Climate change and supply chains – is there a ‘business case’ for adaptation?
Jodie Thorpe Private Sector Policy Adviser
17th Aug 2012
Oxfam recently invited 14 food companies and stakeholders, including Acclimatise, Café Direct, Marks & Spencer, Starbucks, The Body Shop and Waitrose, to discuss some of the issues raised by our new paper on Climate Risks and Supply Chain Responsibility. Here, Jodie Thorpe summarises that discussion.
Climate Risks and Supply Chain Responsibility is structured around interviews with three companies: Marks & Spencer, Starbucks and The Body Shop, as well as several others who know first-hand how smallholders have been affected by climate change and how they are responding.
At the roundtable, we wanted to bring together other companies and stakeholders to test the findings of the paper. One of the key questions to emerge from the discussion, for example, was how to engage others, whether investors or consumers, when climate change is not yet having a financial impact on a company's businesses or consumers of their products.
Making a 'business case' for adaptation
The good news from the roundtable is that adaptation is not a dirty word in businesses. Adaptation is often seen as highly relevant to commercial people in companies, where mitigation generally is not. Adaptation is more tangible and means being able to 'do something' rather than 'stop doing something'.
Boards are more likely to be open to spending money when they know it is about strengthening producers in their own supply chain. They are particularly interested in adaptation when prices of the crops they buy suddenly spike. However, they may also lose interest when prices return to normal - even though investing in adaptation is arguably best done in calm times and not during a commodity price crisis.
It is widely acknowledged that extreme weather events are becoming more common - and that these are structural problems that won't go away. Some businesses do see this phase as a warning period: we have the opportunity now to increase resilience - before impacts become more severe.
Investors, including banks, have shown interest in how companies are managing the impacts of climate change, as are insurers and regulators. In the US, the Securities and Exchange Commission (SEC) requires companies to disclose material risks due to climate change (and similar regulation exists in Canada). Many shareholder resolutions have been filed by investors about the risks of climate change to food and beverage companies. The companies taking part in our discussion felt that more interest from investors in Europe would be helpful.
Working with others to achieve scale
There was consensus at the roundtable that right now, there is little coordination across industry or government, but rather many individual projects with replication and duplication. We need to move away from pilots and work with others, e.g. intermediaries in the supply chain, to reach scale.
It is a similar story on finance for adaptation -a lack of leadership and coordination. Whose role is it to provide finance? Clearly there is a moral obligation for those countries that have contributed the most to climate change to provide finance to those affected. However, governments need to provide the overall framework and right now this is missing. There is a need for better cooperation between public and private finance.
The role of consumers
Some companies raised the issue of where consumers fit into the picture. With the financial crisis, the market for more sustainable products has collapsed in many cases. In the UK the 'concerned consumer group' is shrinking (and was never the majority). It seems that we are simply not engaging consumers in the debate - we need to grow the sector that will buy ethically to have greater impact.
However, the question is whether this is really an issue on which companies can differentiate themselves with consumers? Especially given the need for working together and raising standards across the board?
Smallholders as a solution
Finally, there was a lot of discussion about smallholders and adaptation. There are real benefits to working with smallholders. They do adapt and have done so for a long time. They have traditional systems to cope with their own individual environments. By sourcing from smallholders a company is effectively working with hundreds of experts that can adapt quickly and offer a range of options, rather than sourcing from one large producer.
Investing in women smallholders, in particular, has significant positive impacts as women are more likely to take longer term investment decisions. However, the main challenge is that smallholders need long-term commitment from buyers to bear the risk involved to invest in the necessary changes.
What smallholders need
- Access to stable and reliable markets
- Access to finance linked to adaptation
- Support on water efficiency and conservation
- Extension services and tools
A few 'meta' solutions emerged from the discussion that companies can implement or support
- Map the supply chain - understand who your producers are and where
- Understand where you are on the journey
- Identify no regrets and low regrets actions
- Increase information exchange with suppliers
- More and better insurance
- Crop research
- If investing in fixed assets, incorporate climate change into investment decisions
- Tap into the local knowledge sources
- Change purchasing practices - e.g. increase lead time when growers are impacted by weather events
There is no definitive answer to how businesses should help their supply chains adapt to a changing climate. But our delegates agreed on one thing: change is necessary, a business as usual approach won't work.
Over to you
What do you think? Please respond using the comments box below, or drop us an email at firstname.lastname@example.org