While corporations are lauded by environmental groups for committing to 100 per cent renewable energy, hidden supply chains contribute the majority of emissions and environmental impact while facing a fraction of the scrutiny
As the world moves to renewable energy to avoid catastrophic climate change, consumer-facing corporations appear to be doing most of the heavy lifting, committing themselves to 100 per cent renewable energy even in the face of government reticence to set a national target. They’re being lauded by environmental campaigners for doing so, with joint press releases and customer-friendly public high-fives all around.
But when you scratch the surface of these commitments, they are not as impressive as they appear. They do not account for a company’s supply chain, and this is where most of the emissions are. McKinsey research reveals that the average consumer company’s supply chain is far more environmentally damaging and carbon-intensive than the company’s own operations. More than 80 per cent of greenhouse-gas emissions and more than 90 per cent of the impact on land, air, water, biodiversity and geological resources sit on the supply chain side.
The “100 per cent renewables” claim would reasonably lead consumers to believe that when they purchase from these major telcos, retailers, fast food outfits, energy companies, soft drink brands and other corporations, the product they buy is 100 per cent renewable-powered. This is wildly untrue.
For the average food and beverage company, the natural impact of the supply chain actions is 24 times greater than those of the company itself. For retail, it’s 11.5 times greater. Even if we address only carbon emissions rather than all impacts, typical supply chains in the manufacturing, food, electronics and garment industries create four to six times more emissions than the companies themselves.
Supply chain actors are not consumer facing. They do not need public goodwill to remain competitive. Unless they experience pressure from their public-facing partners there will be little imperative beyond that applied by investors to address their emissions.
If corporate energy users think they can retain their social license by addressing only 20 per cent of their greenhouse gas emissions and 10 per cent of their environmental impact, they will do so. Unless they are held to account by investors, consumers and lawmakers they will not take the necessary steps to measure, mitigate and eliminate their supply chain emissions.
The ease with which environmental campaigning organisations are giving consumer-facing companies the tick of approval for action which accounts for only a fraction of their environmental impact is disturbing.
The world is already facing a severe underspend on renewable energy compared to what is needed to avoid catastrophic climate change. Bloomberg projects a 269TWh clean electricity shortfall for the current RE100 signatories. According to Bloomberg, global PPA (power purchase agreement) volume last year made up only 6 per cent of the 393GW needed yearly installations until 2050.
In financial terms, the International Renewable Energy Agency estimates that an annual global spend of $US4.4 trillion is required to limit global temperature rises to 1.5 degrees. The Climate Policy Initiative measured the global 2019 spend at $US622 billion. This is only 14 per cent of what’s required – a startlingly similar ratio to that between operational and supply chain emissions for major corporations.
How do we shed light on these hidden emissions?
The approach we take to modern slavery can provide some direction here. It’s relatively easy to ensure that people working for a major retailer or fast food company are not themselves subject to slavery, but it does little to address the systemic problem. Requiring companies to provide a transparent view of their supply chains, and to account for the actions of supply chain partners to their customers, focuses board and C-suite minds.
Consumer brands and their supply chain partners must make the required investments to transparently measure and address the entire impact of their business. Their customers deserve to know the full story about the environmental impact and carbon footprint of their purchasing decisions.
Whether from customers, investors or regulators, far greater pressure should be placed on companies to address their supply chain impact before any congratulatory press releases or green ticks are attached to supermarket brands, telcos, banks or soft drinks.
Kaspar Kaarlep is the founder of WePower and the former CTO of European network operator Elektrilevi. He lives in Melbourne