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Indian suppliers to MNCs like L’Oreal, Dell may lose out if they fail to address climate concerns

With climate change rising to the top of the global agenda, Indian companies supplying to multinational chains like L’Oreal, Dell, Unilever, Colgate Pamolive, Jaguar Land Rover are likely to lose out if they don’t start taking measures that address concerns about climate change, particularly the amount of carbon produced.

UK-based international organisation, CDP (formerly known as the Carbon Disclosure Project) states in a study released on Tuesday that many Indian companies supplying to global chains are not altering their production processes in light of climate and water risks.

Global chains are of the view that physical climate, regulatory and consumer preference changes is making it absolutely necessary to ensure that companies in its supply chains take steps to ensure their production is responsive to the growing levels of climate risk.

Suppliers from India, Brazil, and Canada, who participated in the research, reported fewer emission reduction initiatives than the global average. This despite the fact that those companies that are orienting their production processes to climate and water risks the best return on investment in terms of emissions reductions and monetary savings.

Around 130 Indian companies supplying to major global chains responded to CDP. Only 25 per cent of the Indian suppliers consider physical climate risk, such as floods, extreme rainfall, droughts, as an issue to be addressed.

CDP recommends that given the current lack of policy guidance from the government, suppliers should be more proactive around climate risk management. Not orienting production processes to take climate risks into consideration could present a problem for the government’s ambitious Make In India programme.

“Suppliers should be mindful of the need to cater to European suppliers, in particular, who are concerned about supplier sustainability performance,” the report states. The report, is based on data collected from 3,396 companies on behalf of 66 multinational purchasers that work with CDP to better understand and manage the environmental impacts of their supply chains.

These 66 companies account for $1.3 trillion in procurement spend and include organisations such as Nissan Motor Co Ltd, L’Oreal, Dell, Microsoft, Unilever, Colgate Pamolive, and Jaguar Land Rover.

CDP reports that while the number of Indian suppliers responding to their questionnaire has been steadily growing but there has been a decline in terms of disclosure and performance.

“Despite the existence of dedicated ministerial departments for energy efficiency and renewable energy, a lack of policy direction from New Delhi is at least partly to blame. Nonetheless, multinationals could better engage with their Indian suppliers on emission reduction efforts,” the report states.

Investment in emissions reductions by Indian companies which are part of the global supply chain has dropped by nearly 50 per cent from 2013. This decline is despite a rise in the number of companies responding to CDP and the enormous potential for reduction.

In 2014, $38 million in investments to reduce carbon footprint were reported, compared to $79 million in 2013. According to respondents to the CDP questionnaire, the massive drop in investment was on account of policy uncertainty, poor infrastructure, failure to impose penalties, and domestic-equipment rules.

Despite the fact that India is relatively highly exposed to physical climate and water risks, such as flood and cyclones in coastal regions, and droughts, one-third of suppliers do not have climate risk management processes in place.

Only 25 per cent of the Indian suppliers consider physical climate risk, such as floods, extreme rainfall, droughts, as an issue to be addressed. This is reflected in drop in the percentage of suppliers implementing emissions reduction initiatives from 65 per cent in 2012 to 41 per cent in 2014 from 65 per cent.

“If there is one thing that climate change teaches us, it is that we cannot prosper in isolation. Modern businesses depend on supply chains stretching around the globe. They appreciate that floods thousands of miles away, or drought striking a distant watershed, can make the difference between their own profit and loss.

Forward-looking companies - such as the 66 members of CDP’s supply chain program - also appreciate that successful, resilient suppliers are good for business. Suppliers that are better able to tackle sustainability challenges, such as climate change and water risk, are simply better business partners,” UNFCCC executive secretary Christiana Figueres said in her foreword to the report.

The report calls on major purchasers need to encourage Indian suppliers to consider their climate exposures more actively, as there is a clear under-analysis of climate risk. Given the enormous potential for emissions reductions in India, CDP suggests that major buyers should more actively explore collaboration opportunities, but they should be prepared to help with funding and technology.

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