WEF to Global Business Community: Decarbonize Your Supply Chains

Everyone has an idea on how we can avoid a global collision course with unchecked climate change, but such change will require far more than last week’s big news here in the U.S. Even though the country’s 45th president has left office, there’s still plenty of work that lies ahead on the climate action front if we will limit global warming to 2°C and avoid disaster. True, there is talk about renewables investments, developing cleaner sources of fuel and energy efficiency; but in the end, it’s all about the supply chains, says one well-known international NGO and convener of global leaders.

According to the World Economic Forum (WEF), it’s the decarbonizing of those supply chains that could prove to be the “game changer.” In new research it recently completed in a partnership with Boston Consulting Group (BCG), WEF acknowledges that decarbonizing companies’ supply chains is “hard.” Nevertheless, the report’s authors insist such a climate action strategy would be more effective than simply focusing on companies’ operations or addressing inefficiencies in power and fuel consumption.

WEF points to eight global supply chains that it concluded accounts for more than 50 percent of the world’s greenhouse gas emissions. The industries with these carbon intensive supply chains shouldn't be surprising: they include cars, clothing, construction, electronics, fast-moving consumer goods, food, freight and professional services.

Among those industries, from WEF’s point of view, the industries dominated by consumer-facing companies share one thing in common - their direct emissions from their operations and manufacturing pale in comparison to the total emissions their supply chains (often called Scope 3, or “indirect” emissions) keep generating.

“Supply chain decarbonization will be a ‘game changer’ for the impact of corporate climate action,” said Nigel Topping, of the UNFCCC in a public statement. “Addressing Scope 3 emissions is fundamental for companies to realize credible climate change commitments.”

The WEF-BCG report arrives in the wake of more companies saying they will find ways to tackle their Scope 3 emissions, which include brands such as ExxonMobil, Kimberly-Clark and PepsiCo.

While tackling those pesky supply chain emissions is a difficult task, WEF believes the costs involved are actually minimal. The study’s authors say that about 40 percent of the emissions in those aforementioned global supply chains can be curbed with measures such as circularity, material and process efficiency as well as a shift toward renewables – and that any costs passed onto consumers would result in no more than a 4 percent increase in price.

“Many of these levers are readily available today – with very affordable or even positive economics,” the WEF report noted. “Increasing material and process efficiency often results in cost savings with comparably short payback times, even in jurisdictions that do not levy a price on carbon.”

As for those eight resource-intensive industries, WEF makes it clear a cookie cutter approach won’t work. Take clothing, for example: it’s hardly a surprise that the report concluded less than 2 percent of all of its emissions can be reduced by recycling – but 45 percent of the emissions tied to the worldwide fashion industry are traced to the fact that much of the world’s garment production occurs in regions where fossil-based fuels like coal are dominant.

On the other hand, it shouldn’t be a surprise that within the fast-moving consumer goods sector, improved circularity and a boost in process efficiency could together account for a 40 percent reduction in emissions.

No matter what the industry, one commonality is that companies need to reset the relationships they have with their suppliers.

“Companies aiming to decarbonize their supply chains need to change the way they operate,” concluded the report. “They require more comprehensive data exchange with suppliers and need to set up an organization capable of engaging them on their carbon emissions, as well as integrating emissions into procurement standards and decisions.”

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