The Climate Change Stress Test is coming to Amazon sellers and suppliers

As Amazon and other big companies ramp up efforts to reduce their carbon footprint, they are putting pressure on their suppliers to do the same, and those who don’t may pay a high price.

Starting in 2024, Amazon The e-commerce giant said in its recently released sustainability report that it will require suppliers to share their emissions data, set emissions targets, and report on their progress. With the move, it joins Microsoft, Walmart, Apple and others in saying that suppliers should step up decarbonization efforts.

These mandates come at a time when major companies face more demand than ever to adopt environmentally friendly practices. Consumers, investors, regulators and governments are pushing companies to achieve greater progress and transparency.

“The pressures come on companies, which then put pressure on suppliers,” said Bob Willard, a corporate consultant and author of six books on sustainability.

In a continuum, these suppliers depend on their suppliers.

Companies typically track three levels of emissions. Scope 1 comes directly from operations. Band 2 comes from purchased energy such as electricity. Scope 3 relates to the company’s activities but comes from indirect sources such as suppliers’ emissions and emissions from customers using their products. An analysis of major industries by the nonprofit CDP found that Scope 3 accounts for, on average, about 75% of all emissions.

Companies have more control over their suppliers than in many other areas of indirect emissions, says Andrew Winston, author of several books on sustainability-related business strategies.

For example, while a consumer goods company cannot force detergent buyers to wash in cold water, it can be selective in working with environmentally conscious suppliers.

“The supply chain is where increased pressure and transparency will continue because companies have a direct impact on that,” Winston said.

Carbon removal mandates are becoming more stringent

Sales force It now requires suppliers to disclose Scope 1, 2 and 3 emissions, deliver products and services on a carbon neutral basis, and fill out a supply scorecard every year. AstraZeneca’s suppliers are expected to annually report emissions data to the CDP and set science-based targets.

Although Amazon does not include suppliers in its Scope 3 accounting, it is effectively tackling this the way many other companies are starting to do, by forcing suppliers to report emissions to them and setting targets against which it can then track emissions levels. “We know that in order to further reduce emissions, we must ensure that those working in our supply chain are making the operational changes necessary to decarbonize their businesses,” Amazon said in its sustainability report.

Third-party vendors and suppliers – especially smaller ones – face a paradox as climate mandates emerge and become increasingly stricter. Even if they are concerned about the environment, many say they do not have the resources to meet tracking and reporting requirements.

Eight in ten small and medium-sized business owners say reducing emissions is a top priority, yet 63% also say they don’t have the right skills, and 43% say they lack the money, according to a survey by the nonprofit. Climate Center for SMEs. In a survey conducted by Intuit QuickBooks, two-thirds of small business owners said they are taking steps to reduce their environmental impact, such as recycling and using renewable materials. Companies that did not act cited a lack of money, time and resources.

“Tracking emissions data is not easy,” says Karen Kerrigan, president and CEO of the Small Business and Entrepreneurship Council.

Compliance costs can vary, but the initial outlay can be significant, which presents a challenge for many businesses with limited cash flow, she says.

The information is there to start tackling the task. However, one of the first things business owners will learn is that it will take time, says small business owner Chitali Patel, who founded the sustainability consulting firm Evergood. She points to a 152-page document on Scope 3 of the Supply Chain Accounting and Reporting of the Greenhouse Gas Protocol, which provides standards for measuring and managing emissions.

“If you look at the data collection and record keeping process alone to comply with these requirements, it will consume significant resources,” Patel said.

Small businesses are already experiencing economic pressure

Amid ongoing fears of a recession, rising interest rates cutting off sources of capital, signs of weak consumer demand, and labor market challenges, small businesses have focused more on employees and their bottom lines than on sustainability. When asked what issues were most important to them, nearly 40% said jobs and the economy, while 10% said the environment, according to a third-quarter CNBC|SurveyMonkey small business survey.

However, whether they are ready or not, suppliers large and small will have to step up their efforts soon. “This is coming,” he said. “The procurement arm of the business community is reaching into their supply chains and starting to ask more specific questions.”

In addition to pressure from investors and politicians, another reason big companies are looking beyond the supply chain is that they are currently failing to meet their emissions reduction targets. Amid the boom in consumer demand and post-pandemic global growth, many of the world’s largest companies are producing more carbon emissions than they can reduce.

A recent New York Times review of climate documents for 20 major food and restaurant companies found that more than half had made no progress in reducing emissions or were increasing emissions. The report found, as previous climate accounting has shown, that the majority of emissions come from suppliers.

A recent Just Capital report found that more companies than ever are making carbon reduction commitments, but the results are yet to show in disclosures. Among companies with science-based targets, only 26 of the 123 companies on the Russell 1000 list have disclosed emissions reductions. Meanwhile, emissions have risen among companies that have no specific targets – just general net zero targets.

Companies that want to retain high-quality suppliers are able to help partners meet any sustainability requirements, says Mark Baxa, current president and CEO of the Council of Supply Chain Management Professionals.

Giant companies are offering assistance ranging from direct financing to better terms for training and access to clean technology.

For its part, Amazon said in its sustainability report that it will use “its scale, investments and innovations to date to provide our suppliers with products and tools that will help them achieve their goals – whether that is about transitioning to renewable energy or access to more resources.” into sustainable materials.”

But the retail giant also made clear that there could be consequences for partners who don’t measure up. “We will continue to look for suppliers that help us achieve our decarbonization vision as we select partners for business opportunities,” Amazon said in its report.

Amazon spokespeople declined to comment beyond publicly available materials.

Ultimately, it is up to the suppliers who choose what suits their business.

“The suppliers themselves and the suppliers’ suppliers must come to their own independent decision on how to deal with this matter,” Baxa said.

Meanwhile, companies have to address Scope 3 emissions. “A lot of times, they go with a supplier that can comply,” he said. And for those who don’t, “eventually, the difficult conversation will happen.”

(tags for translation) Climate

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