The Sustainable Development Goals & Country Commitments. What They Mean for Global Supply Chains
Yippee! for the Paris Agreement on the weekend. (Not everything that is needed, but a whole lot better than nothing!) Now greater attention will be focused by business on the implications of two types of commitments, both preceded the COP21 negotiations (but were ever present in conversations in Paris): the Sustainable Development Goals (SDGs) and the Intended National Determined Contributions (INDCs) - the individual country commitments for CO2e reductions that in aggregate means the Agreement puts the world on a path to 2.7 degrees Centigrade of global warming.
The Paris Agreement did not create these commitments, but it provides an unambiguous signal for investors and companies that the move to a low carbon economy is inevitable and creates momentum for countries and companies to adopt the SDGs.
For investors, this will in time have a marked impact on how they view the value of many assets (including fossil fuel assets and low carbon technologies). For companies, it provides confidence to invest in CO2e reduction projects and look closely at how they can align and leverage the SDGs to strengthen their license to operate and build greater resilience across their value chains.
The Agreement will only accelerate what Goldman Sachs, in their report, 'The Low Carbon Economy' (released just before COP21), describe as the growth of the low carbon economy into a $600 bn+ pa revenue opportunity.
To some extent, the lead up to Paris had already created a spur for companies to invest as they both anticipated and contributed to the outcome of the negotiations. The RE100 campaign was very active during the Paris fortnight as 100 companies, including IKEA, Johnson & Johnson, Mars & Nike committed to powering their operations with 100% renewable energy by 2020. Companies committing to carbon neutrality will be increasingly common in 2016!
National commitments (INDCs) will create further momentum, but they will vary from country to country and so their impacts will not be uniform. It is critical that companies carefully consider the regulatory risks and investment opportunities created as a result of the Agreement and the INDCs in the particular countries where they have operations and significant supply-bases. China for instance, already has the world’s largest installed capacity of wind and hydroelectric power, as well as the largest installation of solar heating and biogas (in 2013, China installed more solar PV capacity than the whole of Europe). In its INDC, Chinaplans to install 200GW of wind energy and 100GW of solar PV by 2020. Working with Chinese manufacturing suppliers, for instance, who have anticipated this shift to renewables, and helping others to adopt best practice, is likely to be a good strategy to mitigate regulatory risk, strengthen your license to operate, and protect your brand against potential pollution/working condition/health scandals .
At the same time, the Sustainable Development Goals (listed below) whilst not a product of the COP process are nevertheless bound in with it and were part of most conversations at the business side events I attended.
The SDGs seem to have been designed in such a way as to deliberately encourage businesses to engage with them and leverage their potential. Like the INDCs, companies need to carefully consider which SDGs are most relevant to them in the regions of the world where they have extensive operations and or supply-bases.
With a little bit of creativity and a willingness to collaborate, companies like Mars and Danone are working in new collaborative partnerships with NGOs, the public sector, suppliers and new funding mechanisms (e.g. The Livelihoods Fund - investing €120m in small holder farmers in Africa, Asia and Latin America) to build resilience in their agricultural supply-chains. Whilst the business case for Mars and Danone to invest in their supply-base is compelling in its own right, aligning with the SDGs acts as a catalyst to bring organisations together from different sectors to address common problems, legitimising business involvement and creating a framework within which culturally diverse organisations can work together (e.g. bringing an end to poverty and hunger (SDG1 and SDG2)).
For many companies, as much as 50% of their cost and risk lies at arms length in their supply-chain. The Paris Agreement, and related commitments are, in one sense, going to increase that risk, but at the same time they are going to drive more funding and innovation into the market to lower the cost of sourcing solutions and increase the opportunities for collaboration to address the challenges.
Helping suppliers face what is now inevitable, and transition to becoming low carbon, sustainable businesses, represents a significant opportunity for large companies to cut costs and impacts, reduce risks and drive innovation across their supply-base.
It provides an opportunity for Chief Procurement and Chief Supply-Chain Officers to transform their value-chains and generate a sustainable competitive advantage for their businesses.