Cutting Back on Carbon Emissions
Fifty percent of large businesses and 25 percent of their suppliers have reduced supply chain costs by managing carbon emissions, according to the Carbon Disclosure Project’s 2011 Supply Chain Report. But observers say most retailers have only begun to limit the amount of carbon their supply chains release into the atmosphere.
CO2 output began entering the retailing industry’s consciousness in 2007, says Adrian Gonzalez, director at Logistics Viewpoints, a blog that grew out of Boston-based market research and consulting company ARC Advisory Group. That year, former Walmart CEO Lee Scott addressed social responsibility and sustainability in a widely publicized speech that commanded the industry’s attention, recalls Gonzalez.
Fortune magazine noted in 2006 that Scott had declared his intention to “turn the world’s largest retailer into the greenest” and invited former vice president Al Gore to discuss his climate-change film “An Inconvenient Truth” at a high-level, all-day internal Walmart meeting.
At about the same time, Walmart suggested that the Carbon Disclosure Project, or CDP, begin documenting supply chain emissions, says Zoe Tcholak-Antitch, director, CDP North America. The CDP had been compiling, monitoring and sharing statistics on factory carbon release since 2000, but the Walmart request prompted the organization to expand its work to the supply chain and to establish a baseline for supply chain emissions in 2007, she says.
Investor and consumer interest
The CDP’s 2011 supply chain report, released early this year, includes data from 57 large CDP member companies and 1,000 suppliers, Tcholak-Antitch says. Some 80 percent of participating companies make their numbers available on the CDP website, she notes, and data from all of the companies are aggregated to establish trends.
In the latest CDP annual supply chain report, 86 percent of companies attest to working with suppliers to improve performance, up from 46 percent in 2009, the CDP says. “This jump is evidence of how sustainable procurement practices are addressing climate change and could have major impact on the supply chain, which for most companies, accounts for at least 50 percent of carbon emissions,” the organization says.
Of the CDP member companies in the supply chain report, only Walmart is devoted to retailing, Tcholak-Antitch says. Merchandise supply member companies include PepsiCo, ConAgra Foods, Dell, H.J. Heinz and Unilever, she says. Member companies ask their suppliers to complete questionnaires, resulting in the four-figure list of database contributors.
Companies supply their data for the report because of interest among investors, Tcholak-Antitch says. “If a company’s not answerable to its shareholders, then who on earth is it answerable to?” she asks.
Some companies participate to comply with governmental regulations, says Chris Callieri, a principal at A.T. Kearney, the management consulting company that writes the CDP supply chain report. European governments demand more stringent reporting than the United States requires, he says, admitting that momentum toward U.S. reporting has flagged with the election of a Republican majority in the House of Representatives.
Besides meeting regulatory obligations, companies take part to build credibility for their sustainability efforts, Callieri says. Sustainability can differentiate companies from competitors and raise companies’ status among ecologically minded consumers.
“Retailers are at the front line of the world’s biggest democracy,” says Tcholak-Antitch. “Individuals vote with their money every single day in the products they purchase.”
Participating in the CDP studies, which Tcholak-Antitch acknowledges as a major undertaking, also provides metrics that help companies think through their actions and build internal awareness of sustainability, Callieri notes.
That awareness helps companies optimize their supply chains, which lowers fuel and electricity costs, eliminates waste from packaging, conserves water and reduces the release of carbon, Callieri says. “It’s difficult to reduce greenhouse gas emissions without savings,” he notes.
Quick, low-cost changes
Sustainability also helps create a better workforce and fits into other larger trends, says Gonzalez of Logistics Viewpoints. Campus recruiters say prospective employees ask about sustainability, and those questions grow out of an awareness that begins with recycling in elementary school, he maintains, adding that “in society as a whole, people are becoming much more in tune with this.”
Still, that growing consciousness on the importance of sustainability has not ignited enthusiasm among all retailing supply chain executives, according to Jack Horst, a principal at Kurt Salmon.
“It would be a minority of senior supply chain executives,” Horst says, “that would have come to the table with the idea of implementing sustainability issues in and of themselves.”
He provides a hypothetical example of a beleaguered manager juggling 13 distribution centers dotted across the country. The facilities, most of them 20 to 30 years old, operate on 15-year-old technology that fails to meet today’s standards for energy efficiency in lighting, heating and air conditioning.
“Overnight, my company has told me we have a goal to be sustainable and responsible,” Horst says, assuming the voice of the fictional supply chain manager. “Hey, that’s really nice, but I’ve got these 13 facilities we’ve bought that I can’t get out of overnight.”
Executives who cannot immediately raise $100 million for improvements can take advantage of some low-cost, quick-fix changes that return a benefit almost immediately, such as changing out lighting fixtures that waste energy, says Horst.
He sees longer-term opportunities in reducing the amount of materials used to create products, eliminating unnecessary packaging, building and retrofitting buildings for efficiency, and choosing efficient modes of transportation -- such as ships instead of planes from Asia.
Will those initiatives work? Observers cite a reason why supply chain sustainability almost always brings cost savings. “The only green projects that get done are the ones that are good for business,” says Gonzalez.
Horst puts it this way: “Supply chain professionals are a pragmatic lot. It’s almost got to translate to the bottom line or it’s probably not going to hit these guys’ radar.”