As a supplier for a major retailer, why do I have to worry about climate change?

Introduction

Over the last few decades, climate change has become a pervasive force that affects every facet of human life. Business is no exception. According to a 2023 survey conducted by the Edelman Trust, only 49% of respondents trusted businesses to take corrective action to reduce their impact on the environment. Harvard Business School Professor Forest Reinhardt states, “Companies will have to play an active role if we, as a society, are to have any realistic hope of managing the challenges presented by climate change.” Along with addressing the need of the hour, integrating sustainability into business strategy allows companies to. Complying with ESG requirements allows companies to economically outperform in the market in both the medium and long term. Suppliers form an integral part of any company’s supply chain. Today, companies are looking to align themselves with suppliers who can meet their consumers’ interest in environmental and social compliance. If suppliers want to sustain ongoing demand and grow in today’s market, paying attention to their approach towards sustainability is important.

Climate Change: A Non-Negotiable Business Imperative

Although many suppliers may harbor the misconception that integrating sustainability practices is merely a demand from retailers, it is now a business necessity. Here’s how:

• Retailers’ Criteria:
  Today, retailers factor in emissions criteria while choosing a supplier to be part of their sourcing and procurement processes. Retailers have leveraged their supply network to create a cascade of sustainable practices by asking first-tier suppliers to comply with sustainability standards and asking second-tier suppliers to do the same, and so on. Whether a company is a first-tier supplier or falls farther down the supply chain, adhering to sustainability compliances can be the leg up needed to become part of a multi-billion dollar supply chain. Such supply chains are particularly heavily vetted given the intense scrutiny around sustainable claims, indicating that suppliers that hope to break into such ecosystems must follow through on any green claims made. Deeper commitments around sustainability also means that retailers today are looking at more than just the bottom line; and rather look at the triple bottom line that prioritizes environmental and social impact.
• Regulatory Pressures and Compliance:
  Across the globe, sustainability-related regulations are mandating companies to track sustainability across their supply chain, with numerous regulations specific to retailers. While the Paris Climate Agreement is merely a set of guidelines, countries like Sweden and Germany have legally binding net zero targets, whilst Canada and Japan have a 2050 net zero goal. A holistic evaluation of this process foregrounds the need for information flowing from supplies and the indirect pressure of adhering to compliances imposed on retailers, which can become go-to options for suppliers.
• Financial Implications for Suppliers:
  Sustainability does not have to be a deterrent to financial growth and success. According to a 2019 study, 73% of global customers are likely to change their consumption habits to reduce negative effects on the environment. While the sales of sustainable products have grown by 20% since 2014, a substantial section of consumers are willing to pay more for products backed by strong social responsibility claims. With such a strong consumer-based focus on sustainability, adopting proactive climate strategies can help suppliers secure long-term contracts with retailers and draw large-ticket investments.
• Innovation and Competitive Advantage for Suppliers:
  Apart from mitigating climate change risks, sustainability practices also provide opportunities for creativity and innovation. Identifying critical resources in a product’s life cycle can push retailers to look for alternatives. Along with product development, processes and supply chain are also areas where sustainable practices can foster innovation. Suppliers can gain a competitive advantage by focusing on research and development to provide sustainable solutions and alternatives to retailers.

Conclusion

Long story short, climate change is more than an individual concern; it affects every level of businesses and supply chains. Suppliers must take heed and prioritize climate change since it can help them establish long-term business relationships, gain a competitive edge, help retailers achieve high customer satisfaction, and impact their bottom line. Most importantly, sustainability practices can help suppliers create environment-friendly solutions that leave the planet untouched for future generations.