3 May 2023

Why climate change means you must diversify your supply chain


By Cervest

Why climate change means you must diversify your supply chain

Along with accelerating climate change, comes disruption to organizations, their assets, infrastructures – and even external links such as supply chains. Environmental risks in supply chains are projected to cost companies USD120 billion by 2026.

Organizations need to build climate resilience. They need to act not just solely on the climate risk facing the assets they own, but also on the assets they rely upon, like those in their supply chain.

Iggy Bassi, Founder and CEO at Cervest says: "What we are witnessing is that the surface area of risk is expanding - with new regions, cities, and countries reaching new thresholds. Our infrastructure is not built to withstand some of the forecasted changes."

How climate disruption impacts supply chains

When supply chains are impacted by climate hazards or extreme climate events, everything can grind to a halt. The production and distribution of goods and services can be completely obstructed, resulting in cancellations or delays, and upheaving entire supply chains. That is why companies need to diversify their supply chains, to be more resilient to climate change.

Diversified supply chains mean companies won’t rely too heavily on products, materials, or services from countries or regions that might be affected by the same climate hazards. For example, if a supplier's asset is flooded in one region, then production can still continue in another place and the chain is not broken.

The UN reports that global drought duration and frequency have increased by nearly a third since 2000. Droughts or extreme weather events that affect water availability can dramatically reduce or stop operations in water-reliant industries like big pharma. Delayed or halted production and distribution of vital medicines can have catastrophic results around the world.

In manufacturing, production lines depend on many elements including operating factories, raw materials, and assemblers. Then there is the transportation of products to retailers. According to the BCI Extreme Weather and Climate Change Report 2022, transport issues caused by extreme weather have delayed or prevented 50% of companies from acquiring critical products. Any break in the chain can cause chaos.

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Maintaining business continuity with diversity

Extreme weather has forced 32% of businesses to source goods from a more expensive supplier. By proactively investigating climate risks and hazards as part of due diligence, organizations can begin to put contingency plans and alternatives in place and avoid inflated costs. By diversifying and having varied supply chain options, they do not risk being over-reliant on certain suppliers, which can ultimately protect their bottom line.

For suppliers, being able to show that they are acting on climate risk also makes them more competitive. Demonstrating their ability to ensure business continuity by reducing their exposure to climate risk is an alluring proposition for any Just-in-Time manufacturer. Having such knowledge readily accessible during negotiations establishes climate intelligence as a powerful ally to any competitive business.

How climate intelligence (CI) can help organizations build a diversified supply chain

Climate intelligence helps companies not only act on the climate risk facing the assets they own but also their supply chains. By accessing science-backed, decision-useful climate intelligence, organizations can screen both their assets and the entire supply chain they depend on so heavily.

EarthScan™ is a climate intelligence product that allows organizations to spot the weakest links in their supply chain, by individually rating each asset for climate risk. This helps companies to make informed decisions on suppliers and diversification plans, ensuring they are building a robust international network that will be able to support their operations and enable business continuity throughout the climate crisis – sourcing suppliers with low climate risk is part of this.

CI can be seamlessly integrated into supply chain due diligence and EarthScan’s on-demand climate intelligence enables companies to rapidly screen the potential supplier for climate risk across multiple emission scenarios, time steps, and climate hazards simultaneously. Access to EarthScan provides repeatable and scalable processes that enable a quick and accurate appraisal. Having such knowledge readily accessible establishes climate intelligence as a powerful ally to any competitive business.

To find out more about building climate resilient supply chains, download our supply chain infographic.

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