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The Financial Express

MNC plan to cut suppliers who fail to curb carbon emission

| Updated: June 10, 2021 10:54:04


MNC plan to cut suppliers who fail to curb carbon emission

Some 78 per cent multinational companies (MNC) plan to remove by 2025 suppliers that endanger their carbon transition plan according to a study by Standard Chartered.

According to Carbon Dated, which looks at the risks and opportunities for suppliers in emerging and fast-growing markets as large corporates transition to net zero, MNCs expect to exclude 35 per cent of their current suppliers as they transition away from carbon.

The study also found that-- Supply chain emissions account for an average of 73 per cent of MNCs' total emissions and More than two thirds (67 per cent) of MNCs say tackling supply chains emissions is the first step in their net-zero transition, rather than focusing on their own carbon output.

It also said that Suppliers in 12 key emerging and fast-growing markets can share in US$1.6 trillion worth of business if they can remain part of MNC supply chains.

According to the study the 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 will struggle more than developed market suppliers to meet their emission reduction targets, with a further 57 per cent 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. A further 46 per cent say that unreliable data from suppliers is a barrier to reducing emissions.

The study also reveals that the current approach taken by MNCs could create a US$1.6 trillion 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.

Market  Annual export revenue at risk

China  US$512.3 billion

India  US$273.7 billion

Hong Kong US$205.5 billion

Singapore   US$146.6 billion

South Korea   US$142.5 billion

The UAE    US$119.6 billion

Malaysia US$65.3 billion

Nigeria  US$34.3 billion

South Africa US$33.7 billion

Indonesia US$25.6 billion

Bangladesh US$18.7 billion

Kenya US$3.9 billion

MNCs are also willing to spend more on net-zero products and services. Some 45 per cent said they would pay a premium, of 7.0 per cent on average, for a product or service from a net-zero supplier.

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).

Bill Winters, Group Chief Executive of Standard Chartered said: "It's no surprise that as multinational companies transition to net zero, they will have to ask to their suppliers to evidence their own transitions. However, suppliers - especially those in emerging and fast-growing markets - cannot go it alone.

"MNCs need to incentivise their suppliers to help them kick start 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.

"Decarbonisation is vital for the survival of the planet, but a vibrant trade ecosystem is essential for maintaining an interconnected global economy. We must work together to ensure the supply chain is decarbonised in a way that delivers shared prosperity across the world."

Carbon Dated surveyed 400 sustainability and supply chain experts at MNCs across the globe.

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