Firms threatened by $120bn supply chain costs

Companies such Google, L’Oreal and Walmart are at risk of incurring $120bn in supply chain costs due to sustainability impacts, according to research.

A report by CDP, an environmental reporting platform, said climate change, deforestation, inflated raw material prices, regulatory changes and carbon taxes risked pushing up supply chain costs by $1.26tn by 2026.

CDP analysed data from over 8,000 suppliers who disclosed information to their corporate customers through CDP's platform to arrive at the figure. CDP's clients include over 150 major companies, with an overall purchasing spend of over $4.3tn.

CDP said a "domino effect" leading up the supply chain to buyers could result in $120bn direct costs to companies.

Manufacturing was found to be the most at-risk sector with potential costs of $64bn, followed by food, beverage & agriculture with costs of $17bn, and power generation with $11bn. 

In 2020, suppliers saved $33.7bn by cutting 619 tonnes of CO2 emissions, said the report. However, there is still a lack of transparency and action further down the supply chain, with only 37% of suppliers getting their vendors to disclose data to CDP.

Sonya Bhonsle, global head of value chains at CDP, said with $120bn at stake, engaging the supply chain to tackle environmental risks was vital for ensuring “competitiveness and resilience in the changing market”. 

She added: “Leading companies that address these risks will benefit from lower costs and better reputations. 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.”

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