cdp supply chain report 2010

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Carbon Disclosure ProjectSupply Chain Report 2010

Carbon Disclosure [email protected]+44 (0) 20 7970 5660www.cdproject.com

Report written forCarbon Disclosure Project by:


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CDP Supply Chain Program 2010The CDP Supply Chain Program isdesigned to promote inormationsharing and innovation between CDPSupply Chain Members companiesthat have begun to integrate carbonmanagement strategy into theirsupply chains and the companiesthat provide goods and services tothem as we transition to a low-carboneconomy. To learn more aboutbecoming a member, please contactus or visit the CDP Supply Chainsection o www.cdproject.net.

Member companies Country o incorporation

Acer Taiwan

BAE Systems United KingdomBanco Bradesco Brazil

Bank o America United States

Baxter International United States

Boeing United States

Cadbury United Kingdom

Carreour France

Cathay Pacic Airways Hong Kong

Colgate-Palmolive United States

ConAgra Foods United StatesDell United States

Eaton Corporation United States

EMC United States

ENEL Italy

Fiji Water United States

Fujitsu Japan

GlaxoSmithKline United Kingdom

Google United States

H.J. Heinz Company United States

Hewlett-Packard Company United StatesImperial Tobacco Group United Kingdom

IBM United States

Johnson & Johnson United States

Johnson Controls United States

Juniper Networks United States

Kao Japan

Kellogg Company United States

LOral France

Logica United Kingdom

National Australia Bank Group Australia

National Grid United Kingdom

Newmont Mining Corporation United States

PepsiCo United States

Procter & Gamble Company United States

Rautaruukki Finland

Reckitt Benckiser United Kingdom

Rolls-Royce United Kingdom

Royal Mail Group United Kingdom

SKF SwedenSony Corporation Japan

Unilever United Kingdom

Vivendi Universal France

Vodaone Group United Kingdomi


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1 Intergovernmental Panel or Climate Change (IPCC) Fourth Assessment Report, 2007 (www.ipcc.ch).2 http://unccc.int/essential_background/eeling_the_heat/items/2905.php.3 See glossary or detailed deinition o Scope 1, 2 & 3 emissions.

A common agreement on climatechangeThere is compelling scientificevidence from bodies such as theIntergovernmental Panel on ClimateChange1 showing that climate changeis caused by human activity andis more serious than ever before.

Climate model projections indicatethat the global surface temperaturewill rise significantly by 2100 ifbusiness as usual continues and the consequences could vary fromdisruptive to catastrophic2. The firstcommitment period of the KyotoProtocol ends in 2012 and whilenegotiations at The United NationsClimate Change Conference inCopenhagen (COP 15) in December2009 did not agree the next frameworkfor an international agreement toreduce Greenhouse Gas (GHG)emissions some progress was madeand it is only a matter of time beforewe have one.

The pathway to long-termemissions reductionsBusiness is increasingly seeing climatechange in terms of opportunity andreturn on investment. This indicatesthat governments must agree a robust,international, legally binding agreementthat will create the right incentives andstructures in order for them to invest

in the transformation to a low-carbonglobal economy, unlocking the powerof business to be an integral part ofthe solution to climate change. Thisemerging framework will need toinclude long-term and medium-termtargets for the world and for individualcountries, setting a pathway to globalemissions reductions that are inaccordance with the science. Clearly,reluctance to act on climate change or worse, a lack of awareness aboutit can bring devastating short andlong-term risks to any company. Inthis context, CDP works with keystakeholders to encourage companies

all over the world to measure, manage,disclose and ultimately reduce theirGHG emissions and related climatechange risks.

The CDP Supply Chain Program assessing Member and Supplierperormance

The CDP Supply Chain is acollaboration of global corporationswho have extended their climatechange and carbon managementstrategies beyond their direct corporateboundaries to engage with theirSuppliers via CDPs annual InformationRequest. Member companiesuse CDPs standardized format tocommunicate with their Suppliers in astreamlined, unified, annual request.This year, 44 Member companiesreached out to 1402 of their Suppliers,and 710 (51%) responded to therequest. 95 (7%) formally declinedto participate and 597 (42%) did notrespond.

