JAKARTA, Indonesia, Sept. 24, 2024 /PRNewswire/ -- This is an article from Patricia Calderon, Global Head of Water of CDP:
Supply chains are the knots that tie our global economy together and allow it to operate as it does.
In recent years those knots have become more complex and fragile.
Major trade routes can be held up by conflict, politics, or simply a container ship running aground. The world is deeply dependent on pinch points functioning with high volumes of traffic and little to no barriers. Below that level exist smaller, more intricate threads which have built up over time, across borders and through river basins.
The fragility now baked into the system is, in part, a result of our changing climate and the unsustainable nature of supply chains. Building resilience within supply chains to adapt to frequent extreme weather events is now crucial. Lessening their environmental impact is part of the same equation.
Deep dive
New research from CDP, the global non-profit leading the world's environmental disclosure system for companies, cities, states, and regions, has examined the problem using data directly from companies.
We looked at 3,163 large companies with an annual revenue of more than EUR/ US$250 million. These companies disclosed to CDP's annual water security questionnaire. A total of 1,542 companies – 50% - responded that they are engaging their supply chain on water risks. This includes inserting water requirements into supplier contracts, collecting water data, raising awareness of water issues, or collaborating on innovation.
Further analysis provides a unique insight into how some of the world's largest brands are grappling with water issues. 1 in 5 companies are facing supply chain risks which could have a substantive financial or strategic impact on their business. These risks were estimated to total US$77 billion. And according to 79 businesses, a total of US$7 billion was deemed to be at immediate risk due to urgent water scarcity, food, regulatory and reputational issues.
Stem the tide
The data is clearly telling us our water supplies are becoming ever more fragile and the financial toll is mounting up. It's down to large companies with the biggest water impacts to take immediate action, working with their suppliers to stem the tide of water risk.
Our research points to some of the tools currently being used by responsible companies – financial incentives, stricter contracts, and closer engagement are key. A group of forward-thinking businesses are already working on the problem. 443 businesses – 14% - offer their senior leaders, including the board, incentives to improve water management across the supply chain. A smaller group provide direct financial incentives to their chief procurement or purchasing officers.
Buyers and suppliers need to collaborate to ensure sustainability is a business norm. Recognizing it as a key differentiator among suppliers will be essential going forward. If we fail to address these issues the mounting financial impact of water risks will become all too apparent.
Going beyond
The report makes a strong case for companies to take immediate action on water issues in their supply chain and offers six key steps for companies. Each one of these indicators follows from the next: assess supply chain risks and impacts; set global targets; incentivize executives to act; include water in supplier requirements; engage with suppliers; and incentivize and support suppliers.
Ensuring supply chains can build resilience, reduce water risks, and keep our economies going is within reach. But to do so quickly and comprehensively we need to go beyond voluntary measures. The bar should be raised much higher in order to close the gap between where we are now and need to be.
Stronger regulation for mandatory disclosure and transparent reporting mechanisms are imperative to drive progress. This requires a combined approach with government policy, industry standards, and stakeholder engagement all playing a role.
