Climate Change and Supply Chains: Resilience in a Turbulent World

In an era of unprecedented global challenges, supply chains find themselves at the crossroads of climate change. While the Covid pandemic has dominated headlines, the less-publicized menace of climate disruption poses a far more serious threat. Let's delve deeper into the impact of climate change on supply chains, armed with the most recent facts and data.

The Unyielding Reality: Climate-Induced Disruptions

Beyond the Pandemic: Climate Change as a Long-Term Crisis

While the pandemic is a temporary upheaval, climate change is a slow-moving crisis with lasting consequences. Scholars emphasize that every coastal community and transportation network faces risks, and resources are insufficient to meet the required investments. The urgency lies not only in sea level rise but also in the immediate disruptions caused by extreme weather events.

The Hidden Costs of Disruption

Climate-induced disruptions ripple through supply chains, affecting production, transportation, and distribution. Consider the following impacts:
1. Supply Interruptions: Extreme weather events disrupt manufacturing facilities, transportation routes, and distribution centers. Hurricanes, floods, and wildfires can halt operations for days or weeks.
2. Infrastructure Damage: Ports, roads, and railways suffer damage from rising sea levels, storms, and landslides. Repair costs escalate, affecting overall supply chain efficiency.
3. Inventory Challenges: Disruptions lead to inventory shortages or excesses. Companies struggle to balance demand and supply, impacting customer satisfaction and financial performance.

The Magnitude of Threats

Recent Disruptions: A Glimpse into Climate Change's Impact

Let's examine some recent supply chain disruptions that vividly illustrate climate change's threats:
1. Texas Freeze (2021): The worst involuntary energy blackout in U.S. history forced major semiconductor plants to close, exacerbating the global microchip shortage. Railroad closures severed critical supply chain links between Texas and the Pacific Northwest.
2. Central China Flooding (2021): Supply chains for commodities were disrupted, and a Nissan plant had to close due to severe flooding.
3. Rhine River Challenges (2023): Heavy rainfall and snowmelt caused banks of the Rhine River to burst, halting river shipping. Later, water levels dropped due to long-term drought, forcing cargo ships to load at reduced capacity.
4. Panama Canal Drought Impact on Supply Chain (2023): Global temperatures rose 1.18°C (34.1°F) above preindustrial levels in 2023. The U.S. Geological Survey confirms that climate change has altered the natural pattern of droughts, making them more frequent, longer, and more severe. The Panama Canal, one of the world's most important waterways, faced one of the driest years in over 140 years. Water shortages burdened shippers with extraordinary delays and cost increases, serving as a reminder to consider changing climate and weather patterns in supplier contracting and logistics planning.
5. El Niño (2023-2024): El Niño, a cyclical climate pattern characterized by warmer waters in the Pacific Ocean, is expected to have significant implications for global supply chains in 2024. Returning after four years, El Niño is predicted to peak in the first half of the year, leading to extreme weather conditions like heavy rainfall, flooding, and storms.

Consumer Preference for Sustainability

1. Consumer Spending and Sustainability Claims:

- A joint study by McKinsey and NielsenIQ analyzed five years of US sales data across 44,000 brands.

- The study found a clear correlation between consumer spending and sustainability-related claims on product packaging.

- When consumers see products claiming to be good for the planet or society, they are more likely to buy them.

2. Consumer Willingness to Pay for Sustainability:

- In a 2020 McKinsey US consumer sentiment survey, over 60% of respondents expressed their willingness to pay more for products with sustainable packaging.

- 66% of all respondents and 75% of millennials consider sustainability when making a purchase.

3. Mainstream Consumer Issue:

- 76% of consumers are actively trying to play their part in sustainability.

- 57% say their perception of a brand is influenced by its sustainability practices.

4. Total Wellness Approach:

- Consumers now merge their thinking about personal health, planet health, and social responsibility.

- Brands that align with these values and priorities are preferred.

Sustainability is becoming a baseline requirement for purchase, especially among younger generations who will soon have most of the purchasing power. Brands that deliver on sustainability promises are trusted and rewarded by consumers.

Climate or Sustainability Initiatives

1. Science-Based Targets Initiative (SBTi):

- Today, 1,009 companies spanning 60 countries and nearly 50 sectors, with a combined market capitalization of over $15.4 trillion USD, are working with the SBTi to reduce their emissions at the necessary pace and scale. Science-based target setting is becoming the new normal.

2. Global 100 Index:

- The Global 100 Index for 2021 ranks the world's most sustainable corporations.

- Companies like Google's parent company Alphabet, Tesla, and leading COVID-19 vaccine developer AstraZeneca are among the top sustainable corporations.

3. Corporate Climate Change and Sustainability:

- Nearly 500 companies have approved science-based targets for reducing greenhouse gas emissions as of September 2020.

- Climate and sustainability risks are being addressed globally, with initiatives like planting 1 trillion trees to capture carbon.

4. Business Leaders and Sustainability Investments:

- Business leaders now understand the business case for sustainability.

- Over half of organizations intend to increase their sustainability investments in 2024.

- Focusing on areas like reporting emissions, circular economy practices, and leveraging climate technology can make a substantial impact.

Companies across the globe are increasingly recognizing the importance of climate and sustainability initiatives, and many are actively working toward a more sustainable future.

Strategies for Resilience

Acting Now: Climate Adaptation Imperative:

Supply chain leaders must take decisive action:
1. Risk Assessment and Scenario Modeling: Understand climate risks and model scenarios. Identify vulnerabilities and develop adaptive strategies.

2. Infrastructure Investment: Retrofit infrastructure to withstand extreme weather. Consider relocating critical facilities away from vulnerable areas.

3. Collaboration: Engage partners, suppliers, and local communities. Climate resilience requires collective effort.

Innovations in Resilience

Blockchain:Transparent, tamper-proof records enhance supply chain visibility, enabling rapid response during disruptions.

Predictive Analytics:Real-time data and predictive models help anticipate climate-related risks and optimize supply chain decisions.

Profit with Purpose

Balancing Sustainability and Profitability

Climate resilience isn't just about survival - it's about thriving sustainably. Companies that prioritize climate adaptation gain a competitive edge. Let's harmonize profit with purpose and steer toward a resilient horizon.

Conclusion:

As supply chains navigate these uncharted waters, we must recognize that climate change demands fundamental changes. Let's safeguard our planet while securing business continuity. The winds of change blow fiercely, but together, we can chart a course toward resilience.
Our actions today, shapes the supply chains of tomorrow.