This report synthesizes the key findingsthat have been extracted from the2009 CDP Supply Chain InformationRequest responses and is structured inthree main sections:

HowareCDPSupplyChainMembercompanies referred to asMembers in this report driving

climate change strategies with theirSuppliers?

HowwellaretheirSuppliers referred to as Suppliers in this report currently performing?

HowwillCDPSupplyChainMembers and Suppliers use thework to drive further improvement?

The report also includes sectionscontaining perspectives from A.T.Kearney and highlights from Members.

Members are at the oreront ocarbon emissions managementAll CDP Members now have astrategic approach to deal with climatechange. A majority (63%) have aformal, documented corporate climatechange strategy and the remaining(37%) have general guidelines. They

have integrated a carbon policy intotheir procurement organization, anda large majority of them (90%) have areduction plan in place.

While defining their reductionobjectives, Members realize thatbeyond reducing their Scope 1 and 2emissions3, they also have to reducetheir Scope 3 emissions. In particular,their supply chain emissions usuallyrepresent a significant part of their totalemissions and need specific focus.Members cite several reasons formeasuring supply chain emissions, thefour most important being:

1. Increased customer interest thatcreates opportunities for differentiatedproducts;2. Risks acing Suppliers thatultimately threaten sourcing activities;3. Increased public, investor andstakeholder pressure to integratecarbon management within CorporateSocial Responsibility programs thatusually involve Suppliers;

4. Joint process improvement toimprove collaboration and efficiency,reduce carbon emissions andultimately generate cost savings forMembers and Suppliers.

However, we find that membercompanies face significant challengeswhen it comes to putting their goodintentions into practice. Only a smallnumber of companies have extensiveknowledge about the availability ofgreen products for their major spendcategories, and most members do notcurrently have the tools they need totrack their Suppliers climate changeperformance appropriately.

Executive Summary

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The good news is that Membersare eager to collaborate with theirSuppliers, and are taking steps tomove forward and overcome theseissues. 89% already have a strategyin place to engage with Suppliers onGHG emissions and climate change.Within the next 12 months, the useof supplier relationship managementprocesses will increase significantly,and the importance of carbonversus classic procurement targetsis expected to triple during the nextfive years. In the future, it will becomecommon for Members to adjusttheir supply base according to low-

carbon criteria: 56% of Membersstate that in the future they expect todeselect Suppliers for failing to meetformal carbon management criteria,compared to just 6% today.

It is clear that Suppliers are goingto need to start to perform detailedassessments about their currentcapabilities in terms of climate changeand carbon emissions management.They will also need to set ambitioustargets for reducing their emissions inorder to remain competitive.

Assessing Suppliers along the ourdimensions o carbon managementTo assess the current status quo ofcarbon management capabilities,we analyzed the supply basealong the four dimensions ofcarbon management: strategic riskawareness about climate change,carbon reduction ambition, reportingcapabilities and implementationpractices.

Strategic awarenessStrategic awareness is at a level similarto last year, and a large part of thesupply base (58%) feels exposed to

regulatory developments. For example,Suppliers most commonly identifyrisks related to general emissionsregulations (57%) and cap-and-tradeschemes (38%). To a lesser extent,mandatory technology requirements(19%) and energy carbon taxes (16%)are also perceived as a sources of risk.Suppliers also identify industry- andcompany-specific risks (38%) such asregulations related to waste and watermanagement or product labeling.

Environmental changes caused byclimate change impose more extremeand sometimes new physical risks.Extreme weather events threatenalmost three quarters of Suppliers(69%), while changes in temperatureand rainfall patterns (49%) as well asflooding and rising sea levels (46%) arein the minds of almost half of Suppliers.Again, some Suppliers (24%) pointtowards other company-specific risksthat their businesses face, such ascrop infestation or coastal erosion.

