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Supply chain costs could reach $120 billion on environmental risks

Published February 17, 2021

Supply chain costs could reach $120 billion on environmental risks

Businesses are facing up to $120 billion in costs by 2026 from environmental risks in their supply chains, according to research.

The CDP, a not-for-profit charity that runs a global environmental disclosure system, conducted the research, releasing the results in their Transparency to Transformation: A Chain Reaction report.

The report revealed that $120 billion of increased costs from environmental risks, such as climate change, deforestation and water-related impacts, could come from suppliers in the next five years. These increased costs are also likely to pass down to end users.

“With $120 billion at stake, addressing environmental risks through supply chain engagement is vital for companies to be competitive and resilient in the changing market. Leading companies that address these risks will benefit from lower costs and better reputations… Meanwhile, laggard companies risk being left behind. As the climate and ecological crisis worsens and the economy shifts, it’s essential for both business and society that we have a Green Recovery from COVID-19 and build back better. Smart business procurement is key to that transition,” said Sonya Bhonsle, Global Head of Value Chains at CDP.

Climate action is lagging in the global supply chain, and the research shows that just 37% of suppliers are making sure their suppliers are cutting emissions. Due to more comprehensive emissions data, the report also revealed that supply chain GHG emissions are 11.4 times higher than operational emissions on average, and in some cases even as much as 28 times higher.

As a result, corporate buyers, including blue chip companies such as Google, Toyota, and L’Oréal, are asking for transparency and more action on climate impacts. In part this is due to these major buyers themselves setting science-based targets and putting an emphasis on reducing their Scope 3 emissions, which are tied to the supply chain.

Last year, suppliers cut emissions by 619 million metric tons of C02e, saving US$33.7 billion in the process. More suppliers are also disclosing data, with the number increased from near 7,000 to over 8,000 in 2020.