Major consumer goods companies’ “systemic failure” to tackle supply chain emissions will cost them billions of pounds, new financial analysis has found.
Detailed analysis of Unilever’s, Procter & Gamble’s and Colgate-Palmolive’s transition plans showed the fmcg giants were on course to miss targets to reduce carbon emissions in alignment with the Paris Agreement 1.5ºC by 2030 goal.
This was largely because of their inability to tackle upstream Scope 3 emissions – or the carbon emissions arising from their entire supply chains rather than their direct operations only – the study by financial think tank Planet Tracker noted, which will cost them billions of pounds down the line.
Global warming, under any scenario, comes with a financial toll, from the energy needed to heat or cool industrial livestock facilities to changes in feed quality and quantity, as well as managing limited water resources more efficiently.
Unless urgent action is taken to address Scope 3 emissions, current emission trends put 51%, 30% and 14% of P&G’s, Colgate’s and Unilever’s annual operating profits at risk, respectively – or $6.7bn, $1.1bn and $1.5bn.
Colgate and P&G are on a +3ºC pathway, with expected emissions seven times higher than recommended level set by the Science-Based Targets initiative (SBTi) by 2030, research showed.
P&G’s transition plan was the “worst performing” according to Planet Tracker, due to limited Scope 3 ambitions and disclosures.
Colgate’s lacked concrete mitigation and risk disclosures as well as linked capex alignment, Planet Tracker said.
Meanwhile, Unilever led the way with a comprehensive plan supported by financial impact analysis. However, the company was still on track for a +2ºC pathway and thus “still has some work to do”, said Planet Tracker research analyst Ion Visinovschi.
“Our comparison of leading consumer goods companies demonstrates a worrying trend of companies failing to effectively tackle direct Scope 3 emissions, especially upstream, which if not mitigated soon could cost billions of dollars in the future.
“The comparison between companies allows us to see how far behind giants like Colgate-Palmolive and Procter & Gamble are from the targets laid out in the Paris Agreement.”
Visinovschi said investors should continue to urge companies to increase their ambitions on Scope 3 emissions they have a direct impact on, such as their supply chain, given the “substantial economic and market risks associated with inaction”.
A Unilever spokeswoman said: “Unilever welcomes Planet Tracker’s report. Back in 2021, we were one of the first companies of our size to put a Climate Transition Action Plan to a shareholder vote, which was approved with 99.6% of votes cast.
“We committed to updating this public plan every three years and are currently working towards an update in time for our annual general meeting next year. With this context, the report is timely and helpful for us as we look to continually improve our Climate Transition Action Plan.”
Food industry companies have long received criticism from environmental campaigners and those in the green financing sector for failing to publish detailed plans for targeting Scope 3 emissions across their supply chains.
Large businesses such as Unilever, Danone and Tesco have only recently begun to include climate risks in their annual P&L reporting, in alignment with the UN’s Task Force on Climate-related Financial Disclosures (TCFD).
Now a legal bind, the TCFD framework forces companies to place a financial value on the risk of climate breakdown, encouraging the risks to be valued as much by commercial teams as those focused on sustainability.
It will also prevent companies from making unsubstantiated claims about their carbon emissions as investors will have a breakdown of all the data and costs associated with net zero targets.
Tesco is now leading the way in the retail sphere after having had its net zero targets validated by the SBTi. The supermarket laid out some more detailed climate commitments this week, including how it intends to cut Scope 3 emissions that come indirectly from its wider supply chain.
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