A group of early movers in thesupply base are looking beyond therisks of climate change, and aredistinguishing themselves from theirpeers by turning risk into opportunity.Several companies, for example,have started to take advantage ofclimate change mitigation instruments

such as the Kyoto mechanisms emissions trading, clean developmentmechanisms and joint implementation.Others have begun to exploitnational policies such as subsidiesfor renewable energy. The remainingSuppliers are now challenged to catchup to this group, as well as to theMembers level of strategic awareness.

Carbon reduction ambitionOnly 38% of Suppliers currently havecarbon reduction targets in placecompared to 82% of the Members.The success of long-term globalcarbon reduction among Suppliers will

now depend on two main factors.

First, Suppliers who set good targetstoday must be able to achieve theseshort-term targets and then sustainthese levels in the long run. Onaverage, companies with targets inplace meet IPCC requirements to avoiddangerous climate change. However,their current commitment lasts anaverage of 5 years, while IPCC targetsneed to be sustained until 2050. Infact, 81% of Suppliers do not settargets beyond 2012.

Second, success will depend onhow quickly Suppliers who do nothave targets put them in place. 62%of Suppliers still do not have anytargets in place at all, and realisticallyspeaking, it is likely that their emissionswill keep growing at the same paceas the economy. If nothing changes,global emissions from all Suppliers those with and without targets willprobably increase slowly instead ofdecreasing.

Reporting capabilitiesReporting capabilities are crucialbecause they enable performanceto be tracked. Suppliers do displayan increased willingness to discloseemissions information, particularlywhen it comes to Scope 1 and

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Scope 2 emissions: 62% of Supplierscurrently report Scope 1 emissionsand 63% report Scope 2 emissions.There is, however, a lack of informationaround Scope 3 emissions amongSuppliers when we look at supplychain emissions, the percentage ofSuppliers who report drops to 8%.

One additional area of majorimprovement this year is the enhancedquality assurance of the reported data.Compared to 2008, the number ofcompanies who had their emissionsdata externally verified increased bynearly half.

Collaboration and best practice sharingshow the greatest potential when itcomes to closing the gap betweenSupplier and Member performance.

Implementation practicesThe most commonly used approachesfor implementing emission reductionplans are energy efficiency increases,process improvements and renewableenergy use. More than 20% ofSuppliers are using three or moreapproaches at the same time to reduceemissions.

Suppliers have also succeeded inmaking the topic of climate change animportant priority at the board level.Today, 60% of companies have electeda board committee member or othertop-level executive who has overallresponsibility for climate change andcarbon reduction activities.

Unfortunately, the long-termsustainability and depth of commitment

behind Supplier plans across the fullsupply base is highly questionable.Just 28% of Suppliers have incentiveschemes in place for employees todrive carbon reduction, and only 33%have a strategy in place to engage withtheir own suppliers on this topic.

The way orwardMember companies are clearly atthe forefront of carbon emissionsmanagement. While some Suppliersare performing exceedingly well andhave positioned themselves as rolemodels and catalysts for change,Suppliers in general will need toimprove their capabilities quickly andcontinuously if they are to bridge thegap. Given Member commitment toeffective carbon management, there isa strong business case as well as amoral imperative for them to do this.

Collaboration and best practice

sharing between Members and theirsupply base will be crucial to bringingcarbon emissions and climate changemanagement to the next level. CDPsrole is to support these companiesas they improve their capabilities overtime, by tracking their performanceand providing them with standardizedmetrics that will help them to assesstheir yearly improvement. As partof this activity, Member companiesreceive a customized dashboard reportthat highlights the performance of theirSuppliers against an agreed scoringmetric. The metric takes accountof awareness, ambition, reportingand implementation practices. Thedashboard also highlights leadingSupplier practices. Member companiesplan to use the results to engage withSuppliers in order to transfer bestpractices and raise the overall level ofperformance. The CDP Supply ChainReport 2011 will further highlight theprogress that has been made in thisarea.

