Environmental supply chain risks could cost firms £86bn by 2026

Companies face up to £86bn in costs from environmental risks in their supply chains by 2026 according to new research; with manufacturing, food and drinks, agriculture and power generation the most affected sectors.

This is according to UK-based environmental disclosure platform, CDP, whose recent study examined over 8,000 supplier company disclosures in 2020.

To address this risk, corporate buyers are demanding transparency and action from their suppliers to tackle environmental impacts in their supply chains. These include over 150 major buyers with over £3trn in purchasing spend, such as L’Oréal, Toyota and Walmart; they request thousands of their key suppliers to disclose their environmental data through CDP each year and use this data in their procurement decisions and supplier engagement.

The sectors that report the most potential cost increase are manufacturing (£46bn), food, beverage and agriculture (£12bn) and power generation (£8bn).

Sonya Bhonsle, global head of value chains at CDP, said that 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. This gives them a more competitive edge today and helps them become more resilient for the economy of tomorrow. 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,” she explained.

Vivienne Bracken, chief procurement officer, National Grid commented: “As a responsible business, reducing greenhouse gas emissions in our supply chain supports our ambition of reaching net zero by 2050 to deliver a clean energy future for our customers. As a CDP supply chain member, National Grid uses CDP scores to maintain transparency and accountability in meeting customer and shareholder expectations to address climate change. We’re proud to be on the CDP ‘A List’ and are committed to keeping this good work going.”

The environmental risks causing cost increases stem from climate change, deforestation and water-related impacts. These cover physical impacts, for example increased severity and frequency of cyclones and floods, increased cost of raw materials; and regulatory and market changes as the world addresses environmental crises, such as carbon pricing and increased spending on product innovation due to changing customer demands.

Image courtesy: BSI

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