From extreme weather events to net-zero emissions, climate change is impacting supply change resilience across the world.
Mark Henderson, Global Head of Client Solutions Exiger, spoke to PASA about how the significant effect climate change has on supply chains and their resiliency. Something we should be particularly concerned about in Australia.
Over the past few years, Australia has experienced severe droughts, devastating bushfires and catastrophic flooding, with a global pandemic added to the mix for good measure. It’s been major event after major event putting both global and local supply chains to the test; and ultimately exposing serious weaknesses in our supply chains.
With sea levels rising, weather patterns becoming increasingly unpredictable, and more floods and fires on the horizon, supply chains will continue to be put under increasing pressure – and businesses can no longer ignore the devasting impact of these climate events. From putting strategies in place to help mitigate these risks, to completely transforming supply chains to achieve net-zero emissions, there are a number of ways organisations can help reduce the impact of climate-related events and strengthen their supply chain resilience.
Risk assessment and planning
The first step in determining the risk of climate-related events on the supply chain is to undertake a comprehensive end-to-end risk assessment. Organisations must have a clear overview of the entire supplier ecosystem, taking into consideration inventory criticality, production levels, and regionally specific weather events in order to determine which partners and supply chain networks expose the organisation to risk. From modelling climate-related shock scenarios to utilising software that provides visibility of the entire supply chain footprint, organisations must be able to analyse and assess any and all risks in order to determine which issues need to be addressed.
Once an organisation is able to determine the most likely risk scenarios, it can put plans in place to ensure minimal disruption. One strategy might be to work closely with suppliers to determine the most likely climate threats based on their geographical location, developing plans around what to do before, during, and after each anticipated event. Another strategy might be to introduce back-up plans, such as dual-sourcing critical materials from different regions to reduce concentration risk and single-sourced supplier dependencies in order to mitigate the impacts of specific climate disasters. By first establishing the risks organisations and their suppliers are most likely to face, they are able to better prepare for the future.
Net-zero in the supply chain
With new emissions reductions targets in place following the UN’s COP26 climate conference, organisations are under increasing pressure to adopt a more sustainable business model. And a decarbonisation journey simply isn’t possible without also achieving net zero in the supply chain. A McKinsey report estimates that around 70% of an organisation’s emissions are ‘Scope 3’ – indirect emissions that are produced from outside assets not owned or controlled by the organisation itself. In other words, the majority of an organisation’s emissions are generated via its supply chain.
In addition to the environmental and socio-economic benefits, achieving net zero in the supply chain is ultimately another way of enhancing supply chain resilience. The UK has already announced plans to mandate net-zero planning for corporations – a move that is likely to be followed around the world as the 2030 deadline draws closer. Organisations that can proactively decouple their growth from a high-emissions economy ahead of any mandated changes will not only put themselves at a competitive advantage, they’ll make themselves more relevant to consumers and investors, and ultimately, better placed to capitalise on the impending market shift toward a low-carbon economy.
Leading the way on change
Transformational changes that are a significant departure from the status quo can be a mammoth undertaking for any organisation; and making drastic changes to the entire supply chain strategy is challenging but fundamentally rewarding to organisations who are able to successfully embed improved supply chain risk management across their business operations. One of the most important initial steps is getting everyone in the organisation on board with the new vision. From CEOs setting the tone, to individual managers individually assisting their teams – every single staff member must recognise and understand the importance of climate change risk, and that the need to adapt and harden the supply chains is critical.
Heading into a contracting market means difficult financial decisions are on the horizon for many companies, and it might be tempting to put climate-change resilience plans on hold. However, it’s important to remember that research consistently demonstrates the business benefits of ESG strategy adoption; from improved reputation, elevated brand awareness, attracting new customers, reduced waste management, and improving the bottom line. The impacts of climate change are only going to increase, further putting pressure on already weakened supply chains. But with the right strategies in place, organisations can start taking immediate action to protect themselves against future climate-related risk and build long-lasting supply chain resilience.