 

What thoughts do you have on our review of the CDC supply chain report? How helpful, at all, is this CDC report to what you are doing? Do you like the aggressive promotion of the CDC membership, or not? Let us know your thoughts at the Feedback button below.


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