15 Nov 2011Working Paper Summaries

Engaging Supply Chains in Climate Change

by Chonnikarn Fern Jira and Michael W. Toffel

Managing a company's risks and opportunities associated with climate change—including its physical and regulatory implications—requires focusing not only on internal operations, but also on supply chains, especially since greenhouse gas (GHG) emissions in supply chains typically exceed those from a company's own operations. But this requires obtaining climate change information from suppliers, which some are reluctant to share. In this paper, Chonnikarn (Fern) Jira and Michael W. Toffel examine proprietary data from the Carbon Disclosure Project's Supply Chain Project, a collaboration of multinational corporations asking their key suppliers to share information about their GHG emissions and their vulnerabilities and opportunities associated with climate change. Jira and Toffel find evidence that a supplier is more likely to share this information when it faces several buyers requesting the information, when its buyers appear committed to actually using this information, and when the supplier is in a relatively competitive industry and is thus particularly vulnerable to being replaced by its rivals. These findings can help managers better predict which suppliers will be more willing to share climate change information, and which might require more incentives or pressure to share this information. Key concepts include:

The research identifies several factors that predict which of a company's suppliers will be more willing to share information about their vulnerabilities and opportunities associated with climate change, as well as their greenhouse gas (GHG) emissions levels and trends.
Buyers are more likely to be successful in their efforts to obtain climate change information from their suppliers when this information is incorporated in supplier scorecards and other formal mechanisms, and when they collaborate with other buyers to convince suppliers that the request represents a trend rather than an idiosyncrasy.
Suppliers receiving requests to share climate change information by several buyers are more likely to share it not just with their buyers but also to disclose it publicly.
When buyers seek climate change information from suppliers to incorporate it in supplier scorecards, suppliers are more likely to share this information just with their buyers, but not disclose it publicly.
To encourage suppliers in competitive industries to share greenhouse gas (GHG) emissions data, buyers may need to convince suppliers that the information requested would not be shared with their competitors.

Author Abstract

Suppliers are increasingly being asked to share information about their vulnerability to climate change and their strategies to reduce greenhouse gas emissions. They vary widely in their responses. We theorize and empirically identify several factors associated with suppliers being especially willing to share this information with buyers, focusing on attributes of the buyers seeking this information and of the suppliers being asked to provide it. We test our hypotheses using data from the Carbon Disclosure Project's Supply Chain Project, a collaboration of multinational corporations requesting such information from thousands of suppliers in 46 countries. We find evidence that suppliers are more likely to share this information when requests for information from buyers are more prevalent, when buyers appear committed to using the information, and when suppliers belong to a competitive industry. Moreover, we found evidence that these three factors also influenced the comprehensiveness of the information suppliers shared and whether they would also share the information publicly. Finally, we found that suppliers in countries with greenhouse gas regulations were more likely to include quantitative emissions data and reduction targets in the information they shared.