Tuesday 9 February 2021

Cost of environmental supply chain risk predicted to hit $120bn in five years

By 2026 companies could face up to $120 billion (£88.4bn) in costs due to environmental risks in their supply chain with consumers picking up the tab.

Research by non-profit organisation CDP, that analysed data from more than 8,000 suppliers submitted throughout 2020, revealed the environmental risks causing the increase in costs vary from climate change, deforestation and extreme weather such as cyclones and floods.

The cost of carbon and the need for innovative technologies to meet customers’ demands are also listed.

The manufacturing industry is reported to bear the highest cost increase at $64 billion (£47bn), followed by power generation and the food, beverage and agriculture sectors.

The report suggests that due to companies’ tight profit margins, these increased costs are likely to be pushed onto their respective customers.

Sonya Bhonsle, Global Head of Value Chains at CDP, said: “With $120 billion (£88.4bn) at stake, addressing environmental risks through supply chain engagement is vital for companies to be competitive and resilient in the changing market.

“Leading companies that address these risks will benefit from lower costs and better reputations. This gives them a more competitive edge today and helps them become more resilient for the economy of tomorrow”.

Major buyers such as Google, Toyota and L’Oreal are calling for more transparency from their suppliers.

They have requested that suppliers reveal their environmental data and begin to tackle it in the right way.

The number of buyers doing this has increased by 19% from the previous year, as many have set science-based targets, requiring them to cut their supply chain (Scope 3) emissions.