Multinationals plan to drop 35% of suppliers by 2025

Eight in 10 (78%) multinationals plan to stop sourcing from suppliers who endanger their carbon transition plans by 2025, a survey has found.

A report by Standard Chartered, Carbon Dated, polled 400 multinationals worldwide and found firms expected to exclude 35% of current suppliers as they transition away from carbon.

Almost two-thirds (64%) believed emerging market suppliers were likely to be hardest hit as they will struggle more than developed market suppliers to meet emission reduction targets.

And 57% said they were ready to replace emerging market suppliers with developed market suppliers to avoid disruptions to their transition.

Insufficient knowledge and inadequate data were listed as two of the main reasons emerging market suppliers might fail to keep pace.

More than half (56%) said lack of knowledge among emerging market suppliers was a barrier to decarbonisation, while 41% believed this was the case for developed market suppliers.

Two-thirds (67%) said reduction of supply chain emissions was the first step in a net-zero strategy.

The report said these firms were hoping for rapid transformation among suppliers because supply chain emissions accounted for an average of 73% of total emissions.

“Setting net-zero mandates for suppliers may seem like an easy win to [multinational company] leaders, compared to the direct action they would need to take within their own organisations to tackle scope one and two emissions,” said the report.

“However, this is creating significant challenges for suppliers – especially those in emerging markets and fast-growing economies.”

The study said a shift away from non-compliant suppliers could create an opportunity worth $1.6tn for others capable of capitalising on the trend.

Almost half (47%) would offer a net-zero supplier preferred supplier status, 30% would provide preferential pricing, and 45% said they would pay a premium of 7% on average for a product or service from a net-zero supplier.

Others were offering grants or loans (18%) while 13% were assisting suppliers with data collection.

Bill Winters, group chief executive at Standard Chartered, said: “It’s no surprise that as multinational companies transition to net zero, they will have to ask to their suppliers to evidence their own transitions. However, suppliers – especially those in emerging and fast-growing markets – cannot go it alone.

“[Multinational companies] need to incentivise their suppliers to help them kick start their transition journey, but governments and the financial sector have a role to play too by creating the right infrastructure and offering the necessary funding.”

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