February 01, 2012

Companies yet to realize significant emissions reductions across their supply chains despite opportunity for cost savings, finds Carbon Disclosure Project and Accenture

Companies do reveal positive shift toward new low-carbon business models, Asia and Europe lead on supplier transparency of climate change strategy

LONDON and NEW YORK; Feb. 1, 2012 – Despite improving their own carbon performance, multinational companies are not yet demonstrating significant emissions reductions in their supply chains, according to research published today by the Carbon Disclosure Project (CDP) and Accenture (NYSE:ACN). The report on 49* CDP member companies, including L’Oréal, Philips and Walmart, and more than 1,800 of their suppliers revealed that while 43% of responding companies have achieved year-on-year emissions reductions, only 28% of suppliers have done so.

A new era: supplier management in the low-carbon economy is CDP’s fourth annual global study of the preparedness of company supply chains for climate change impacts. The gulf between company emissions and those of their suppliers exists despite the fact that 39% of responding companies have realized monetary savings from their own emissions reductions activities and over a third (34.5%) of responding companies have benefited from new revenue streams or financial savings as a result of their suppliers’ carbon reduction activities.

Extreme weather events disrupted 30% of responding companies’ supply chains in the past year alone and more than half (53%) of the suppliers identify certain or likely exposure to increased operational costs as a direct result of climate change, compounding the need for greater action to reduce Scope 3 emissions - those emissions that occur beyond direct operations and account for as much as 86% of a company’s carbon footprint[1].

The report does reveal, however, that leading businesses are changing their operating models. It shows a marked rise in the proportion of responding companies with climate change strategies that incorporate procurement guidelines (90%, up from 74% in 2009 and 79% in 2010) and that 67% of responding companies include carbon management in procurement policy.

The proportion of responding companies that claim they will deselect suppliers who fail to meet formal environmental criteria within five years has more than doubled from 17% in 2009 to 39% in 2011 and two thirds (63%) of responding companies are also investing in training their procurement staff in supply chain carbon management, a dramatic rise from 26% in 2009 and 41% in 2010.

“Companies are evolving the way they operate to better capitalize on the opportunities presented by carbon efficient supply chains,” says Frances Way, program director for CDP, “Such a large shift in companies’ procurement models is encouraging but since these trends are only now emerging, we are yet to see a transformational impact on suppliers’ emissions.”

The proportion of responding companies that use incentives, such as positive external communications or preferential treatment, to reward suppliers with good carbon management has increased more than threefold within a three year timeframe. 62% of responding companies now also report an incentives policy for those suppliers with effective emissions reduction strategies, a figure which stood at just 19% in 2009 and 28% in 2010.

Additionally, 50% of responding companies have, or are developing, contractual obligations for suppliers to include information on their greenhouse gas (GHG) emissions management in response to requests for proposals (RFPs).

This is the first year that CDP has scored suppliers on their carbon performance as well as disclosure. The scores, awarded by FirstCarbon Solutions, reflect the transparency of suppliers’ climate change strategies and their action to reduce carbon emissions. The results suggest that North American suppliers are likely to be superseded in capitalizing on the opportunities of climate change. Asian and European suppliers received an average score of 52 and 53 for disclosure but North American suppliers scored just 45 of a possible 100. The pattern is reflected in performance scores where, on average, North American suppliers were placed in the D band while Asian and European suppliers achieved C bands.

Despite effective carbon management creating the opportunity for operational cost reductions, less than a quarter (24%) of responding companies help their suppliers to quantify the return on their low-carbon investments. This is identified in the report as a critical way to help companies improve emissions reductions across their supply chains. The other focus areas are improving supplier evaluation, more effective communications with suppliers and more stringent procurement criteria.

“Those companies that use this information to create sustainable, profitable growth through climate resilient and emissions efficient supply chains will be better positioned in the long term, as companies increasingly make carbon emission reductions not only the price of market entry, but a point of competitive differentiation,” says Gary Hanifan, global sustainability lead for supply chain, Accenture, “As companies examine and modify their supply chains to make them more flexible and able to withstand change and the ripple effects of natural disasters, they need to also consider how their supply chains will stand up under environmental scrutiny.”

Note to editors
* All percentages listed as a percentage of companies able to provide information on this subject. The number of member companies responding ranged from 29 – 49.

CDP Supply Chain member companies

CDP Supply Chain currently has 50 members (including one US city), of which the majority are located in North America (20) or Europe (19). They are Accenture, Acer Inc., ASUSTeK Computer, AT&T Inc., Banco Bradesco, Bank of America, British Sky Broadcasting, BT Group, City of Denver, Coca-Cola Company, Colgate-Palmolive Company, ConAgra Foods, Dell, EADS, Eaton Corporation, Eletropaulo Metropolitana Eletricidade de São Paulo, Elopak, Endesa, ENEL, eni, FIBRIA Celulose, Ford Motor Company, Goldman Sachs Group, Imperial Tobacco Group, IBM, Jaguar Land Rover, Johnson & Johnson, Johnson Controls, Juniper Networks, KAO Corporation, Kraft Foods, L’Oreal, National Australia Bank, National Grid, Nestle, Nokia-Siemens Networks, Oil & Natural Gas, PepsiCo, Philips Electronics, Reckitt Benckiser, Rexam, Royal Mail Group, SABESP, Starwood Hotels & Resorts, Suzano Pulp and Paper, Tyco International, Unilever, VALE, Vodafone Group and Walmart.

About CDP

The Carbon Disclosure Project (CDP) is an independent not-for-profit organization providing a transformative global system for companies and cities to measure, disclose, manage, and share climate change and water information. Over 3,700 companies across the world’s largest economies now measure and disclose their greenhouse gas emissions and assessment of climate change risk and opportunity through CDP, in order that they can set reduction targets and make performance improvements. This data is gathered on behalf of 551 institutional investors, holding US$71 trillion in assets. CDP now holds the largest collection globally of self-reported climate change data. For more information visit www.cdproject.net.

About CDP Supply Chain and 2011 response rate

The CDP Supply Chain program provides a global system that allows companies with vast supply networks to collect business-critical climate change information from their suppliers. In 2011, CDP collaborated with these members to gather information on greenhouse gas (GHG) emissions from 4,234 of their collective suppliers. Some 1,864 global suppliers cooperated with this information request, a 44% response rate. This rate, slightly lower than in previous years (54% in 2010), is likely a result of a large increase in the number of suppliers that received the questionnaire and leads to a more comprehensive picture of member’s supply-chain emissions. In addition to the request for information, CDP and Accenture conducted an in-depth formal survey of member companies and their approach to supplier engagement on climate change. Finally, select members were interviewed to draw additional qualitative insights. A team of experts extensively analyzed these sources and conducted supporting outside research to produce this report.

Scoring Methodology

Suppliers are scored on transparency (numeric disclosure score) and in 2011 for the first time on their action on climate change (letter grade performance band). Only those suppliers with a disclosure score of 50 or above are eligible for a performance band. Disclosure scores under 50 do not necessarily indicate poor performance; rather, they indicate insufficient information to evaluate performance. First Carbon Solutions, the 2011 CDP Supply Chain scoring partner, performed the scoring evaluations of the suppliers who did not

overlap with or were not evaluated in the Investor CDP program in 2011.

About Accenture

Accenture is a global management consulting, technology services and outsourcing company with over 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

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[1] Mathews, H.S., Hendrickson, C.T., Weber, C.L., The importance of carbon footprint estimation boundaries (2008). Environmental Science and Technology, 42, 5839-5842.