A big climate change stress test is coming for Amazon sellers and suppliers

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As Amazon and other big businesses ramp up efforts to reduce their carbon footprint, they’re putting pressure on their suppliers to do the same, and those who don’t may pay a big price.

Starting in 2024, Amazon will require suppliers to share their emissions data, set emissions goals, and report on their progress, the e-commerce giant said in its recently released sustainability report. Microsoft, Walmart and Apple are also urging suppliers to increase their decarbonization efforts. The mandates are coming as more and more big businesses feel pressure to adopt eco-friendly methods. Consumers, investors, regulators, and governments are pushing firms for more progress and transparency.

“The pressure is coming at companies, who are then putting pressure on suppliers,” said Bob Willard, a corporate consultant and author of six books on sustainability.

And in a cascade, those suppliers are leaning on their suppliers.

Businesses typically track three levels of emissions. Scope 1 comes directly from operations. Scope 2 is from energy purchased, such as electricity. Scope 3 is a combination of indirect emissions, such as those from suppliers and customers, but they are attributed to the company’s own activities.

Companies have much more control over their suppliers than many other areas of indirect emissions, says Andrew Winston, author of several sustainability-related business strategy books.For instance, while a consumer goods company can’t force a detergent buyer to wash in cold water, it can be selective in working with eco-conscious suppliers. “The supply chain will continue to grow in importance and transparency, because companies can have a direct influence on it,” Winston said. Decarbonization mandates are getting tougher

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now requires suppliers to disclose scope 1, 2, and 3 emissions, deliver products and services on a carbon-neutral basis, and fill out a supply scorecard each year. AstraZeneca’s suppliers must report annual emissions data to CDP, and set science-based targets. Amazon does not include suppliers as part of its scope 3 accounting but it is effectively dealing with the issue in a similar way to many other firms, forcing suppliers to provide them with emissions data and to set goals against which they can track emissions levels. Amazon’s sustainability report stated that “we know we need to ensure those in our chain decarbonize their business to further reduce emissions.” Third-party suppliers and sellers, especially those who are smaller in size, face a paradox when climate mandates become more strict. Many eco-conscious people say they lack the resources necessary to comply with the reporting and tracking requirements. According to a non-profit survey by SME Climate Hub, eight out of ten small- and medium-sized businesses say that reducing emissions is their top priority. However, 63% claim they do not have the necessary skills and 43% lack funds. Intuit QuickBooks surveyed small business owners and found that two thirds were already taking steps to reduce the environmental impact of their businesses. This included recycling materials and using renewable ones. Businesses who didn’t act cited lack of time, money and resources. Karen Kerrigan is the president and CEO of Small Business & Entrepreneurship Council. She says that tracking emissions data can be a difficult task. She says that compliance costs vary but upfront expenses are often substantial, making it difficult for many businesses with tight cash flows. Chaitali patel, a small business owner who founded sustainability advisory firm Evergood, says that one of the things business owners will quickly learn is how time-consuming it can be. She cites a 152 page document from the Greenhouse Gas Protocol that provides standards for managing and measuring emissions. Patel stated that the collection of data and maintaining records to meet these requirements will require significant resources. Small businesses are already facing economic pressure.

Despite ongoing recession fears, high interest rates that cut into capital sources, signs of weaker demand from consumers, and labor market challenges small businesses still focus more on their employees and bottom line. According to the CNBC

Whether they are ready or not, small and large suppliers will need to take action soon. He said, “This is going to happen.” The procurement arm of business is now reaching out into the supply chain and asking more pointed questions. In addition to pressure from politicians and investors, big companies are also looking further down the supply chains because they currently fall short of their emission reduction goals. The New York Times reviewed climate documents from 20 major food and restaurants companies and found that more than half of them have not made any progress on reducing emissions, or are actually increasing emissions. As previous climate accounting showed, the report concluded that suppliers are responsible for the majority of emissions. Only 26 of the 123 companies in the Russell 1000 have disclosed reductions to their emissions. Meanwhile, among companies without specific targets — just general net zero targets — emissions have gone up.

Companies that want to retain high-quality suppliers are apt to help partners meet any sustainability requirements, says Mark Baxa, the present and CEO of the Council of Supply Chain Management Professionals.Corporate giants are offering assistance that ranges from direct funding and better terms to training and access to clean tech.

For its part, Amazon said in its sustainability report that it will use its “scale, investment, and innovation to date to provide our suppliers with products and tools that will help them reach their goals — whether that’s transitioning to renewable energy or having more access to sustainable materials. The retail giant made it clear that partners who don’t meet expectations could face consequences. “We will continue to look for suppliers that help us achieve our decarbonization vision as we select partners for business opportunities,” Amazon said in its report.

Amazon spokespeople declined to comment beyond its publicly available materials.

In the end, it comes down to suppliers choosing what works for their business.

“The suppliers themselves and the suppliers of suppliers have to come to their own independent decision on how they’re going to approach this,” Baxa said. Baxa said that suppliers and their suppliers of other providers must make independent decisions on how they will approach this. He said that “often, they will choose a supplier that can comply.” For those who don’t comply, “ultimately, the hard conversations will occur.” “