Targeting Climate Change Action

In today’s operating environment, CSCOs need to balance a broad range of pressures: lingering supply disruptions and inflation, demands for cost reductions and heightened geopolitical and regulatory risks. On the horizon are significant climate change commitments that need to be met and climate risks to be managed.

Business thrives when there is stability. Climate change represents one of the greatest destabilizing forces of our time. Climate change impacts are set to cost the global economy $178 trillion over the next 50 years unless there is a systemic transition to net zero¹. As supply chain leaders, we are the custodians of significant amounts of greenhouse gas (GHG) emissions through purchased goods and services.

We need to act.

However, our actions need to be focussed and targeted to deliver results. As supply chain leaders, we need to reduce emissions while proactively addressing climate change risks and maximizing opportunities. Only by integrating climate considerations into our business and supply chain strategies can we unlock the ability to balance across our myriad competing priorities.

Assess renewable energy gap: Quick wins to reduce emissions in supply chains have focussed on the adoption of renewable energy. However, availability of renewable energy is becoming increasingly constrained. For example, Danish developer Ørsted and Swedish utility Vattenfall recently cancelled or delayed offshore wind projects due to inflation, capital cost and supply chain issues². This, coupled with planning backlogs in the European Union and United States, means that renewable energy demand is likely to outstrip supply in the coming years.

CSCOs and their teams must reposition emission-reduction guidance to suppliers by focussing on energy reduction, efficiency and onsite renewable energy generation. Standards such as ISO 50001 enable energy efficiency opportunity identification.

Alleviate raw materials shortfalls: The International Energy Agency (IEA) has assessed that to meet the Paris commitment of climate stabilization below 2 degrees Celsius demand for minerals used in clean energy technologies will need to rise by four times. This is especially true for electric vehicles (EVs)³. Although aspects of the energy transition are stalling (offshore wind), others are accelerating (adoption of EVs). This has the potential to disrupt supply chains.

CSCOs must proactively integrate the impacts of the energy transition into raw materials risk assessment. Where critical, consider options from long-term contracts, vertical integration and assess opportunities to embrace circular economy principles.

Mitigate and adapt to climate change impacts: Gartner research shows that supply chains will be adversely impacted by a changing climate. Executive leaders stated that there would be a somewhat, or significant, adverse impact from environmental or climate change events in the following’s areas: utility costs (77%), logistics disruption (70%), insurance costs (74%), third-party assurance costs (68%), raw-materials availability (58%)⁴. Climate change has the potential to disrupt physical supply chains and change consumer preferences.

CSCOs, in collaboration with enterprise risk and finance colleagues, must use the guidelines from the Task Force for Climate-related Financial Disclosures (TCFD)⁵ to assess future climate change risks, using the same timelines for strategic business decision making.

Review product strategy: Only 8% of executive leaders state that they have fully realized an increase in market share through their environmental sustainability initiatives. Of those surveyed, 27% state that they are in the early stages of realization and 31% only anticipate realization in the next two to three years⁴.  Aligning innovation pathways to sustainability outcomes, can enable customers to meet their sustainability goals, while also differentiating the organization.

CSCOs and their teams must have clear line of sight of product innovation strategies, assessing raw material implications and embodied carbon risks. CSCOs can also look to leverage their supply chain expertise as part of the innovation strategy.

Scrutinize existing business models: Transactional business models have historically driven business growth. However, with these business models comes a loss of control over raw materials and climate impacts. Gartner research shows that 74% of executive leaders have adjusted their enterprise product business models to facilitate circular economy practices⁶.

Challenge the accepted. CSCOs and product leaders need to understand if current business models are leaving value on the table. Business models need to be optimized for revenue, emissions and materials.

Check values alignment: Around half of Gen Z (53%) and millennials (48%) think their employers have deprioritized sustainability due to external factors (COVID-19 and the Russian invasion of Ukraine). This is an attrition risk. Millennials (39%) and Gen Z (42%) have, or plan, to change jobs or industry due to climate concerns⁷. 

CSCOs struggle to source talent. Don’t let lack of communication or alignment of values with employees be the reason good talent is lost. CSCOs and their teams need to clearly outline sustainability, and specifically climate objectives, while also providing mechanisms for employees to get involved.

Our actions on climate change will shape business and society for years to come. Will we look back at this moment in time as a missed opportunity, or will we see this moment as a turning point where we collectively started to reduce emissions? What happens next is up to us. 

Sarah Watt
VP Analyst
Gartner Supply Chain
Sarah.Watt@gartner.com      

Stan Aronow
Distinguished VP Advisor
Gartner Supply Chain  
Stan.Aronow@gartner.com

¹Deloitte research reveals inaction on climate change could cost the world’s economy US$178 trillion by 2070, Deloitte

² Orsted Cancels Ocean Wind I and II Projects — Faces $5B+ Write-Off and Community Backlash, EnergyTech

³ The Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions, IEA

⁴ 2023 Gartner Drivers of Environmental Sustainability Survey, Gartner.

⁵Task Force on Climate-related Financial Disclosures, fsb-tcfd.org

⁶2022 Gartner Circular Economy Survey, Gartner

⁷2023 Gen Z and Millennial Survey, Deloitte

Non-clients can access How Supply Chains Are Responding to a Changing Climate