It’s Time to Embed Climate Considerations Into Supply Chain Strategies

March 16, 2023

As companies focus on reducing their greenhouse gas (GHG) footprint, buyers and suppliers have an opportunity to embed climate considerations into their supply chain strategies. In the process, they can reduce vulnerabilities and potentially outperform their competitors.

The first step toward driving decarbonization into the supply chain is to identify where the most carbon emissions are occurring, and where climate change will most materially impact the business. Which products and services are most susceptible to risks such as extreme weather patterns and fluctuating fossil fuel prices? For companies facing supply shortages, distribution delays and inflationary pressures, the ability to manage climate-related risks and opportunities across the supply chain is critical to meeting customer expectations.

Extreme weather events caused by climate change threaten the movement of goods globally. In response, companies must design their supply networks for resilience. And, through adoption of renewable energy sources, they can bring price stability to suppliers and their buyers.

KPMG’s 2022 U.S. CEO Outlook, featuring insights from 400 chief executive officers of large companies, examines the key challenges and opportunities in driving business growth at a time of disruption and uncertainty. Survey respondents cited the complexity of decarbonizing their supply chains as the greatest barrier to achieving net-zero emissions, or similar climate ambitions.

Some companies are beginning to require suppliers to commit to setting carbon-reduction targets as a way of meeting their own decarbonization goals. Suppliers that can demonstrate the ability to reduce emissions faster than their competitors are more appealing to buyers and investors.

Adding to the pressure is a shift by investors toward organizations that can prove their emissions are decreasing. Global banking institutions, private equity and venture capitalists want to ensure that their portfolios are aligned with global sustainability targets.

Priority actions for environmental, social and governance (ESG) improvements in 2023 include the following:

  • Operationalizing the ESG strategy by aligning the objectives of each function within the business, including finance, HR, IT, operations and procurement, to track GHG emissions.
  • Capturing real-time operational data along the supply chain for measurement and reporting of GHG emissions.
  • Building end-to-end visibility into the supply chain to see where goods move, the supply chain partners that are moving them, and their sustainability credentials. This capability should extend to Scope 3 emissions — those generated by supply chain partners over which the buyer has no direct control.

In the coming years, ESG, and particularly climate, will become a primary consideration in supply chain management. Major companies are increasingly evaluating their supplier relationships and networks, and adjusting them in reaction to a variety of emerging disruptions. Those who want to outcompete will use climate change as a lever to manage future risks, and uncover new opportunities for value creation.

Blythe Chorn is advisory managing director, C&O commercial, with KPMG US.

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