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CDP Supply Chain Member Companies i

Executive Summary ii

1 The A.T. Kearney Perspective 1

2 About CDP Supply Chain 2

3 Methodology Followed 4

4 CDP Supply Chain Member Analysis 6

Member Highlights 10

5 CDP Supplier Analysis 12

Introduction 12

Strategic Awareness 13

Carbon Reduction Ambition 15

Reporting Capabilities 18

Implementation Practices 20

6 The Way Forward 24

7 Glossary o Key Terms 26

Contents

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Sustainability-ocused companiesoutperorm their peersDuring the past 18 months, as thefinancial crisis took its toll, manycompanies considered abandoningtheir carbon emissions managementinitiatives. But an A.T. Kearneyanalysis reveals that companies that

demonstrated a true commitmentto sustainability over the courseof the recession appear to haveoutperformed their industry peersin the financial markets. In 16 of the18 industries examined, companiesrecognized as sustainability-focused(as defined by inclusion in the DowJones Sustainability Index or theGoldman Sachs SUSTAIN focus list)outperformed their industry peers andwere well-protected from value erosion.Our findings suggest that investorsmay reward true sustainability-focused companies that demonstratethe following characteristics:

Afocusonlong-termhealthratherthan short-term gains;

Strongcorporategovernance; Soundriskmanagementpractices; Ahistoryofinvestingincarbon

emissions management innovations.

Genuine carbon impact mustinvolve the supply chainNow is the time for companies to move

to next generation carbon emissionsmanagement. They must move beyondsaying the right words to truly makingcarbon reductions happen. To achievegenuine results, however, companiesmust address the carbon impactof their supply chains, because 50percent of a products value, and oftenupwards of 70 percent, is typicallyderived from suppliers. Companiesare finally realizing that consumersare aware that they do not just buyproducts they also buy the supplychains that deliver the products.

As firms move to next generationcarbon emissions managementprograms, a growing number ofcompanies are putting in placespecific, comprehensive strategiesfor internal operations and externalrelationships. Rather than simplyoffering general statements of

good corporate citizenship, thesecompanies have improved their supplydepartments with updated carbonreduction measures and practices,evaluating suppliers and their supplymanagement organizations acrossmultiple dimensions.

The power o innovationTraditionally, supply managers soughtto provide the necessary inputs at thelowest market prices. However, asexecutives and consumers move todistinguish market prices from socialcosts that is, market price plusexternalities and social consequences supply is redefining and expandingits role by managing both internaland external costs. Supply managerscan now foster carbon reductions byensuring that suppliers incorporateinnovations into their operations andprocesses. These executives alsohave the opportunity to investigatenew processes and technologiesthat reduce dependency on scarceand potentially expensive resources.

Managing the supply chain thenbecomes the catalyst for triggeringcorporate behavior that truly addressescarbon reduction.

Accountability addressing aundamental challengeA.T. Kearney believes that if we areto provide counsel to companiesregarding their carbon reductionstrategies, it is important for our firmto hold ourselves accountable onthese issues. Two years ago, A.T.Kearney announced plans to moveto a carbon-neutral consulting modelby 2010. This commitment to carbon

neutrality applies to all aspects ofglobal operations both internal andclient-facing activities and is part of alarger carbon reduction effort that waslaunched across the firms offices in 36countries.

The focus of this effort was to develop

a series of innovative alternativedelivery mechanisms that the firms1,500 consultants around the worldcould use for providing consultingservices in a more sustainable andlow-carbon way. The travel inherentin the consulting industry gives ita disproportionately large carbonfootprint compared with many otherprofessional services organizations, soefforts have focused on reducing thefrequency of business travel and usingcollaborative technology to maintainthe firms hallmark collaborativeworking style while also reducingcarbon emissions.

Consistent with this pledge, the firmhas also implemented initiatives tolimit internal travel, shift necessarytravel from air to rail as feasible,select services from among carbon-efficient airlines, hotels and rentalcar companies, increase the use ofpublic transit and further increase theenergy and resource efficiency of itsoperations.

