Suppliers to lose contracts for failing to cut carbon emissions – study

15th June 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

A new study by financial services provider Standard Chartered reveals that multinational companies will cut suppliers for failing to curb carbon emissions, with 78% of multinational corporations (MNCs) planning to cut ties with suppliers that endanger their carbon transition plans by 2025.

For South African suppliers who fail to transition alongside their MNC partners, this could mean a loss in export revenue of $33.7-billion.

However, it also represents a $1.6-trillion market opportunity for suppliers who decarbonise in line with MNCs' net zero plans.

The study, titled 'Carbon Dated', looks at the risks and opportunities for suppliers in emerging and fast-growing markets as large corporates transition to net zero, and reveals that 15% of MNCs have already started removing suppliers that might scupper their transition plans.

Standard Chartered group CE Bill Winters says it is no surprise that, as multinational companies transition to net zero, they are starting to look to their suppliers to help.

“However, suppliers, especially those in emerging and fast-growing markets, cannot go it alone. MNCs need to incentivise their suppliers to help them kickstart 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,” he says.

In total, MNCs expect to exclude 35% of their current suppliers as they reduce their carbon emissions, with companies based in emerging and fast-moving markets facing the biggest challenge in reducing their own emissions.

The study also finds that supply chain emissions account for an average of 73% of MNCs’ total emissions and that 67% of MNCs say tackling supply chain emissions is the first step in their net-zero transition, rather than focusing on their own carbon output.

Further, 90% of MNCs with a supply chain in South Africa have set emission reduction targets for their suppliers, asking for an average reduction of 31% by 2025, the study has found.

According to the study, 64% of MNCs believe emerging market suppliers are struggling more than developed market suppliers with their net-zero transition, and 57% 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 for two key reasons - insufficient knowledge and inadequate data.

Fifty-six per cent of MNCs believe the lack of knowledge among emerging market suppliers (41% 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% say unreliable data from suppliers is a barrier to reducing emissions.

MNCs are also exploring other ways to help their suppliers’ transition to net zero, with 47% offering preferred supplier status (a sales advantage) to sustainable suppliers, and 30% offering preferential pricing.

In addition, some MNCs are going further, with 18% offering grants or loans to their suppliers to invest in reducing emissions, and 13% offering data collection.

Standard Chartered South Africa and Southern Africa CEO Kweku Bedu-Addo adds that there is growing acceptance that decarbonisation is vital for the future of Earth.

“What is required is the collective will to act with urgency to manage the transition towards net zero in a coordinated approach such that it [reduces] severe short-term economic dislocation across markets from stranded assets, unviable industries and activities,” he says.