For business leaders, environmental impacts have become impossible to ignore. In a world of raging wildfires, rising temperatures and deluged cities, they know they must act. Investors are increasingly calling on companies to understand and mitigate the risks posed by climate crisis, deforestation and water insecurity - and companies are responding.
Yet, all too often, businesses fail to look beyond the borders of their direct operations.
As supply chains wrap around the world in complex ways, so do environmental challenges. A company’s environmental responsibility and reputation no longer ends with its organisational boundaries; it covers its entire value chain. Public scrutiny is increasing for corporations who outsource their environmental impacts to other companies and countries.
Moreover, the physical impacts of climate change cause delays, higher costs, supply disruption and infrastructure damage, while the human impact throughout the value chain can be profound.
Engaging suppliers on the environment is therefore essential for the transition to a sustainable economy. The power rests with companies to enact change and spark action down the chain.
The leaders on supplier engagement
We are already seeing the first-movers stepping up –as shown by CDP’s latest Supplier Engagement Leaderboard.
These 159 companies have come out top on CDP’s Supplier Engagement Rating (SER), which exists to independently evaluate and spur action among the 8,400 (and growing) companies who annually disclose their environmental data through CDP.
Big names such as Barclays, Kellogg Company, McDonald’s Corporation and L’Oréalare on the list, with a range of sectors and operational regions represented. Japanese plastics manufacturer Sekisui Chemical Co., Ltd and Brazil’s biggest paper producer, exporter and recycler, Klabin S/A, feature alongside the UK’s National Grid and the Chilean sanitary group Aguas Andinas SA.
So, what does leadership mean in supplier engagement?
The rating focuses on climate-related issues, evaluating the company’s emissions across its value chains (scope 3 emissions), the strength of its governance, the rigour of its environmental targets, and its supplier engagement strategies. Companies engaging their suppliers may consider environmental performance as a factor in procurement, run education and training, incentive strong performance with awards schemes and encourage transparent disclosure of environmental information.
Since supplier engagement cannot work if it is at odds with a business’s internal standards, the SER factors in the company’s overall CDP score on climate change.
The best strategies are based on reliable data. That’s why 125 companies have become supply chain members of CDP over the last decade, asking their suppliers to disclose their environmental impact. This drives transparency along the value chain, and provides critical data on which robust engagement strategies can be built. Together, buying and supplying companies can work to tackle an identified risk, such as a regulation, or an opportunity, like a collaborative emissions reduction activity.
This new wave of corporate sustainability leaders takes responsibility for the impacts of their value chain. They know they cannot understand and mitigate climate risks without working with their suppliers.
A cascade of environmental action
Once engaged by their corporate customers, the next companies in the chain must unleash the ripple effect: suppliers themselves must work with their own suppliers.
Here, we are seeing a promising trend, with more suppliers reporting engagement with their own supply chains on the issues of climate change, deforestation, and water security. But there is still a long way to go to.
CDP data shows that the percentage of responding suppliers who report engaging their own suppliers on climate change risk has increased by 35% to 40% from 2018-2019. For engagement on deforestation issues and sourcing sustainable raw materials, this grew modestly from 23% to 24%. Reported engagement on water security grew from 17% to 18% between 2018 and 2019.
Join the leaders
The Supplier Engagement Leaders are paving the way. Now is the time for all businesses to join them, to emulate best practice and spark a cascade of environmental action. Actors at each stage of the value chain must in turn encourage the companies whose goods and services they are using to engage on environmental issues.
As more companies step up, the SER criteria is set to get tougher, mobilising a race to the top among business leaders.
To end deforestation, safeguard water resources and avoid the worst impacts of climate change, the private sector needs to unleash action on a mass scale. Purchasing companies hold the leverage. Unlock the power of your supply chain, and help trigger the change so urgently needed.
Find out which pioneering companies are named on this year’s Supplier Engagement Leaderboard.