For A.T. Kearney, and for thebusinesses it serves, learning to growprofitably and delivering value for allstakeholders in a resource-limited andthreatened global environment is afundamental business challenge of thiscentury.

Daniel MahlerVice President at A.T. Kearney

Stephen EastonPrincipal at A.T. Kearney

The A.T. KearneyPerspective

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In the wake of a global financial crisisfueled primarily by a lack of stakeholderinformation, corporate transparencyis vital. Companies that have proventhemselves leaders in areas such asmeasurement and disclosure haveevolved beyond the view that climatechange only poses risks, and are

reaping benefits from the opportunitiesthey have found. These leaders arespreading this message not only totheir customers and shareholders, butalso to their suppliers who provide thegoods and services needed to run theirbusinesses.

Introduction to CDPThrough its 7th annual InformationRequest, CDP has persuaded morethan 2,500 companies across theglobe to report their greenhouse gas(GHG) emissions and related climatechange strategies. CDP hosts theworlds largest database of self-reported corporate climate changeinformation.

CDP collects and provides thisinformation to the marketplace onbehalf of two main groups:

Investment Market: 475institutional investors controlling $55trillion in assets under managementrequest disclosure from listed

companies in whom they invest.Purchasing Organizations: 55global purchasing organizationsfrom the public and private sectorsthat request disclosure from theirsuppliers.

This global system providesstakeholders with a clearunderstanding of how companiesare positioned as we transition to alow-carbon economy, and it enablestransparency on climate change.

The Carbon Disclosure Projectsdetailed reporting is helpingpersuade companies throughoutthe world to measure, manage,disclose and ultimately reducetheir greenhouse gas emissions.No other organization isgathering this type of corporate

climate change data andproviding it to the marketplace.

Ban Ki-moon, UN Secretary-General

CDP Supply ChainIn 2009, 44 CDP Supply ChainMember companies requestedinformation from more than 1400 oftheir Suppliers. Using CDPs annualInformation Request, they gatheredinformation in a single format, reducingthe time and resources spent bySuppliers on multiple requests.This also resulted in streamlined,comparable results which were thenanalyzed and benchmarked by CDPand its report writer, A.T. Kearney.

The CDP Supply Chain Program helpsto integrate carbon managementand climate change mitigation intothe procurement function. In anoutsourced world, where companiesexternalize manufacturing, production,and logistics, most multinationals

find that the emissions embedded inproducts purchased from the supplybase are more significant than theirown emissions.

The objectives of the CDP SupplyChain Program are to reduce globalemissions by: Drivingactioninpurchasing

companies by providing primarydata from key suppliers;

Motivatingsuppliercompaniesby educating and supporting thecollection and reporting of high-quality climate change information;

Influencinginternationalstandardsby establishing a global process forsupply chain disclosure leveragingthe expertise and experience ofMembers and their suppliers.

About CDP SupplyChain

2We believe itis important orcompanies to determinetheir scope 1 and 2greenhouse gas (GHG)emissions. Theseemissions are directlyassociated with acompanys operationsand can be determinedwith reliabilityand consistency.Tracking them revealsopportunities toimprove operationalperormance in a way

thats good or bothbusiness and theenvironment and canthereore be sustained.Further, we supportpublic disclosure o thisinormation. As part oour objective to workwith environmentallyresponsible suppliers,IBM has encouraged

its key suppliers to gainthat understandingand to disclose theirinventories throughthe CDP Supply Chainprogram.

John Paterson,Chie ProcurementOfcer

IBM


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Standardized reportingCDP is leading the work of the ClimateDisclosure Standards Board (CDSB),working with Deloitte, Ernst & Young,KPMG and PricewaterhouseCoopersto develop robust accountingstandards to enable carbon reportingthrough financial reports. CDP andCDSB will also work with the WorldEconomic Forum to advise the G20group of nations on climate changeaccounting in 2010. CDP activelysupports the WRI and WBCSD-ledGreenhouse Gas Protocol teamswork to develop and improve theinternational standards for Scope 3

emissions reporting.

