As we convene at this year’s Climate Leadership Conference (CLC), our focus remains steadfast on the urgency of climate change mitigation, adaptation, and preparedness. Climate change affects the delicate balance of our planet, human well-being, and the profitability of businesses. Supply chain management lies at the heart of this interconnectedness—a nexus where the interests of the planet, people, and profits converge. This relationship has a dual nature: climate change affects supply chains and supply chains, in turn, respond to climate change. A paradigm shift toward a human-centered approach, encompassing principles of fair labor, anti-trafficking measures, and health-centric policies, emerges as the linchpin for establishing resilient and sustainable supply chains. Concurrently, businesses are increasingly embracing initiatives aimed at mitigating the impacts of climate change as part of their environmental, social, and governance (ESG) programs. This strategic alignment not only enhances corporate value but also engenders investor confidence while resonating with the priorities of stakeholders.
Supply chains are impacted by each element of ESG and face escalating vulnerabilities due to the multifaceted impacts of the climate crisis. These vulnerabilities amplify risks such as operational disruptions and resource scarcity, necessitating strategic adaptation. The climate crisis poses significant challenges for supply chain continuity, including navigating extreme weather events, evolving regulatory frameworks, emissions reduction mandates, and heightened expectations for sustainable practices. With the emergence of more demanding global regulations for ESG reporting, supply chains are poised to face heightened transparency requirements. Companies must integrate expansive climate resilience measures to mitigate risks and support long-term sustainability among evolving global standards. Embedding ethical supply chain frameworks into climate preparedness models serves as a proactive measure to navigate these environmental, regulatory, and social shifts. To foster resilient and responsible supply chains, we delve into three pivotal topics: ethical business responsibilities, physical risks posed by climate change, and the transformative potential of climate-related transitions toward greener technologies.
Human Rights–Good for People and Business
Ethical supply chains that prioritize human rights and worker well-being are not just a moral imperative; they are also a strategic advantage for businesses. By embracing a human-centered approach, companies can mitigate legal, regulatory, and reputational risks associated with forced labor, child labor, and other unethical practices. Beyond ethical considerations, this approach also translates into tangible benefits for businesses, including smoother operations, reduced delays, and lower employee turnover rates. Climate-induced phenomena such as displacement of communities (climate refugees), pandemics, and food insecurity disproportionately affect vulnerable populations, exacerbating human rights challenges. Businesses must keep an eye toward these challenges when keeping their workforces safe and secure. Regulatory mandates and industry pressures further underscore the necessity for companies to account for fair labor practices in their supply chains. Failure to uphold human rights standards not only places companies at a competitive disadvantage, but also imposes legal risk, jeopardizes customer loyalty and investor confidence in an increasingly socially conscious marketplace. Thus, integrating human rights practices into supply chain management is not just a matter of corporate social responsibility; it’s a strategic imperative for sustainable profits and climate resilience.
Physical Risks of Climate Change on Supply Chains
Companies must not overlook the significance of accounting, and preparing for, nature-based climate risks. Natural disasters, floods, and the spread of vector-borne diseases pose substantial threats to supply chain operations, with profound implications for human rights, including compromised shelter, restricted mobility for climate refugees, and disrupted labor markets. The impacts of such events transcend businesses’ direct operations, having upstream and downstream effects that demonstrate the importance of an approach with suppliers that is collaborative.
Assessing physical climate risks through modeling allows businesses to comprehend how climate change may impact sourcing, transportation, and workforce availability within their supply chains as well as gain insights into the potential disruptions. This information enables businesses to proactively identify vulnerabilities and implement targeted and strategic risk mitigation strategies. As we confront the need of safeguarding nature and mitigating climate risks, it becomes increasingly clear that the future viability of businesses hinges on their ability to embrace nature-based solutions that drive transformative change across global supply chains.
The Transformative Potential of Green Technologies
The transition to green technologies presents both challenges and opportunities, with profound implications for supply chains. Labor risks associated with emerging technologies are key concerns impacting sourcing, operations, and employment within supply chains. These risks encompass policy uncertainties, technical complexities, novel health hazards, market dynamics, and reputational considerations.
Impending regulatory requirements associated with climate transition plans, such as the potential disclosure mandates on Scope 3 emissions by the EU’s European Sustainability Reporting Standards, and the SEC’s climate disclosure rule, albeit stayed, emphasize the urgency for companies to understand and address nature-related risks in their supply chains. Failure to anticipate and respond to regulatory demands and stakeholder expectations for ESG reporting exposes companies to non-compliance actions and reputational damage.
The deployment of new infrastructure may exacerbate social inequalities and leave vulnerable communities behind, emphasizing the need for proactive measures to safeguard worker and community well-being. However, amidst these challenges, the transition offers opportunities for innovation and sustainability. Green technologies introduce new energy sources and products, necessitating investments in retraining and reskilling to equip workers for evolving roles. In navigating this transition, companies must prioritize risk management and seize opportunities to position themselves as leaders in sustainable supply chain management.
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Authors: Taylor Fallon Senior Sustainability Consultant, ESG Advisory & Ximena Alverde Senior ESG Advisor
*The opinions expressed within the content are solely the author’s and do not necessarily reflect the opinions and beliefs of The Climate Registry.