Environmental Information Disclosure: Addressing Supply Chain Climate Risk

This year’s Climate and Society class is out in the field (or lab or office) completing a summer internship or thesis. They’ll be documenting their experiences one blog post at a time. Read on to see what they’re up to.

Francisna Fernando, C+S ’16

With the conclusion of the 2015 Paris climate talks, one fact became evident to businesses. They are wedged in a unique intersection where they classify not only as a vulnerable group and contributor to climatic impacts but also as a key driver of action to ensure sustainable development and the advancement of climate-related considerations in development goals.

Source: Carbon Disclosure Project

Climate change is inevitable — whether it be through the intensification of El Nino or the increasing occurrence of weather disasters. Its impacts are widespread, sporadic and uncertain with implications on international, regional and national economies. For businesses, particularly those that source, use or rely on natural resources and environmental conditions, the complexity of quantifying the magnitude of these impacts and the ways in which it manifests is a growing concern. Yet as consultants PWC note, “what is certain is that climate change will have a multiplier effect on supply chains.”

In a globalized world, supply chains not only span to all corners of the planet but are so intricately interlinked so impacts on one component of the supply chain will result in a domino effect on the rest of the chain. Consider the following info graphic created by Acclamatise, a consulting, communications and digital application firm, on climate resilience in business activity.

Source: Carbon Disclosure Project

The infographic highlights the major impacts that floods in Thailand in 2011 had on supply chains. From 9,859 factories being forced to close down to more than 1,700 roads being damaged or destroyed amounting to a financial cost of approximately $4.5 billion, climatic impacts have the ability to directly hinder business activity. On top of the direct implications, when accounting for indirect costs such as unemployment, the compounding economic and social issues are far more dramatic and can ripple outward for years after the initial shock has passed.

Businesses are no strangers to risk. Companies are almost always prepared to address risks and mitigate them. Climate change however poses a far more long-term and complex issue, with implications spanning over different timescales and manifesting in different capacities than the average risks businesses face. Recently companies have become increasingly aware of the need to assess their climate risks and opportunities and take effective action to ensure sustainable business practices.

This is no easy task. Organizations do not often have the knowledge base or expertise to conduct such an assessment. Assessing a company’s climate resiliency requires an aggregation of both quantitative and qualitative factors. That being said, companies tend to place greater emphasis on quantifiable factors and avoid qualitative ones for ease of analysis.

Source: Carbon Disclosure Project

This is where organizations such as the Carbon Disclosure Project (CDP) play an imperative role. CDP works in close collaboration with corporations to disclose their environmental information related to climate change, water usage and forests, and in doing so aims to transform the way the world does business. As per their mandate, they seek to support such a transformation through the “power of measurement and information disclosure” thereby improving the management of environmental risks. They use a comprehensive questionnaire which analyzes both the quantitative and qualitative components in supply chain management as it relate to climate change, water usage and forests.

Once an organization discloses this information, CDP evaluates the data and provides an overall score of environmental compliance. This score complements a company’s investor profile by acting as a measure of its ability to “mitigate risks, capitalize on opportunities and make sustainable investment decisions.” Alongside accounting for its environmental sensitivity, disclosing such information also speaks to a company’s transparency and accountability, both of which are factors that investors are increasingly concerned about. Furthermore, through CDP’s evaluation, companies are able to identify areas to improve their energy efficiency, becoming more cost effective in the process.

Environmental information disclosure is one of several meaningful steps towards ensuring corporate social responsibility. In being able to identify accurate and valuable information, companies have the potential to take dynamic approaches and implement innovative strategies to address their climate risks and capitalize on opportunities.

We live in a globalized world that is governed by interlinked processes and dynamic forms of cooperation which transcend national borders. From the perspective of businesses this statement could be no truer. As we face complex challenges such as climate change, we must therefore be acutely aware of these processes and how each will be implicated by the actions we take and decisions we make.