The Carbon Disclosure Project (CDP) is reporting that a growing group of purchasers, including procurement managers in the electronics industry, are increasing their involvement in efforts to collect and share data on environmental risk among their suppliers.
Not only has the Electronic Industry Citizenship Coalition (EICC) recently teamed with CDP to increase the number of electronics companies participating in reporting the details of their decisions to address climate change, but the combined spend of CDP supply chain members has almost doubled from $1.3 trillion in 2014 to $2 trillion in 2015.
Officials at the CDP, which acts on behalf of investors and purchasers to gather company information related to environmental risk, note that EICC’s participation in CDP’s environmental disclosure program will strengthen efforts to encourage smaller supplier companies in the electronics supply chain to report on their initiatives to lessen the impact of greenhouse gas (GHG) emissions and environmental risk, including water risk.
“The EICC is basically providing a secretariat function to smaller members of their industry group, who would not normally join the program themselves,” said Dexter Galvin, head of CDP's supply chain program.
The EICC is a nonprofit coalition of leading electronics companies dedicated to the social, environmental and ethical responsibility of their suppliers. The organization has more than 100 members representing 17 different sectors, including original equipment manufacturers such as Apple, IBM and Cisco, as well as contract manufacturers such as Foxconn and Flextronics International and chip manufacturers like Intel and Fairchild Semiconductor.
Galvin noted that through the EICC, member companies are gathering supplier lists and sending those lists to CDP which enters the information in their environmental disclosure system. The hope is that smaller suppliers will begin the task of disclosing their environmental impact data on an annual basis.
The CDP’s global environmental disclosure system is used by companies in over 80 countries worldwide, and CDP officials indicate that one of their key objectives is to encourage smaller companies in the electronics supply chain to participate. In particular, the organization is focused on generating interest among small and medium- size electronic suppliers operating in countries where electronic manufacturing continues to grow such as Mexico and Brazil, as well as China and other countries in the Asia-Pacific region.
The drive to get smaller enterprises to participate is being helped along by larger companies such as Cisco and Dell, that are demanding of their tier one suppliers not only to disclose their environmental information, but are also asking these suppliers to request similar information of their suppliers.
“This trickle-down effect is happening throughout the supply chain and is having a real impact. The level of sophistication from the smaller organizations is not there yet, we don't have amazing data from those smaller companies further down the supply chain but it's growing,” Galvin said.
Last year 3,396 companies responded to questions on carbon emissions, climate change and to a lesser extent water risk. The answers include data on companies’ carbon accounting in their business, as well as providing information on companies’ governance structure as it relates to their climate change efforts.
Questions posed to officials at electronics suppliers center around whom at the company ultimately takes responsibility for climate change? Has the company conducted a risk assessment on how climate change will affect their business now and in the future? Has the company assessed regulatory risk and physical risk? And, are company officials aware of the opportunities posed by climate change to their business?
Simon Ellis, practice director, global supply chain strategies at IDC Manufacturing Insights, pointed out that most companies in the electronics industry want to be perceived as environmentally friendly. He also noted that when a procurement manager talks to suppliers there is a hierarchy of factors that determine which supplier they will or will not use.
“At the end of the day most procurement managers are still very much focused on the bottom line. How much is the product going to cost is still at the head of the list. However, there’s all sorts of ethical, cultural and environmental issues, which are secondary criteria, that influence who they will buy goods from and do business with and who they won’t,” Ellis said.
According to Galvin there are consequences for those companies that don’t participate, or have not shown progress in disclosing their environmental efforts.
“When a supplier doesn’t engage on this and has persistently not responded then our members are going to score them badly or in some cases deselect them,” Galvin said.
Galvin also observed that members have successfully integrated the disclosure program into their procurement standards. He noted that the trend of linking procurement with a company’s efforts to improve their environmental goals has been partially responsible for a change in the way procurement decisions are made.
“Before, purchasing decisions were solely based on product quality and price,” Galvin said. “Today there is increasing evidence that companies are making purchasing decision based on their supplier’s commitment to advancing the goal of environmental responsibility.”