Organizations are prompted to take a holistic view towards carbon management with the issue of greenhouse gas emission constantly topping government agendas and compelling scientific evidence indicating that climate change is real⁽¹⁾. Organizations are not just looking at their own operations and how to manage their own emissions but now are looking at their supply chain and examining activities they have undertaken. Some suppliers are now expected by some of their global customers to demonstrate greenhouse gas emissions management, awareness and action, in order to maintain business relationships⁽²⁾.

The Carbon Disclosure Project (CDP) recently released its Supply Chain Report 2010, highlighting findings from forty-four Member companies about how businesses are responding to the call for action and transparency in managing carbon and climate change in their supply chain.

Tracking the life cycle of a product’s and/or service’s carbon footprint from idea to final product is the depth organizations need to take when measuring their carbon management activities. According to the CDP Supply Chain Report, organizations should address the impact of carbon on their supply chain because 50 percent of a product’s value is typically derived from it. Therefore, when a consumer purchases your product they are also buying the supply chain that helped deliver it.

The CDP Supply Chain Report recommends that you measure your suppliers against four dimensions to assess their current status of carbon management capabilities. These four dimensions are defined below:

Strategic Risk Awareness
Evaluating the strategic awareness level of your supply chain and its perceived risk associated to climate change is a key starting point. Measure the awareness levels of risks related to regulatory developments, cap and trade exposures, mandatory technology requirements and energy carbon taxes. Also, assess your suppliers understanding of risks as it relates to physical changes to the environment due to extreme weather, temperatures, rainfall patterns, flooding and rising sea levels. Innovative suppliers will look beyond the risks of climate change by turning these risks into opportunities.

Carbon Reduction Ambition
The next step is to evaluate if your suppliers have any carbon reduction targets or strategy set in place today. The CDP Supply Chain Report, reports that the number of suppliers committed to reducing companywide emissions is relatively low, with only 38% of suppliers having a clear and detailed reduction plan in place. It’s important to distinguish whether your supplier’s targets are Absolute or Intensity emission reduction targets. Meaning, are goals defined by a period of time (absolute) or a ratio relative to a business metric (intensity)? Typically absolute targets will deliver greater emissions reduction than an intensity related goal. Also, you should evaluate whether these targets are short or long term. Sustainable targets should be 10 to 15 years in length.

Reporting Capabilities
Transparency and accuracy of data is the heart of a successful carbon management strategy. You should measure the level of reporting capabilities that your suppliers have and the validity of the data. You should ask questions such as; do your suppliers have an established emission baseline? Are they publicly reporting their emissions data? Is this data verified by a third party? It’s important to note that the lack of standard reporting methodology is a challenge that many organizations are facing today.

Implementation Practice
Lastly, despite documented climate change strategy, are your suppliers taking any action to implement measures they’ve set out for themselves. This will distinguish between who is serious about carbon management and who is not. Important questions to ask include do your suppliers have any governance mechanism in place for carbon management? How important is the issue of climate change at board level? Are there any incentives for employees to achieve corporate reduction targets?

The next step is to collaborate with your suppliers. You will be successful if you engage with suppliers and share best practices regarding carbon management. Incorporating incentive measures into your collaboration is a fundamental step to take. Rewarding suppliers for emission reduction plans and achievement of targets will only encourage change management. Achieving change management will be the difference between organizations that are successful and those who are not.

In summary, it’s important for organizations to address their suppliers about carbon management activities and understand what they’ve accomplished. Building a sustainable business also means building a sustainable supply chain.

To download the CDP Supply Chain Report 2010 Click Here.

¹ Intergovernmental Panel on Climate Change Fourth Assessment Report, 2007
² Carbon Disclosure Project Supply Chain Report 2010