Episode 14: Supply Chain Risk with Emilie Mazzacurati (427 Climate Solutions)

Learn how more businesses are going green here!

Episode Intro Notes

What we’ll cover

• What is a supply chain?

• How do businesses manage their supply chains?

• Why are supply chains so important for sustainability?

• So, what makes a supply chain sustainable then?

• Why do businesses care?

• Why should we care?

• What can we do, as listeners, to find organizations that use sustainable supply chains?

• Emilie Mazzacurati

What is a supply chain?

A supply chain is the steps it takes to produce and distribute a specific product. Basically it’s all the suppliers and inputs involved in making the product and getting it to a store shelf near you.

How do businesses manage their supply chains?

Supply chain management is the oversight of sourcing inputs, the processing and manufacture of products and services, and their delivery to the consumer. It’s thinking about how we can make our ultimate product cheaper and deliver it more efficiently.

Why are supply chains important for sustainability?

Supply chains are responsible for up to four times the greenhouse gas emissions of a company’s direct operations, yet half of major companies’ key suppliers don’t provide requested climate data to their corporate customers.

Our actual use of the product is one small part of the value chain. How the core parts of the final product were made, packaged, and shipped to you all have a footprint, often a large one.

Consider fluid milk. The U.S. Dairy Industry did a life cycle analysis of U.S. milk and found only 4.9% of its carbon footprint came from consumer use. So a lot of the carbon footprint has already happened before you even touch it in the store. I know the dairy industry struggled with how to communicate with feed producers because there were so many of them.

So, what makes a supply chain sustainable then?

Sustainable supply chain management involves integrating environmentally and financially viable practices into the complete supply chain lifecycle, from product design and development to disposal.

Sometimes what is sustainable is up to debate. Many products have so-called roundtables of various companies coming up with standards as to what is sustainable. For example, McDonalds is part of the Global Roundtable on Sustainable Beef, a multi-stakeholder group formed to develop principles of what qualifies as sustainable beef. McDonalds said it would start purchasing beef in 2016 that meets this standard from its supply chain of ranchers, packers, and others. After the principles released, some NGOs wrote a letter criticizing it saying it antibiotics should not be allowed to be used by so-called “sustainable” beef. McDonalds launched a pilot in Canada for sustainable beef, but it is unclear how many suppliers will sign on.

Why do businesses care?

The business drivers for supply chain sustainability fall into three buckets. One is managing business risks. This means minimizing business disruption and the potential for reputational damage from environmental, social, and economic factors. The second driver is realizing efficiencies. Input costs can be reduced or less inputs can be used. The third is creating sustainable products. This may appeal to changing customer preferences and also business partner requirements. This also may lead to new innovative products.

A company making changes to its supply chain is often easier said than done because the not-so-sustainable parts of a company’s supply chain are often way “upstream.” In other words, the company actually making the product bought the input from someone who bought a part from someone who bought a part from someone. It’s difficult to influence a producer that you buy so indirectly from, especially when it’s an actor who is not motivated to act.

So it may be hard to influence actors so far upstream, but many suppliers recognize climate change as a risk. A study of 4,005 suppliers found 64 percent of suppliers identify climate regulation as a risk but less than half (45%) of participating suppliers have set a target to reduce their emissions.

Weird that more suppliers aren’t taking part. It’s often in the supplier’s interest to take part. CDP (an organization we discussed in our last episode on sustainability disclosure), says that suppliers who took part in its supply chain program last year averaged $900,000 of savings as a result of each initiative to reduce emissions.

Why should we care? (Examples)

• Bottom line: we should care because climate change risks affect the supply of products, and most importantly the PRICE.

• How the product is produced may not align with your moral compass. This goes beyond environmental footprint to social issues. Consider labor conditions in some factories.

• Your favorite products may disappear soon. If global warming keeps up at the current pace, climate change could cut in half the amount of land suitable for growing coffee beans by 2050. This is because coffee can only grow in high altitudes in a very narrow temperature and precipitation range, and can only tolerate so many pests. Climate change will halve the area suitable for its production. Coffee bean stockpiles are expected to drop to a four-year low in the 2016-2017 growing season. Not good for a world that drinks 2.25 billion cups of coffee a day.

• Companies are finding ways to offset the resources they use. Coca-Cola made news in August 2016 when it announced that it had reached its goal of “replenishing” all the water it uses in its operations. Coca-Cola uses 300 billion liters of water a year (that’s like 40 liters of water for every person on earth). So what does replenish mean? It doesn’t mean treating water and returning it back to the source it took the water from. Rather, about half is treated and recycled into local supplies, and it makes up the other half through a variety of activities including community projects for water sanitation and infrastructure, watershed support, and reforestation. Also (and this relates to our sustainability disclosure episode), Coca-Cola lists water availability and stewardship as a material risk in its SEC filings. In 2015, Coca-Cola ceased operations at three plants in India after civil unrest in drought-plagued areas. This is why Coca-Cola set its 100% replenishment goal and why it has increased water efficiency in its plants 27% by 2004. However, it still uses 2 liters of water for every liter of soda it produces.

What can we do, as listeners, to find organizations that use sustainable supply chains?

The Global Initiative for Sustainability Ratings has a compilation of 225 corporate sustainability ratings, rankings, and indices focusing on environmental and social sustainability.

If you’re looking to buy personal care products, food products, or household products, GoodGuide.com has a pretty comprehensive rating system of different products focusing on health, envrionment, and society, with explanations.

It’s tough to fact check this list, but SupplyChainDigital.com, has a brief list of the top 10 green supply chains, which includes big names like Nike, Toyota, Johnson and Johnson, UPS, and Adobe Systems.

Emilie Mazzacurati

Emilie Mazzacurati is founder and Chief Executive Officer of Four Twenty Seven, a research and advisory firm helping corporations develop their climate strategy and manage climate risk exposure. Four Twenty Seven helps clients answer how much climate change will cost their business and what opportunities there are to reduce the risk climate change poses. She does this via rigorous economic analyses and creative data visualization (I love easy to read visual dashboards!) Emilie has been advising governments and large energy, financial, and industrial corporations for over fifteen years, helping them identify strategic opportunities in the sustainability and climate change field. She was head of carbon analysis at Thomson Reuters also a policy consultant for the United Nations Environment Programme. Her French accent is awesome.

Note: Some links for original citations have since been broken and thus removed from this notes compilation