A new study by Standard Chartered reveals that multinational companies will cut suppliers for failing to curb carbon emissions, with 78 per cent of multinationals (MNCs) planning to remove suppliers that endanger their carbon transition plan by 2025.
For Indian suppliers who fail to transition alongside their MNC partners, this could mean a loss in export revenue of USD273.7 billion.
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 chain 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
– 93 per cent of MNCs with a supply chain in India have set emission reduction targets for their suppliers, asking for an average reduction of 30 per cent by 2025
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 are struggling more than developed market suppliers with their net-zero transition and 57 per cent are 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 with 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 and 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 USD1.6 trillion 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).
Bill Winters, Group Chief Executive of Standard Chartered said: “It’s no surprise that as multinational companies transition to net zero, they will have to ask to their suppliers to evidence their own transitions. However, suppliers – especially those in emerging and fast-growing markets – cannot go it alone. MNCs need to incentivise their suppliers to help them kick start their transition journey, but governments and the financial sector have a role to play too by creating the right infrastructure and offering the necessary funding.
Decarbonisation is vital for the survival of the planet, but a vibrant trade ecosystem is essential for maintaining an interconnected global economy. We must work together to ensure the supply chain is decarbonised in a way that delivers shared prosperity across the world.”
Carbon Dated surveyed 400 sustainability and supply chain experts at MNCs across the globe.