In KERAMIDA’s Thought Leadership Blog for CDP, we discussed that “without an ESG Strategy with teeth, there cannot be measurable improvement in a corporation’s financial performance.” The recent pushback to ESG greenwashing has grown as companies have begun to recognize the value of having an actionable climate strategy. The discussions around leading practices in environmental supply chain sustainability that we heard at the 2022 CDP Supply Chain Summit only further reinforce this idea. In this blog post, we want to take the concept further and specifically talk about supply chain management and procurement.

It is clear that companies that proactively manage their supply chain’s emissions and climate-related risks will have an advantage as global regulations, investor preference, and consumer behavior shift towards a decarbonized economy. For example, at the CDP Supply Chain Summit, we heard from multiple lending institutions that give preferential lending to companies with higher ESG scores and companies that have Climate Transition Plans. Why is this? It has to do with risk.

Reducing Risk Through Sustainable Supply Chains

Today’s business climate is complex and volatile. But one thing is certain – investors and Boards don’t like risk. Companies today face growing climate-related risks like changing carbon pricing and regulation, customer behavior, and costs and carbon intensity of raw materials used in the supply chain. There are also the risks of not keeping up with or investing in new technologies to stay competitive, and acute and chronic physical risks from extreme and changing weather patterns.

Companies whose procurement reflects their business strategy to minimize their climate-related risk will simply be more adaptive and resilient in the coming years:

• Adaptive in that they can continuously work toward their long-term goals and quickly adjust those goals when necessary;

• Resilient in that they are better able to absorb and recover from shocks.

This approach gives companies a clear advantage over their competitors who are not considering climate-related risks in their business practices.

Supply Chain Resilience Example

Consider a manufacturer whose product is primarily comprised of carbon-based steel. This manufacturer understands that steel is a carbon-intensive input to its supply chain, so it secures its steel from the lowest carbon-emitting steel producers or those who have invested in transitioning to low-carbon production methods. The steel industry is already regulated from a compliance perspective and steel plants are currently required to disclose certain GHG emissions to EPA through the mandatory reporting rule. However, with additional regulations on the horizon, this manufacturer will have the upper hand because they will minimize their risk to supply shortages and will be able to continue to work toward their long-term business goals despite the potential blow to the industry as a whole and its supply chain.

At the CDP Supply Chain Summit, we heard numerous examples of similar cases which validated our experience working with our clients – companies gain a competitive advantage by evaluating their supply chain through the ESG lens and adjusting their procurement practices accordingly.

Contact us or call (800) 508-8034 to speak with one of our supply chain sustainability experts today.

Author

Becky Twohey, Ph.D., GRI, FSA
Vice President, Sustainability
KERAMIDA Inc.

Contact Becky at btwohey@keramida.com.

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