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New data shows that companies are falling behind on tracking supply chain emissions and risk completely missing mandatory regulation on nature in supply chains. With wide-ranging rules likely to be enforced this decade, companies are being urged to engage their suppliers now on nature and climate in order to be ready in time.
Released today, CDP's 2022 supply chain report, Scoping out: Tracking nature across the supply chain shows that leadership in disclosure on environmental impacts is not happening at the scale and scope required, with only 41% of companies reporting on any of their supply chain emissions.
Nearly 70% of companies reported to CDP that they did not assess the impact of their value chain on biodiversity in 2022, despite the landmark agreement made at COP15 urging countries to encourage and enable large companies and financial institutions to assess and disclose their risks, impacts and dependencies on biodiversity by 2030. Indeed, disclosure on Scope 3 emissions may be required imminently in the EU (the European Sustainability Reporting Standards which covers both climate and nature), the United States (under the Securities Exchange Commission regulation) and in the International Sustainability Standards Board (ISSB) global baseline standard for climate-related financial disclosure.
Most companies have yet to acknowledge that they must tackle their impacts on climate change and nature in the supply chain together, with the report showing that most companies are prioritizing climate disclosure. Across the 18500+ companies disclosing to CDP in 2022, over 7000 companies reported that they engaged their suppliers on climate change compared to 915 on Water and just over 500 on Forests. However, the rate of engaging supply chains is much higher in companies disclosing on deforestation, with 69% engaging with suppliers on the issue, compared to the 39% of companies who disclosed on climate change engaging their suppliers on climate and 23% on water.
A small, but growing number of companies are taking the lead by building nature into business as usual. CDP works with over 280 sustainability leaders via its Supply Chain program, representing $6.4 trillion in procurement spend. Their engagement year on year drives action. For instance, 26% of first-time respondents to CDP report setting climate targets, while 57% of repeat respondents do so, highlighting how annual disclosure drives target setting, and in 2022, companies' suppliers reported saving 70mt CO2 – equivalent to powering over 8.5 million homes for a year – due specifically to CDP supply chain member engagement.
One in every 10 companies include climate-related requirements in their contracts with suppliers, and this is also happening to some extent with deforestation. However, most of these requirements are not yet aligned with 1.5°C climate science, with under 1% (0.04%) of all companies requiring their suppliers to set Science-Based Targets.
CDP data shows senior management teams are not being incentivized at anywhere near the level needed to address key issues such as water security and deforestation in the supply chain. Seventy percent of companies’ top management positions will not be incentivized to act on deforestation before 2025, while only 3% of companies have water-related incentivization in place for their Chief Procurement Officer. For climate, the picture is more positive with 74% of companies reporting board-level oversight on climate change, and 41% of the remaining companies planning to introduce it in the next two years. This is starting to filter down to the buyers, but the report finds that it is very early days.
Sonya Bhonsle, Global Head of Value Chains & Regional Director Corporations at CDP, said: “This year’s report shows that environmental action is not happening at the speed, scale and scope required to limit global temperature rises to 1.5 degrees, with many companies still not acknowledging that their impact on the environment extends far beyond their operations and that of climate change.
“COP 15 couldn’t have been clearer in the call to action on corporate reporting on nature. If a company is not preparing for future regulations on nature in the supply chain, they are open to a wide range of risks and could also be missing out on the opportunities that safeguarding nature will bring. Quite simply, if a company wants to be in business in the future, they need to start embedding nature into the way that they buy and collaborating with suppliers to drive action in the supply chain.
“Therefore, we need to see environmental leadership from companies right now by tackling their impacts on climate change and nature together, working with their suppliers in an integrated way that includes nature as standard, and incentivizing this engagement within their organization.”
Elfrun Von Koeller, a managing director and partner at BCG, added: “Emissions in a company’s supply chain (Scope 3) are on average 11 times higher than direct (Scope 1) emissions and reflect more than 70% of total emissions.
“As such, value chain decarbonization represents one of the most significant opportunities for companies to play their part in reaching net-zero globally before 2050.
“Yet, only less than 5% of disclosing companies have near-term science-based targets, which is the most credible standard. This highlights the opportunity for organizations to move faster and bolder.”
Gabrielle Ginér, head of environmental sustainability at BT Group, said: “Reducing Scope 3 emissions is an important part of our net zero strategy. That’s why we’re working with suppliers and CDP Supply Chain to collaborate on creating a net zero future.
“In the last 6 years we’ve cut our supply chain emissions by 28%, making good progress towards meeting our end of March 2031 42% interim reduction target and getting to net zero by end of March 2041 for our supply chain and customer emissions. We’re tracking progress via our suppliers’ CDP responses.
“We’ve worked with CDP on encouraging companies to start their science-based target journey and now we are starting a new campaign reaching out to suppliers on net zero targets and engaging with their suppliers in turn. This message has been further strengthened as we are asking suppliers with new contracts worth over £25m to have a net-zero science-based target in place or commit to one within six months.”