Multinational companies to cut suppliers by 2025 for failing to curb carbon emissions, study
A new study by Standard Chartered reveals that 78 per cent of multinationals (MNCs) will remove suppliers that endanger their carbon transition plan by 2025.
According to Carbon Dated, which looks at the risks and opportunities for suppliers in emerging and fast-growing markets as large corporates transition to net zero, MNCs expect to exclude 35 per cent of their current suppliers as they transition away from carbon.
The study also found that:
Supply chain emissions account for an average of 73 per cent of MNCs’ total emissions
More than two thirds (67 per cent) of MNCs say tackling supply chains emissions is the first step in their net-zero transition, rather than focusing on their own carbon output
Suppliers in 12 key emerging and fast-growing markets can share in USD1.6tn worth of business if they can remain part of MNC supply chains
The net-zero supply chain revolution
Racing against the clock to hit their net-zero carbon goals, MNCs are increasing the pressure on their suppliers to become more sustainable, with companies based in emerging and fast-moving markets facing the biggest challenge.
Some 64 per cent of MNCs believe emerging market suppliers will struggle more than developed market suppliers to meet their emission reduction targets, with a further 57 per cent prepared to replace emerging market suppliers with developed market suppliers to aid their transition.
MNCs are concerned that emerging market suppliers are failing to keep pace for two key reasons; insufficient knowledge and inadequate data. Some 56 per cent of MNCs believe that the lack of knowledge among emerging market suppliers (41 per cent for developed market suppliers) is a barrier to decarbonisation.
With MNCs struggling with the quality of data, two-thirds are using secondary sources of data to plug the gap left by supplier emissions surveys. A further 46 per cent say that unreliable data from suppliers is a barrier to reducing emissions.
Risks and rewards
The study also reveals that the current approach taken by MNCs could create a USD1.6tn opportunity for the net-zero club: those businesses reducing emissions in line with MNC net-zero plans.
This represents a major opportunity for net-zero-focused suppliers across the 12 markets in this study, but also quantifies the potential losses to companies not embracing net-zero transition.
MNCs are also willing to spend more on net-zero products and services. Some 45 per cent said they would pay a premium, of 7 per cent on average, for a product or service from a net-zero supplier.
Carbon, collaboration and compromise
MNCs are exploring other ways to help their suppliers’ transition to net zero. Some 47 per cent are offering preferred supplier status – a sales advantage – to sustainable suppliers, and 30 per cent are offering preferential pricing.
Some MNCs are going further, offering grants or loans to their suppliers to invest in reducing emissions (18 per cent) or data collection (13 per cent).
Jeremy Amias, Vice-Chairman at Standard Chartered Americas, says: “Reducing supply chain emissions will materially support many North American companies’ progress towards their net-zero ambitions. Through collaboration and partnerships, corporations have a unique opportunity to require sustainable supply chains and set in motion commerce that enables the economy and the planet to prosper together.”
Carbon Dated surveyed 400 sustainability and supply chain experts at MNCs across the globe.