A new study by Standard Chartered reveals that multinational companies will cut suppliers for failing to curb carbon emissions, with 78 per cent of multinationals (MNCs) planning to remove suppliers that endanger their carbon transition plan by 2025.
For Kenyan suppliers who fail to transition alongside their MNC partners, this could mean a loss in export revenue of USD3.9bn. However, the study also reveals a USD1.6tn market opportunity for suppliers who decarbonise in line with MNC net zero plans.
According to Carbon Dated report, which looks at the risks and opportunities for suppliers in emerging and fast-growing markets as large corporates transition to net zero, 15 per cent of MNCs have already begun removing suppliers that might scupper their transition plans. In total, MNCs expect to exclude 35 per cent of their current suppliers as they move away from carbon.
The study also found that:
- Supply chain emissions account for an average of 73 per cent of MNCs’ total emissions
- More than two thirds (67 per cent) of MNCs say tackling supply chain emissions is the first step in their net-zero transition, rather than focusing on their own carbon output
- Suppliers in 12 key emerging and fast-growing markets can share in USD1.6tn worth of business if they can remain part of MNC supply chains
- 87 per cent of MNCs with a supply chain in Kenya have set emission reduction targets for their suppliers, asking for an average reduction of 35 per cent by 2025
The net-zero supply chain revolution
Racing against the clock to hit their net-zero carbon goals, MNCs are increasing the pressure on their suppliers to become more sustainable, with companies based in emerging and fast-moving markets facing the biggest challenge.
Some 64 per cent of MNCs believe emerging market suppliers are struggling more than developed market suppliers with their net-zero transition, and 57 per cent 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 with for two key reasons; insufficient knowledge and inadequate data. Some 56 per cent of MNCs believe that the lack of knowledge among emerging market suppliers (41 per cent 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 per cent say that unreliable data from suppliers is a barrier to reducing emissions.
Risks and rewards
The study also reveals that the current approach taken by MNCs could create a USD1.6tn opportunity for the net-zero club: those businesses reducing emissions in line with MNC net-zero plans.
This represents a major opportunity for net-zero-focused suppliers across the 12 markets in this study, but also quantifies the potential losses to companies not embracing net-zero transition.
MNCs are also willing to spend more on net-zero products and services. Some 45 per cent said they would pay a premium, of 7 per cent on average, for a product or service from a net-zero supplier.
Carbon, collaboration and compromise
MNCs are exploring other ways to help their suppliers’ transition to net zero. Some 47 per cent are offering preferred supplier status – a sales advantage – to sustainable suppliers, and 30 per cent are offering preferential pricing.
Some MNCs are going further, offering grants or loans to their suppliers to invest in reducing emissions (18 per cent) or data collection (13 per cent).
Kariuki Ngari, CEO Standard Chartered Bank Kenya & EA says: “Decarbonisation is vital for the survival of the planet. Emerging markets are most at risk from climate change and are among the least prepared and represent the fastest growing sources of new carbon emissions. Kenya for example aims to achieve a net-zero carbon neutral economy by 2050. The government also aims to set up an emissions trading system that will allow companies and other bodies to buy emissions allowances. These are bold steps and a catalyst towards net zero. Currently, 70% of the nation’s installed electricity capacity comes from renewable energy sources, which is more than three times the global average.
Our Carbon Dated report shows that as multinational companies transition to net zero, they are starting to look to their suppliers to help. These multinationals are willing incentivise their suppliers to help them kick start their transition journey. Governments and the financial sector must also play a key role by creating the right infrastructure and offering the necessary funding. At Standard Chartered, we believe we have a unique role to play in facilitating a just transition to net zero carbon economies where it matters most. We are committed to reaching net zero carbon emissions from our operations by 2030, and from our financing by 2050. We also aim to reduce the direct environmental impact of our operations in our branches and offices through sustainable initiatives that allow us to reduce our energy, water and paper usage including waste.”
Carbon Dated surveyed 400 sustainability and supply chain experts at MNCs across the globe.