Supply Chains design influenced by IPCC climate report

Roger OakdenLogistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

Petrochemical pollution

Climate situation

The 2021 Intergovernmental Panel on Climate Change (IPCC) report has observed that human influence is the main contributor to Climate Change. However, within the report’s not unexpected findings, there is some hope. A linear (not exponential) relationship exists between emissions and the extent of global warming and there is no geophysical reason why the climate cannot be stabilised.

As discussed in a previous blogpost, the demands of consumer societies in developed countries have meant that global surface temperature increased faster since 1970 than in any other 50-year period for at least the last 2000 years. To reverse that increase will be difficult, but not impossible. However, the increase in global surface temperatures of at least1.5º C by about 2050, together with sea-level rise and glacier melt are considered to be irreversible.

Your organisation’s supply chains will need to change – by how much will depend on changes to government policy, customer markets and supplier capabilities. However, an important criteria for planning is time. At current levels of global emissions, the remaining ‘carbon budget’ will be used within the next 12 years (by 2033). This requires your supply chains to be in a position of ‘net zero’ emissions by 2030.

IPCC scenarios

The 2021 IPCC report provides five ‘illustrative’ scenarios for the future, but without assigning a likelihood to any. As noted in the IPCC explainer by Reuters article, each scenario is labelled to identify the Shared Socioeconomic Pathway (SSP) and the emissions level. The first scenario (SSP1-1.9) is the only one that meets the Paris Agreement’s goal of keeping global warming to around 1.5°C above pre-industrial temperatures.

The scenarios are not precise descriptions of the future, but provide some ‘what if’ situations, upon which politicians can identify a range of policy settings to reduce the effects of Climate Change. Because change is difficult to sell, it is likely that politicians will talk about Scenario 1, but enact policies that will only meet Scenario 2 or higher. Supply Chain professionals should therefore construct their change plans based on ‘less than preferred’ outcomes.

With the IPCC report are Regional Fact Sheets. Each region is divided into sub-regions to identify specific changes to those in the region projections The fact sheet for your region will be an input to the Supply Chain risk analysis process.

Supply Chain changes

Each organisation’s Supply Chains Network is a ‘Complex Adaptable System’ (CAS). The responses to climate related events will emerge within an organisation’s Network based on independent decisions from the various businesses in each supply chain. To help structure your organisation’s response, the Supply Chains group needs to understand the potential events, likelihood of occurrence and possible responses by the affected businesses in the Network.

Prior to identifying and analysing climate risks within the supply chains, what flexibility is there within your organisation’s business model and the associated attitudes (or mindset) in the organisation? This identifies the extent to which change in supply chains will be accepted; so review the:

  • Aim and objectives of the Supply Chains Network
  • How Power is exercised in your supply chains by supplier and customer organisations
  • The extent and effects of Dependency within your organisation’s supply chains by suppliers and customers
  • Incentives and punishments in the Supply Chains Network concerning price, quality and delivery
  • Structure and ownership of data and information flows. Access within the organisation, its customers and suppliers, to what types of company generated data and information?

To identify climate risks in supply chains, the Task Force on Climate-related Financial Disclosures (TCFD) provides two categories:

  • Physical climate risks from weather events and climate patterns, that disrupt the availability of materials, energy, supplier operations and local communities along a supply chain. The TCFD identifies two types of physical climate risks:
    • acute physical risks that are driven by events, such as cyclones, hurricanes, forest fires and floods. They can force the temporary or extended shutdown of a mine, production facility, sea and airport, transport route or power generator. Climate change may aggravate diseases that impact worker’s health and place stress on public health infrastructure. Labour productivity could decrease by about 2 percent per degree centigrade increase in temperature
    • chronic physical risks from long-term changes in climate patterns, such as the rise in sea levels, droughts and excessive heat waves. These can reduce the yield of agricultural commodities; decrease a supplier’s production efficiency and cause additional wear to production equipment; degrade infrastructure (such as rail lines and road surfaces) that may require a change to transport routes
  • Policy and Legal climate risks that occur from the action of people:
    • policies to reduce greenhouse gas (GHG) emissions, such as carbon markets, carbon taxes, or policies that indirectly impose a carbon price
    • policies that promote resilience to physical climate risks
    • policies to ‘electrify everything’ using natural resourcessolar panels, wind generators, wave generators, geothermal and hydro, plus associated batteries. Businesses required to be as self-sufficient as possible e.g. panels on warehouse roof, plus batteries
    • policies that increase market risks from customer demand (or need) for low-carbon and more climate-resilient goods and services and
    • delays and costs relating to climate-related legal action

The identified Physical climate risks are scored on two criteria:

 Vulnerability dimension, based on the extent to which the Procurement category:

  • is sourced from climate vulnerable countries or facility locations;
  • relies on natural resource inputs, such as water, that are vulnerable to climate;
  • relies on extended supply chains and distribution routes in locations that are vulnerable to climatic events;
  • creates additional risks, such as to reputation and
  • is endangered by a significant proportion of suppliers within the category not sufficiently aware of risks, or lack the resources to mitigate or adapt to the identified risks

Emissions dimension, based on the level or intensity of GHGs associated with a Procurement category

When selling the results of the analysis to senior management, they and the company shareholders/investors must be willing to absorb an amount of capital expenditure – passing costs through to customers as increased prices may not be a sustainable option. The question for management is – what is the cost of NOT reducing emissions?

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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