# CDP Report Explores Sustainable Supply Chain Transformation
Tom Chapman
September 28, 2024
A new CDP report highlights the importance of managing Scope 3 emissions.
The latest report from CDP underscores the urgency for businesses to address Scope 3 emissions while highlighting the opportunities they present. In an era of increasing environmental scrutiny and regulatory pressure, managing supply chain emissions has become a top priority for companies across industries.
Titled “Strengthening the Chain: Accelerating Sustainable Supply Chain Transformation in China,” the CDP report emphasizes the urgency for businesses to tackle Scope 3 emissions—those generated through their upstream and downstream supply chains.
## Opportunities within Scope 3
Corporate supply chain emissions (Scope 3) are, on average, 26 times higher than operational emissions (Scopes 1 and 2).
This disparity highlights significant opportunities for companies to reduce environmental impact and increase long-term resilience by focusing on their supply chains.
The CDP report, funded by HSBC, draws insights from the collaboration between over 340 corporate buyers and their suppliers through the CDP Supply Chain Program, identifying practices that drive climate action.
The report shows that addressing climate risks in the supply chain makes strong business sense. Companies estimate potential financial losses from supply chain climate risks to be around $162 billion—three times the cost of mitigating these risks at $56 billion.
Despite clear financial incentives, only 25% of companies incorporate these risks into their risk management processes, indicating that actual costs could be much higher than estimated.
## Driving Supplier Engagement
The CDP report emphasizes the critical role of collaboration between buyers and suppliers in reducing emissions.
When buyers offer financial incentives, suppliers are 52% more likely to reduce emissions compared to those who only receive training.
However, significant gaps remain in procurement processes. Only 13% of companies include climate-related requirements in supplier contracts, while less than 6% require suppliers to disclose climate data.
By setting clear climate-related expectations, businesses can bridge the current data disclosure gap and better manage supply chain risks.
This represents a crucial step towards building more resilient and sustainable supply chains.
## Telstra’s Strategic Approach
Australian telecommunications giant Telstra offers a compelling example of successful supplier engagement.
The company has implemented a strategic approach that includes setting ambitious benchmarks for suppliers and gradually raising expectations to help them transition to higher standards.
Telstra explains its collaborative method by saying, “One of the best outcomes from this engagement is opening up dialogue with our suppliers. It’s more like a partnership where we can work together to reduce emissions.”
The company’s strategy involves selecting suppliers based on industry peers as models and prioritizing those based on procurement spend and emissions. By setting higher targets annually and engaging more suppliers, Telstra ensures continuous improvement and progress.
## The Road Ahead
With increasing regulatory pressure and the growing financial impact of climate risks, addressing Scope 3 emissions is no longer an option for businesses.
The CDP report sounds a clarion call to supply chain professionals to take urgent action.
By working with suppliers to provide financial incentives and embedding sustainability into procurement processes, companies can make meaningful progress toward net-zero emission goals and mitigate the increasing risks of climate change.
The time to act is now—and the benefits are clear.
