Climate: a supply-chain blind spot?

July 22, 2022

Twenty-seven percent of supply chain leaders have conducted a climate change risk assessment to identify their most critical supply chain risks, according to a recent survey by Gartner Inc. The survey of 320 supply chain leaders in December 2021 and January 2022 found that 18% of respondents conduct both risk assessments and scenario planning. But that may also mean that 73% are ill-prepared for potential future effects (figure).

"The effects of climate change are hard to predict, but it's possible to model the risks and opportunities that might occur,” says Heather Wheatley, senior director analyst with the Gartner Supply Chain practice. “Chief supply chain officers (CSCO) regularly assess various risks and opportunities as part of normal business—this must be done for climate change as well.

“Scenario planning is a crucial part of the process, as it highlights key elements of a possible future, and helps draw attention to key factors that will drive future developments. For example, in a future that includes raw material scarcity and trade uncertainty, organizations that rely on more resilient inputs such as drought-resistant crops can gain a competitive advantage,” Wheatley adds.

Short-sightedness a key challenge

Climate adaptation must be included in investment decisions. For example, when building a new manufacturing plant, design considerations should be made for future climate change threats such as heat waves or water shortages. However, the need for financial investment can deter action. The top barriers to planning for climate change in the supply chain include a focus on short-term decision making (57%) and an inability to link investment to benefits (57%).

“Investments in climate adaptation require a certain level of foresight. An increasingly popular tool is the shadow carbon price, which applies a notional cost to greenhouse gas emissions, effectively translating a future risk into a present-day operational cost that attracts the attention of business leaders,” Wheatley says.

Only 19% of surveyed companies are using digital technology to help understand climate change risks. “For organizations that aren't using digital technology, it's unclear what information is being used to help model scenarios and identify and assess risks,” Wheatley concludes. “CSCOs should ensure that this blind spot isn't overlooked.”