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3 Lessons For A Greener And More Profitable Supply Chain

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What do three leading chemical, automobile, and software companies have in common? All three – Honda, BASF and SAP– are looking to curb risks and take advantage of opportunities across their global supply chains. They’re doing so by measuring their greenhouse gas emissions not just in their operations but up and down their value chains.

Many other multinationals are heading in the same direction. The Carbon Disclosure Project’s (CDP) annual survey of the Global 500, released last month, reveals that seven in ten respondents measured some value chain emissions in 2011, up from about half in 2010. (Note this figure is based on WRI’s analysis of the 405 companies that submitted data to the CDP 2012 survey data.)

What’s driving the world’s biggest corporations down this path? In a nutshell: reputation, risk and opportunity.

First, business leaders are recognizing that companies’ global value chains are increasingly under scrutiny by consumers, the media, and most importantly investors. A case in point is the unwelcome attention Apple has received for its association with its Chinese supplier, Foxconn. Retailers and corporate customers, too, are increasingly asking suppliers how they apply sustainability principles to the products they produce. Given the attention, corporations ignore supply chains risks at their peril.

Second, companies are increasingly aware of their exposure to environmental risks, such as climate change and water scarcity, through impacts on their suppliers. In particular, recent extreme weather events have put corporate leaders on alert. This summer’s record-breaking U.S. droughts have had ripple effects well beyond agriculture, including on the food and drink industry. Likewise, the 2011 floods in Thailand that shut down electronic components hit many Fortune 500 technology companies.

Reflecting such real world threats, 81 percent of companies responding to the CDP survey said they faced physical risks from climate change. Thirty-seven percent went so far as to describe them as “a real and present danger.”

Turning Risk Into Reward

On the flip side, measuring value chain emissions can unearth hidden treasure in terms of efficiency and cost savings. Gaining an understanding of greenhouse gas hotspots in the value chain also helps to focus efforts for product design improvements and reveal additional opportunities for innovation.

Raw material suppliers often account for a large percentage of a company’s environmental footprint, especially in sectors such as retail, and food and beverages. For example, Kraft Foods found that 70 percent of its greenhouse gas impact comes from its raw materials. Companies can deploy emission inventories to identify actions that help their suppliers save on energy and fuel use, leading in turn to bottom line benefits.

This is the goal for first movers like BASF, SAP and Honda. And it’s where the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Standard comes in. Launched a year ago, by the World Resources Institute and the World Business Council for Sustainable Development (WBCSD), the pioneering standard provides a step-by-step guide to measure and report value chain emissions.

Lessons From Three Companies...Read more on Forbes.com

Last modified on Tuesday, 16 October 2012 08:05

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