Impact of Paris Agreement on supply chains is still to be determined

The Paris Agreement climate deal by the United Nations Framework Convention on Climate Change, which was completed in December, puts a lot on the line in regards to supply chain management and logistics operations, even though those things, as well as specific modes of transport and related emissions reduction mandates or objectives, are not directly cited in the agreement’s language.

One of the key aspects of the deal requires each of the 186 participating countries in the deal to offer up their plans focused on how to reduce carbon emissions through 2025 or 2030, with the objective to cut emissions in half the levels that are required to ward off the worst effects of global warming, and to reconvene every five years with their respective updated plans that would tighten their emissions cuts, according to a New York Times report. The report added that countries will also be legally required to reconvene every five years starting in 2023 to publicly report on how they are doing in cutting emissions compared to their plans, as well as be legally required to monitor and report on their emissions levels and reductions, using a universal accounting system.

But even though supply chain and logistics are not directly cited in the agreement does not mean stakeholders are not paying attention and are not cognizant of the importance of doing their part either.

David South, a senior manager with West Monroe Partners and leader of the firm’s sustainability practice, said that with a heightened focus on reducing carbon emissions going forward resultant from this agreement it now gets the wheels turning for all companies, not just the largest ones that were more affected in the past, due to their larger environmental footprints.

“There are a few pathways that are going to evolve with this deal in place,” said South.
“One is that more of the larger multinational companies being more proactive and in order for them to be more proactive either in what is called adaption or mitigation—they are going to have to engage more of their supply chain proactively. In the past maybe they put some minor requirements on their supply chain entities to do some volunteer action to capture some of those mitigation measures. But going forward there needs to be more stricter requirements in the supply chain to take proactive measures and demonstrate what they have done and provide that information to the tier 1 Fortune-1000 companies so that they can demonstrate they have been proactive and the supply chain has become more greener.”

In order for companies to be in compliance with the Paris Agreement, an entity called “The We Mean Business Coalition,” which is part of the World Business Council on Sustainable Development and comprised of more than 520 companies, have identified various initiatives they have deemed necessary in order to be compliant with the Paris Agreement, including: a long-term mitigation goal to reduce greenhouse has emissions to a level that avoids dangerous climate change and holds global average temperature rise below 2 degrees Celsius above preindustrial levels; and calling on governments every five years to strengthen emissions reductions commitments beginning in 2020 and to establish a clear timetable for new emissions reductions commitments in five-year blocks from 2030 onwards, among others.

South cited these efforts as things he has been advocating for his clients for several years, whereas in the past for some companies has come from environmental NGOs or customer whom wanted to the products they produced to be green.

While there are benefits of the Paris Agreement there are clearly supply chain implications that industry stakeholders need to be aware of, according to Kevin Smith, president and CEO of Sustainable Supply Chain Consulting, former head of supply chain for CVS Caremark, and Chairman of the Board for the Council of Supply Chain Management Professionals.

“First, I fear that supply chain members like transportation providers may be unduly vilified and punished,” he explained, “I know that sounds strong, but when you say ‘carbon emissions’ to people, a lot of them think ‘diesel trucks.’ My experience in running supply chains and trying to track their carbon footprints has led to a surprising revelation. In the retail and food manufacturing supply chains with whom I have worked, diesel emissions accounted for less than 5 percent of the carbon footprint. Instead, electricity made up most of the CO2 contribution, over 90 percent. Yet we rarely hear people talk about ‘dirty electricity.’ The fact is that most electricity in the USA is generated by burning coal. I am unsure how many people understand that electricity needs to be generated. It doesn’t just flow out of the wall socket naturally.”

Smith also recounted his first speech in his CSCMP role last September at the organization’s annual conference in San Diego, when he said “supply chains improve the standard of living around the world. More food reaches the table in edible condition and less goes to waste because of supply chains. More potable water is available because of sustainable practices brought forward by supply chains. Electricity and fuels are more readily available because of the efforts put forth by supply chains. Supply chains quietly, but absolutely affect people’s lives.”

In following that up, he said that if supply chains can help to reduce greenhouse gas emissions, it should be done, but cautioned that supply chains should not be called on to contribute disproportionately or be punished in the process.

As for how the Paris Agreement relates to the supply chain going forward, it is still to be determined. That was made clear by Adrian Gonzalez, president of Boston-based Adelante SCM.

“It’s too soon to know what impact this will have on supply chain in the near term, but considering that the agreement is voluntary and there are no enforcement mechanisms in place, my sense is that very little will change over the next twelve months,” he said.

Countries and companies that have already embraced sustainability (such as Walmart and Unilever) will continue to lead the way, while everyone else will wait for binding laws and regulations to emerge before taking meaningful action, according to Gonzalez.

As for shipping and aviation, two industries with significant greenhouse gas emissions, are not included in agreement, he said “the ball is in the court of those industries and their governing bodies” to come up with their own goals and plans.

That appears to be already happening with some ambitious goals for certain. While the ink is barely dry from the Paris Agreement, things appear to at least be heading in the right direction, especially when compared to the failed negotiations held in Copenhagen a few years back.