Katharine Earley highlights key findings and best practice examples from Bank of America, L’Oréal, BT Group, Jaguar Land Rover, and Johnson & Johnson in this year's CDP Supply Chain Report.
The good news to arise from the CDP’s 2012 Supply Chain Report – Reducing risk and driving value – is that more companies are actively integrating sustainable processes across their operations, with the leaders moving beyond compliance to reap clear financial benefits, explains Dexter Galvin, Head of CDP Supply Chain. However, despite 2,363 suppliers and 52 multinationals participating in the 2012 survey – the best response to date – there is still a stark performance gap between the companies at the forefront of supply chain sustainability and their suppliers, who are visibly lagging behind. This poses both a serious climate risk and an opportunity for collaboration, says Accenture’s Aditya Sharma.
CDP Supply Chain Report – in brief
1. Extreme weather is a major driver for investment
70% of the companies surveyed believe that climate change has the potential to significantly impact the bottom line, as more frequent extreme weather events sound alarm bells across the globe. More than half of the risks precipitated by drought and heavy rain are already taking their toll on company operations, or may do within the next five years, the report reveals. The sheer destructive force of nature is likely to be a key driver for investment on climate change, sending businesses hurtling to mitigate risk and invest in climate friendly initiatives.
2. CDP members are realising the business benefits of sustainable procurement
Companies no longer feel that they are ‘reporting into a vacuum’, believes CDP’s Dexter Galvin, with those at the top of their game using data to create meaningful targets and create real, quantifiable changes across their supply chains. Importantly, sustainability is increasingly being integrated into procurement assessments and there has been a rise in companies creating ‘sustainable procurement’ roles.
73% of members are achieving financial savings, such as reduced energy costs, while only 29% of suppliers experience similar returns. Demonstrating these savings is helping to reinforce the business case for sustainability. Product service and innovation is also playing a role in increasing revenue, while beyond financial benefit, companies actively embracing sustainable processes are also enhancing their corporate reputations and engaging more effectively with customer trends.
Overall, European and Asian companies are still outperforming companies in North America, the report reveals.
3. Suppliers lack ambition to act on climate change
Suppliers show far less ambition to address their environmental impacts, casting a shadow over their relationships with customers and heightening supply chain vulnerability. Just 38% of suppliers are setting emission reductions targets, compared to 92% of purchasing companies, while a mere 27% invest in activities to reduce emissions, vs more than two thirds (69%) of CDP member companies.
Alarmingly, of the more than 6,000 suppliers approached, 3,627 did not respond and 173 declined to take part. It’s interesting to note that these are the best figures yet for supplier participation, which suggests that pressure from large corporate purchasers is working to an extent. Typically, suppliers receiving three or more requests to report physical risks related to climate change are more likely to respond.
There is a compelling reason for suppliers to get moving though, as those (29%) who have taken steps to reduce their emissions saved a collective $13.7bn as a result.
4. An integrated approach is required to deliver on the business case
The CDP recommends approaching supply chain sustainability by first analysing and learning from the report data, integrating sustainability into every day processes (by creating robust supplier performance measurement techniques, for example), improving operational efficiency and managing communication and collaboration across all areas of the business more effectively.
Jaguar Land Rover
- JLR’s stance on supply chain sustainability is driven but its ‘Environmental Innovation’ agenda and commitment to reducing operating CO2 emissions. As part of the automotive industry, the company believes it has a significant role to play in reducing emissions by optimising vehicle design and manufacturing processes.
- Measuring CO2emissions across its supply chain is helping the company to shape future targets and obtain data that can be used in future sourcing decisions.
- The company has a robust plan in place to engage collaboratively with its Tier 1 suppliers. It asked 26 suppliers to disclose in 2011, which increased to 120 in 2012. Moving forward, the company will actively used the CDP data to identify areas of risk within its supply chain as well as opportunities for energy reduction projects. By 2015, it hopes to reduce its CO2footprint across its global automotive supply base, with a global standard in place to which suppliers must adhere.Those suppliers who show a willing to co-operate are doing so to get ahead of impending legislation, identify cost savings and secure a strong competitive position for future growth.
Johnson & Johnson
- The company’s vision is to create a ‘healthy and sustainable future’ for people, planet, and business. This is neatly summed up by the company’s ‘Credo’, a corporate commitment written 60 years ago, encapsulating its core values. Johnson & Johnson introduced its first company-wide goal to reduce environmental impacts in 1987.
- The company has evolved its approach to sustainability over the years, culminating in ‘Healthy Future 2015’ a five-year strategic roadmap on sustainability. All suppliers will be required to meet two or more publicly reported sustainability goals (covering for example energy reduction, waste, water use, workforce injury etc). The thinking is that this will lead to greater accountability, which in turn will generate action and impact.
- Johnson & Johnson has learnt that clear, quantitative, public goals yield better results and that stakeholders seek different details but expect transparency. It perceives that setting broad, multi-disciplinary goals has become the industry standard.
- Participating in the CDP has reinforced Johnson & Johnson’s belief in disclosing data and identifying risk, and importantly, in using these learnings to drive business value.
- Despite increased demand for BT bandwidth, BT reduced its energy consumption by 3.3% (vs 2% target) for 2011. Its energy saving programme delivered savings of £21.9m in 2012. Contributing factors included the installation of SMART meters, more efficient networks and data centres, building and space rationalisation, and more efficient boilers.
- BT aims to have its top 200 suppliers reporting carbon emissions to the CDP by 2014. It will carry out in-depth work with its top 10-15 suppliers (by spend), review how suppliers’ carbon targets tie into BT carbon target aims and monitor actions taken by SME suppliers who attended carbon workshops (with a view to developing best practice case studies).
- In the long-term, BT plans to expand its ‘Better Future Supplier Forum’ to drive sustainability best practice and product manufacturing in China. It will also encourage more suppliers to undertake CDP reporting and to engage more rigorously with their Tier 2 suppliers.
- L’Oréal has three overarching sustainability aims: to cut its CO2emissions, water use and waste by 50% by 2015. By the end of December 2012, the company had already achieved 38%, 23% and 20% reductions respectively.
- The company has actively used CDP Supply chain reporting to reinforce its strategy in terms of supplier environmental sustainability. Following an 87% response rate (from 55 invited suppliers) in 2011, the company developed the L’Oréal-CDP Supplier Scorecard (jointly with CDP) and invested in the training of more than 100 buyers in four geographical zones. Nearly three times the number of suppliers were targeted in 2012, achieving an 85% response rate.
- L’Oréal plans to build on this success by briefing their buyers on the latest round of CDP Supply Chain results. The buyers will then present the findings to their suppliers and work with them to encourage GHG emissions management and emissions reduction targets.
Bank of America
- Bank of America is committed to ‘walking the talk’ on sustainability. Internally, the company has invested £150m in energy efficiency, generating $35m of savings annually. It aims to reduce its overall GHG emissions by 15% by 2015. It also has a strong employee engagement programme in place, with 13m ‘environmental ambassadors’ nominated worldwide.
- The company is committed to providing capital for businesses that create positive environmental impacts. Its current $50bn, ten-year commitment to drive change builds on its previous $20bn investment, which financed initiatives spanning energy efficiency, renewable energy and hybrid cars.
- Bank of America is working collaboratively with its suppliers to reach its GHG targets. Importantly, it’s using its CDP report data to collaborate with suppliers. For example, it has created a grant programme to help suppliers who set carbon reduction targets. It also actively monitors whether suppliers have a reduction target in place. Additionally, each supplier will receive a ‘snapshot’ of their performance in the CDP survey.
To download the full report, please visit Reducing risk and driving business value.