CDP Water DisclosureBeginning in 2010, CDP will requestwater-related data from 300 of theworlds largest companies in water-intensive sectors. This critical data willinclude water usage and exposureto water stress in a companys ownoperations and its supply chain.Responses will provide valuable insightinto the strategies deployed by leadingcompanies and will be used to driveinvestment toward sustainable wateruse.

If climate change is a shark,water is the teeth.Paul Dickinson, CEO, CarbonDisclosure Project

CDP Supply Chain Report 2010CDP is pleased to release the findingsfrom the data collected in 2009 in theCDP Supply Chain Report 2010. Itis the second annual assessment ofSupplier progress and covers trends,

examples, and an analysis of the 710Supplier responses to the Membercompanies request for information.In addition, we report on the progressshown by the 44 Members incarbon management and supplierengagement.

By inviting suppliers to participatein the CDP process, Memberslead the agenda by stressing theimportance of climate change withintheir own corporate strategy. Theiractions raise awareness amongsuppliers of the issues associatedwith climate change and the need tosmoothly transition into a low-carboneconomy. This business-to-businessapproach strengthens relationshipsand promotes Member-suppliercollaboration to develop innovativesolutions to climate change.

In addition to the 44 Member

companies, Walmart has selected CDPas its standard reporting mechanismfor GHG emissions as part of the 15questions that make up its SupplierSustainability Assessment. Thousandsof companies will report annually toCDP as a result of this decision.

CDP moving aheadAs regulatory frameworks begin tomandate emissions reductions, CDPsrole will expand. We will continue towork with corporations, policymakersand other stakeholders to provideactionable climate change data thatcomplement the development ofmandatory reporting rules.

Systems upgrade and data sharingCDP is currently undergoing asignificant systems upgrade, designedto improve data comparability,facilitate benchmarking services anddeliver data that is appropriate forprocurement decisions, investmentanalysis and regulatory submissions.In countries such as the US and the

UK, where mandatory carbon reportingis on the horizon, CDPs systems willhelp companies prepare for suchrequirements and will eventuallyintegrate with existing nationalregistries to enable corporationsto disclose more detailed andstandardized data.

At Walmart, we

believe everyone hasa responsibility toreduce greenhouse gasemissions throughoutthe supply chain.We recognize romour own experience,that working toreduce greenhousegas emissions candrive innovation

and enable costsavings. Through ourSupplier Sustainability

Assessment, we areasking suppliers topublicly report theirGHG emissions,reduction strategy andactions to the CarbonDisclosure Project. By

doing so, we gain abetter understandingo our supply chainootprint and helpsuppliers realize thebusiness advantagesthat accompany eortsto reduce greenhousegas emissions.

Matt Kistler,

Senior Vice Presidento SustainabilityWalmart


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Assessing Member andSupplier perormance

The CDP Supply Chain ProgramCDP Supply Chain is a collaborationof global corporations who haveextended their climate change andcarbon management strategies beyond

their direct corporate boundariesto engage with their suppliers viaCDPs annual Information Request.Member companies use CDPsstandardized format to communicatewith their supply chain companies ina streamlined, unified, annual request.This year 44 Member companiesreached out to 1402 of their Suppliers,and 710 (51%) responded to therequest.

This report synthesizes the key findingsthat have been extracted from the2009 CDP Supply Chain InformationRequest responses. It contains:

AnanalysisoftheGHGemissionsand climate change managementperformance of CDP Supply ChainMember companies referred to asMembers in this report;

AnanalysisofCDPSupplyChainSupplier companies referred toas Suppliers in this report acrossthe four dimensions of carbonmanagement;

ThewayforwardforCDP.

A glossary at the end provides thereader with clear definitions of thetechnical terms used throughout thisreport.

Evaluating Suppliers acrossthe our dimensions o carbonmanagementThe CDP Supply Chain Report 2010analyzes data from the InformationRequest to assess Supplierperformance regarding GHG emissionsand climate change management

along four distinct dimensions:

Strategicawareness; Carbonreductionambition; Reportingcapabilities; Implementationpractices.

