Executive Briefings

McDonald's, L'Oreal Combine Purchasing Power to Nix Supply Chain Risk From Deforestation

Eight major corporations including McDonald's and L'Oreal recently joined the supply chain platform of CDP - a nonprofit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources and protect forests - to request information from key suppliers on how they are managing risks linked to deforestation. The companies say they are combining their purchasing power to achieve deforestation-free commodity supply chains.

Deforestation is responsible for 10 to 15 percent of global greenhouse gas emissions, according to CDP. Companies disclosing to CDP revealed that nearly 25 percent of their revenues depend on the four commodities responsible for most tropical forest loss: cattle, timber, palm oil and soy. Deforestation therefore represents a significant business risk, with 2016 CDP analysis revealing that as much as $906bn in annual turnover could be at stake.

Companies are increasingly working to combat the potential business risk resulting from important commodities becoming difficult to source because of shortages. Ikea, for example, recently acquired a 15 percent minority stake in a plastic recycling plant, Morssinkhof Rymoplast, in the Netherlands, with an investment that will help Ikea secure recycled material if tougher regulations requiring producers to include a certain percentage of recycled plastic in their products lead to a material shortage.

General Motors is helping to reduce its risk related to the sourcing and long-term availability of one of its key commodities by working within the industry to source only sustainable natural rubber in its tires. The business case helped drive the change, GM's senior VP of global purchasing and supply chain Steve Kiefer told Environmental Leader. By working with its supply base to source sustainable tires in a strategic way, "we can ensure volume meets growing global demand through improved yields," he says. The initiative would also eventually ensure net-zero deforestation and the building of stronger communities.

Dexter Galvin, head of supply chain at CDP, says many companies with "at risk" supply chains are increasingly looking at this type of vertical integration model.

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Deforestation is responsible for 10 to 15 percent of global greenhouse gas emissions, according to CDP. Companies disclosing to CDP revealed that nearly 25 percent of their revenues depend on the four commodities responsible for most tropical forest loss: cattle, timber, palm oil and soy. Deforestation therefore represents a significant business risk, with 2016 CDP analysis revealing that as much as $906bn in annual turnover could be at stake.

Companies are increasingly working to combat the potential business risk resulting from important commodities becoming difficult to source because of shortages. Ikea, for example, recently acquired a 15 percent minority stake in a plastic recycling plant, Morssinkhof Rymoplast, in the Netherlands, with an investment that will help Ikea secure recycled material if tougher regulations requiring producers to include a certain percentage of recycled plastic in their products lead to a material shortage.

General Motors is helping to reduce its risk related to the sourcing and long-term availability of one of its key commodities by working within the industry to source only sustainable natural rubber in its tires. The business case helped drive the change, GM's senior VP of global purchasing and supply chain Steve Kiefer told Environmental Leader. By working with its supply base to source sustainable tires in a strategic way, "we can ensure volume meets growing global demand through improved yields," he says. The initiative would also eventually ensure net-zero deforestation and the building of stronger communities.

Dexter Galvin, head of supply chain at CDP, says many companies with "at risk" supply chains are increasingly looking at this type of vertical integration model.

Read Full Article