Portfolio Perspective – Decarbonizing supply chains – a low-cost climate solution?
11 July 2021
Imagine if we could cut carbon emissions from global supply chains by 40% with technology we have at our fingertips today. According to the World Economic Forum’s paper – Net-Zero Challenge: The supply chain opportunity*, achieving this objective is both feasible and cost-effective! With half of global emissions coming from the world’s eighth biggest supply chains, the impact could be vast, and could touch many different geographies.
What’s more, apparently, we could achieve it without hurting the bottom line. The cost would be negligible – prices would rise by just 1-4%. Putting that into context, this would mean paying just a dollar more for your next pair of jeans. As customers – whether we are a company, government, or consumer – we can and must demand better. Supply, after all, always follows demand. The more we demand, the greater the supply of low-carbon alternatives.
So, how do we do it?
Even within industries that are considered the hardest to decarbonize, there are clear opportunities to do so.
Take steel and concrete. Both are amongst the most widely produced commodities in the world and they are often labelled “hard-to-abate”. Together, they account for 15% of the world’s man-made CO2. With thin margins, producers have been reticent to add cost and reduce carbon intensity.
But even here, it can be done. According to the World Economic Forum, low-carbon steel would add just 2% to the price tag of a new family car. That makes it an easy way for manufacturers to cut carbon without having to make costlier cuts elsewhere. And if more car-makers start demanding low carbon raw materials, more suppliers will start providing it. As ever, supply follows demand.
Governments also have a big role to play here. In the construction industry, public procurement makes up over 20% of supply. By setting goals and creating incentives, governments can help construction go green. The Canadian government is already leading the way, committing to net-zero concrete by 2050. In the UK, meanwhile, firms must now commit to net-zero to win big government contracts.
…but let’s not forget carbon from transport
What we buy matters, but we also need to think about how it arrives. Transportation of goods, after all, accounts for 7% of global emissions. Fortunately, opportunities to improve abound here too, from the highway to the high seas. The likes of Norsepower, OnTruck, Achates Power, and XL Fleet are already cutting emissions from freight all over the world.
…and we will need to work together
Big systemic change isn’t easy. We need a true picture of the full carbon emissions in our supply chains and we need to continue finding new ways to cut them. That means we need to create incentives that reward those who move fast, both in our own organizations and with any suppliers we work with.
All this is only possible if we work together. Buyers and suppliers must unite to understand the true picture of carbon in their supply chains. Industries should come together to create common standards and make commitments. Perhaps most importantly, we’ll need a whole new mindset: not competition, but collaboration, with risk and reward spread across the system.
In a future where procurement is always driven by cost, safety, performance and environmental impact, low carbon supplies will become the norm, in every sector and in every country in the world. So let’s collaborate to make this a cost-effective and innovative journey!
* In January 2021, WEF (the World Economic Forum) co-authored a report with BCG (Boston Consulting Group) showcasing the opportunity that all companies have for huge climate impact through action to decarbonize global supply chains – you can read it all here.