Decarbonising our supply chains

The piece by Amy Nguyen is published in The Beam #12. Order it now to read more on the subject.


 

Mitigating the environmental footprint of global production and decarbonising supply chains is critical for environmental preservation and social stability. Through the case study of Indian cotton, how will the emission reduction imperative, in turn, protect workers from changing climate?

Outsourcing value chain activity has increased the complexity of global supply chain operations. Moved by the desire to reduce costs and boost bottom-line performance, the manufacturing of goods has accumulated quite the carbon footprint.

So decarbonising supply chains, tackling environmental inefficiencies and setting science-based targets is at the heart of sustainable business operations. Reducing the pollutive elements of supply chains is essential to meet climate targets set out in the Paris Agreement and the UN Sustainable development goals (particularly the 12th, which pays homage to responsible production and consumption).

What role do corporations have to play in this? It is no longer sufficient to measure emissions accrued through an organisation’s direct operations and facilities. Sustainable supply chains must account for their scope 3 emissions – an indirect cause of activities upstream and downstream that occur within the company’s value chain.

The COVID-19 pandemic has amplified the necessity of this and the latest insights from McKinsey shows that 93% of supply chain executives are planning to increase their operational resilience and re-evaluate their infrastructure.

 

Decarbonisation for environmental preservation

Aligning science-based targets to meaningful actions will help businesses transition to a zero-carbon economy and we are beginning to see evidence of corporate accountability.

The CDP, who recognise and promote environmental disclosure, reported in 2018 that 115 organisations (representing a procurement spend of $3.3 trillion) had requested environmental data from over 11,500 suppliers.

Similarly, in their 2019 Global Supply Chain Report, the CDP disclosed that 125 organisations (representing a $3.6 trillion procurement spend) cut 563 MtC02e worth of emissions. Corporations reported these measures have had subsequent savings of over US$20 billion and so provided a clear business case for decarbonisation.

The development of standard metrics has made achieving these science-based targets more straightforward. For instance, the Corporate Value Chain Accounting and Reporting Standard, designed by the GHG Protocol and World Resources Institute, and Environmental Profit and Loss, invented by Kering Group, help businesses identify where they are accruing the most carbon.

This form of natural capital accounting helped Puma identify that a stark 94% of their environmental footprint originated within their supply chain. By establishing this, they were able to create a new system that eliminated negative externalities or waste and subsequently decreased their carbon footprint by 15% from 2013 to 2017.

 

 

Decarbonisation for social stability

Mitigating the environmental footprint of global production is critical not only for environmental preservation, but for social stability. Effective decarbonisation of supply chains must start from the extraction of raw material, to bring meaningful change to all stakeholders involved in the value chain.

As the most profitable non-agricultural crop, the global production and supply of cotton underlines this. To make progress in removing carbon from raw materials, businesses must make sustainable choices. As Simone Cipriani, CEO of the Ethical Fashion Initiative, recently noted: “Decarbonisation of supply chains starts by using organic materials. For example, organic cotton can reduce greenhouse gas (GHG) emissions due to less use of harmful pesticides and fertilisers which release nitrogen.” Cipriani is right: organic cotton not only reduces GHG emissions by up to 94% according to Global Organic Textile Standard (GOTS) but also decreases the chances of acid rain by 70%.

Yet, as only 1-2% of the cotton produced worldwide is organic, carbon intensive conventional cotton crops represent a substantial risk to growers in the supply chain. Those require excessive water and chemical treatment and neglect fair market prices for farmers. This phenomenon often means labourers are paying higher prices for genetically modified seed which can entrap them in debt – the  pattern behind over 270,000 recorded suicides of Indian farmers since 1995.

The situation in India exposes the correlation between decarbonising supply chains and socio-economic stability. Currently, the country provides over 50% of the global organic cotton production. Yet, based on current climate trajectories, the Indian Ministry of Earth Sciences Assessment of Climate Change estimates the surface air temperatures in India could rise by up to 4.4 °C by 2100. At the same time, heat waves and monsoon seasons currently bring 70% of the rainfall received by India and could disrupt the cotton agrarian economy that employs millions.

Limited freshwater and unpredictable weather patterns will alter cotton farmers’ ability to produce satisfactory yields, on which their livelihoods depend. Increased frequency of extreme weather events will force many to migrate to new rural areas where they may face new problems of subsistence. As a consequence, this is likely to exacerbate local conflicts and strip regions of social cohesion. We already know there is a link between forced migration and amplified social tension, but the Indian cotton industry merely provides a lens to see this.

 

Recommendations

Solving the environmental inefficiencies of supply chains requires radical collaboration. There is no panacea, but there are effective partnerships of Government, buyers, distributors and workers, alongside progressive reform. At a policy level, this looks at widespread carbon reporting, correct energy pricing and carbon labelling. For buyers, a new approach to procurement that uptakes low carbon sourcing, nearshoring as well as supplier incentives, provides hope. Whilst environmental audits hold businesses to account on the carbon intensity of their supply chains, cross-industry efforts to collect more data through agreed reporting standards will sustain momentum. Further to this, the development of network intelligence systems like &Wider strengthens trust between boots on the ground and companies’ headquarters.

 

Final thoughts

Decarbonising supply chains is at the crux of creating climate-resilient business operations.  It is clear that nothing can be truly ethical or sustainable unless it has worked to mitigate its GHG emissions at each and every stage of extraction, production and distribution. Failure to do so puts firms at risk of losing favour with investors, as asset managers lean into ESG analysis and prefer climate-resilient organisations. Ultimately, reducing the environmental impact of supply chains will work to conserve natural capital, biodiversity and socio-economic stability. Achieving a 1.5 °C pathway will reduce vulnerabilities at each stage of the value chain and provide a higher level of security for those most susceptible to the impact of the climate emergency.