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May 01, 2008

Tracking Suppliers' Carbon Footprints
    by Anne Moore Odell

The Carbon Disclosure Project reports on the carbon emissions of some of the world's largest corporations' supply chains. -- Investors know that the carbon emissions of the companies they invest with are just the tip of the emissions iceberg. It is also the worldwide suppliers of publicly traded companies that are pumping greenhouse gases into the atmosphere. In a move to address supply chain carbon emissions, the Carbon Disclosure Project (CDP) has released the findings of its Supply Chain Leadership Collaboration. With 385 institutional investors and $57 trillion in assets under management, the CDP is the world's largest investor organization to confront climate change.

Visit the
Prospectus Ordering CenterUsing the reporting expertise CDP gained in helping companies detail their greenhouse gas emissions and climate change strategies, the CDP worked with suppliers of publicly traded companies to report on their carbon footprints. Companies in the first phase of the Supply Chain Leadership Collaboration include Cadbury Schweppes, Dell, HP, Imperial Tobacco, L'Oréal, Nestlé, PepsiCo UK & Ireland, Procter & Gamble, Reckitt Benckiser, Tesco, and Unilever.

"The Collaboration started when companies approached us, wanting to extend what we've done with them on greenhouse gas reporting to their suppliers," said Paul Dickinson, CEO of the CDP.

In 2008, over 3,000 companies reported their climate change data with the non-profit CDP. The CDP website bills itself as "the largest repository of corporate greenhouse gas emissions data in the world." For the past eight years, CDP has collected data on climate change, sending questionnaires to the world's largest publicly traded companies. Although the questionnaire is voluntary, more and more companies are embracing transparency on issues of climate change risk and opportunity.

The CDP started collecting information on supply chain carbon footprints in September 2007 when it partnered with Wal-Mart to report on the retailer's supply chain. The Supply Chain Leadership Collaboration was created in October 2007.

Suppliers are forecasting the potential risk of climate change regulations, with a whopping 96% of suppliers seeing the risk of upcoming regulations. The most commonly reported potential risks are increased taxation and emission limits.

Because it was the companies themselves asking their suppliers for greenhouse gas emission and climate change data, suppliers felt the pressure to respond. The "purchasing power" that companies have with their suppliers forces suppliers to monitor their energy usage and carbon footprint suggested Dickinson.

"Investors can be fickle, buying and selling companies as they want," said Dickinson. "The purchasing partnerships between companies and their suppliers aren't so fickle. They don't want to let the other party down."

The 144 supply chain participants spanned 22 sectors, from chemicals to containers. The suppliers were mainly medium and large sized companies. This is the first time that 95 of the 144 companies reported with the CDP and was also the first time that many of the suppliers had formally focused on issues of climate change. However, the research also found that over a third of suppliers already have a board member who is responsible for climate change.

CDP found that over half (58%) of the responding suppliers report the emissions from the fossil fuel burnt and the electricity they purchase, while only 12% of the suppliers also track their indirect emissions. Suppliers' indirect emissions, which are a consequence of the supplier's company but come from sources controlled by others, are much harder for suppliers to measure.

Extreme weather is another worry for suppliers with 47% citing extreme weather as an anathema to productivity.

Twenty-six percent of surveyed suppliers have created greenhouse gas reduction targets.

A second wave of information requests is taking place this summer as new members join the Supply Chain Leadership Collaboration. The new companies quizzing their suppliers include: Carrefour, Colgate-Palmolive, Exelon Corporation, Fiji Water, Heinz, IBM, Johnson Controls, Juniper Networks, Kellogg Company, Merrill Lynch & Co., National Grid, SSL International, and Vodafone.

The results of the second phase of Supply Chain Leadership Collaboration will be released at the end of 2008 and will include more detailed information on suppliers.

For investors, examining suppliers allows more light to be cast into the business practices of the companies they invest with. "It becomes another tool to see what a leading company looks like," said Dickinson. "Companies see that consumers want products that are sustainable. Companies are asking themselves 'how can I reduce pollution from what I'm selling?' and that means going all the way back to suppliers."

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