Upended supply chains. Ravaged economies. Physical and social disruptions. The current COVID-19 crisis is just a preview of the havoc climate change will wreak if businesses don’t actively manage the risks of warming temperatures, rising sea levels, loss of agricultural productivity and more ubiquitous extreme-weather events, a new report cautions. Climate change could even trigger disease outbreaks, which would compound the pain of one disaster with that of another.
Reading the tea leaves, the whitepaper, which was co-authored by Sustainability Consortium (TSC) and HSBC and published Monday, warns that climate change will roil supply chains with greater frequency. Just as with the pandemic, the physical risks of climate change can be highly localized, creating a lack of available supply, lowering its quality, increasing its cost or delaying delivery, all of which can imperil a company’s own continuity of operations.
“We all see the myriad of supply chain disruptions occurring during the current coronavirus pandemic,” Kevin Dooley, TSC chief scientist and a professor of supply chain management at Arizona State University, said in a statement. “Unfortunately this prefaces the types of challenges that supply chains will face in the future from increasing climate change.”
Now is the time, the report coaxes, for companies to create greater supply-chain resilience using a combination of “bridging” and “buffering” strategies to guard against risk events and stave off “inevitable” supplier failures.
“Bridging” sees the buying company proactively building up the capacity of its suppliers so they can ride out and recover from disruptions. With “buffering,” the buying organization acts to protect itself from the consequences of supplier failures.
The report recommends that buying companies focus their bridging or buffering actions on supply chains and suppliers that are most critical in terms of cost, time or functionality. A company that has only one supplier for a particular item, for instance, might seek to “bridge” possible disruptions by helping it mobilize low-interest financing so it can invest in capital improvements that would make its facilities more robust. A “buffering” action could involve finding a backup supplier or maintaining a stockpile of the supplier’s product.
Paying attention to climate-change risks will not only buttress a company’s supply chain but it will also make the business more attractive to employees, customers and investors, the report adds. Investors, in particular, will be monitoring corporate responses to supply-chain shocks with eagle-eyed intensity so they can shun companies with poor resilience planning and better de-risk their investments.
Corporations would also do well to turn their attention to their greenhouse-gas emissions. Future regulation could make a carbon tax or its equivalent par for the course, which could make companies that have not decarbonized their supply chains riskier propositions for investors.
“As companies worldwide are in the midst of dealing with COVID-19’s impact on their business operations and their supply chains, current events put in sharp relief the impact of supply chain disruptions on a global scale,” said Patricia Gomes, regional head of global trade and receivable finance at HSBC. “We’re helping our customers think holistically about supply chain risks, and this report provides valuable insight into planning for, and mitigating disruptions caused by, climate change.”
One corporation already taking this advice to heart? Amazon. The internet juggernaut on Tuesday announced the Climate Pledge Fund to support the development of sustainable technologies and services that will allow it and other companies to produce net-zero emissions by 2040 and therefore tread more lightly on the planet.
The dedicated venture investment program, which boasts an initial $2 billion in funding, will back “visionary companies whose products and services will facilitate the transition to a zero-carbon economy” based on the Climate Pledge, a commitment co-founded by Amazon and Global Optimism last year to reach the Paris Agreement 10 years ahead of schedule while zeroing out emissions within the next two decades.
“The Climate Pledge Fund will look to invest in the visionary entrepreneurs and innovators who are building products and services to help companies reduce their carbon impact and operate more sustainably,” Jeff Bezos, Amazon founder and CEO, said in a statement. “Companies from around the world of all sizes and stages will be considered, from pre-product startups to well-established enterprises. Each prospective investment will be judged on its potential to accelerate the path to zero carbon and help protect the planet for future generations.”
The fund will throw its largesse behind companies in multiple industries, including transportation and logistics, energy generation, storage and utilization, manufacturing and materials, circular economy and food and agriculture.
As part of its Climate Pledge, Amazon had committed to reaching 80 percent renewable energy by 2024 and 100 percent renewable energy by 2030. The Everything Store announced Tuesday that it’s on track to run on 100 percent renewable energy by 2025, five years ahead of schedule. Recent investments, Amazon said, include a new solar farm in Virginia and an order of 100,000 electric delivery vehicles.
“Amazon has demonstrated its leadership in adopting low-carbon technologies at scale,” said Rivian CEO R.J. Scaringe. “[Its] investment in Rivian and subsequent order of 100,000 electric delivery vans will substantially shrink the carbon footprint of Amazon’s package delivery network. We’re excited about a future of decarbonized delivery services.”