By Risk Area

Third-Party Risk Management
Environmental, Social & Governance
Anti-Bribery & Corruption
Modern Slavery
Supply Chain Due Diligence

By Role
JAN 30TH 2023

As the world continues to navigate the aftermath of the COVID-19 pandemic, one thing has become clear: globalization in business will never be the same. The disruptions to global supply chains have forced manufacturers and companies across industries to rethink their strategies and diversify their suppliers.

JAN 30TH 2023

As the world continues to navigate the aftermath of the COVID-19 pandemic, one thing has become clear: globalization in business will never be the same. The disruptions to global supply chains have forced manufacturers and companies across industries to rethink their strategies and diversify their suppliers.

How Carbon Capture Complicates Supply Chain Management

As we discover more about climate change and its effects mount on a global scale, companies large and small are faced with the difficult task of reducing their emissions. Consumers and stakeholders have more information on companies than ever before, and they leverage it to hold organizations accountable for their environmental, social, and governance (ESG) practices–or lack thereof. With regulators joining the worldwide campaign to ensconce ESG in law, the scrutiny from all sides is intensifying. Some companies are turning to carbon capture offsets in their quest to become environmentally friendly, but this controversial practice has a ripple effect on supply chain management.

What is carbon capture?

CO2 is by far the biggest culprit in the issue of greenhouse gas (GHG) emissions. It accounts for 76% of GHG released into the atmosphere, with the majority stemming from industrial facilities and power plants. Carbon capture is the process of capturing CO2 before it enters the atmosphere and then storing it in geological formations for a variety of potential uses. The current success rate of carbon capture technologies is between 50 and 68%, and the total amount of sequestered carbon eliminates just 0.1% of global emissions. Despite the low overall success rate, companies flocked to carbon capture technology in 2022, with 26 large-scale carbon capture projects in full operation and 21 more in early development.      

Why carbon capture is controversial

Those who oppose carbon capture do so for a variety of environmental reasons. The technology is still relatively new, and many consider speculation on its efficacy a sign that it won’t work in the long run. Many are also concerned that it will ultimately result in cash being funneled directly to oil and coal companies, thereby delaying a true transition to clean energy. There is also the issue of carbon capture offsets, which in effect allow companies to pay to reduce their emissions on paper without actually making any advances in renewable energy use.

Impact on supply chain management

Carbon capture and offsets can be an effective tool in a company’s ESG efforts, but the increasing pressure to act responsibly when it comes to supply chain management practices means organizations have to take extra steps. Supply chain leaders must be able to prove suppliers are using sustainable materials, pursuing renewable energy sources, or participating in other projects with a demonstrable impact–not just using carbon capture credits to mask a lack of truly green practices. 

Best practices for third-party management

In 2023, mitigating risks in the supply chain around carbon emissions and third-party relationships will be an increasingly important topic as companies strive to reduce their environmental impact in a meaningful way. Responsible companies will need to drill down on three core best practices in order to avoid the reputational damage and potential regulatory crackdown that comes with greenwashing.

First, companies must take a collaborative approach to bring third parties up to speed with environmental concerns. It’s imperative to ensure each third party is aware of and compliant with regulations concerning carbon emissions. Supply chain leaders need documentation that lays out third-party emissions goals, such as setting specific targets for reducing emissions through actions like introducing more efficient processes into manufacturing operations. 

Second, companies should leverage constantly improving artificial intelligence (AI) or blockchain technology to facilitate transparency throughout the supply chain. AI technologies can help track carbon emissions more closely and identify potential carbon-based risks, while blockchain provides a secure means of storage for emissions-related data on each third party.

The third step is to identify strong incentives to encourage third parties to step up and put in the work to demonstrate tangible steps toward environmental responsibility. While participating in carbon capture programs may be one positive element of a robust ESG plan, third parties who use offsets exclusively to the detriment of other initiatives are a risk to any network. Working directly with third parties to determine what will encourage varied and meaningful change is an essential practice for building network resiliency.

The need for ongoing due diligence

As supply chain and risk management leaders are aware, due diligence has shifted from a one-time onboarding requirement to a perpetual requirement. It’s as important as ever to vet and train third parties at the outset, but continuous monitoring is necessary to mitigate risk at an adequate level. It’s not enough for third parties to declare environmental friendliness and emissions reduction goals, they must be monitored to assess progress toward those goals. 

To move beyond basic compliance and gain a competitive edge as a result of ESG dedication, companies cannot rely solely on carbon capture–and their third parties can’t either. Tools that facilitate supply chain transparency will become increasingly crucial in the coming years as we discover whether carbon capture is a silver bullet for emissions or just another way to delay the clean energy revolution.

Sign-up now for the latest industry news, straight to your inbox.

Introducing Ethixbase360: The Most Comprehensive Third-Party Risk Management Platform

Share via
Copy link
Powered by Social Snap