This year, Supplier participation grewby 24%. Out of the 1402 Supplierscontacted, 710 (51%) participated, 95(7%) declined to participate and 597(42%) did not respond (see Figure 2).

Multi-modal Member evaluationsThe following sources were usedto evaluate the behavior of the44 Members with regard to GHGemissions and climate changemanagement:

TheCDPSupplyChainInformation

Request; TheSupplementaryMember

Questionnaire; InterviewswithselectedMembers.

The CDP Supply Chain InformationRequest was completed by allMembers, representing eight differentindustries (see Figure 1).

52% of the Members responded to theSupplementary Member Questionnaire.This was designed to complement theoriginal CDP Supply Chain InformationRequest by focusing on how Membersinteract with their suppliers to driveimprovements in carbon management.Interviews were also held with selectedcompanies in order to check thehypotheses, analyses and conclusionsthat were extracted from both theInformation Request and the MemberQuestionnaire.

MethodologyFollowed

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34%

23%

16%

7%

7%

7%

4%

2%

Consumer Staples 34%Industrials 23%Inormation Technology 16%Financials 7%Telecommunications 7%Health care 7%Utilities 4%Materials 2%

Figure 1 Members per industry


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Of those who responded, 48% weredisclosing to CDP for the first time and43% authorized their responses to bedisclosed publicly. In terms of companysize, 21% of the responding Supplierswere SMEs4.

Most of the Suppliers who responded

were from Europe (45%) and NorthAmerica (34%). Asia (17%) was slightlybetter represented than in 2008, whileSuppliers from the rest of the worldmade up the remaining 10% (seeFigure 3).

From an industry point of view (seeFigure 4), industrials and IT companiesrepresented nearly half (48%) of therespondents. Consumer staples(15%), consumer discretionary (13%)

and materials companies (11%) werealso well represented. Financials,healthcare, utilities and energycompanies combined represented lessthan a tenth (7%) of the respondents.

The way orwardSuppliers in general will have

opportunities to improve theircapabilities regarding climate changeand carbon emissions management.This publication also highlights CDPsrole in supporting these companiesas they improve their capabilities overtime, by tracking their performanceand providing them with standardizedmetrics that will help them to assesstheir yearly improvement.

51% 7% 42%

27% 6% 67%

2008 2,318 requests

2009 1,402 requests

45%

34%

17%

4%

26%

21%

15%

13%

11%

7%

3%

2%

1%

1%

Answered questionnaireDeclined to participateNo response

Europe 45%North America 34%

Asia 17%ROW 4%

Industrials 26% (181)Inormation Technology 21% (148)Consumer Staples 15% (106)Consumer Discretionary 13% (87)Materials 11% (75)Telecommunications 7% (45)Financials 3% (22)Health Care 2% (12)Utilities 1% (9)Energy 1% (7)

Figure 2 2008 and 2009 Supplierparticipation rate

Figure 3 Suppliers by geography Figure 4 Suppliers by industry

4 Small to Medium Enterprises. See glossary or detailed deinition


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At the oreront o carbonemissions management

Most CDP Supply Chain Membersnow have a ormal, documentedcorporate climate change strategy.They have integrated a carbon policyinto their procurement organization,

and they have a reduction planin place. Supplier relationshipmanagement processes are nowbecoming more important than ever,with an emphasis on green criteriaor supplier selection. Althoughacing practical challenges, theseMembers are taking steps to moveorward and overcome the issuesthey encounter. They are eager tocollaborate with their Suppliers,but in order to remain competitive,these Suppliers are going to needto perorm detailed assessments otheir current capabilities in terms oclimate change and carbon emissionsmanagement and set ambitioustargets to reduce their emissions.

High awareness among MembercompaniesCDP Supply Chain Members aretypically organizations very much at theforefront of climate change and carbonemissions management. Therefore,it is hardly surprising that the 2009survey confirms their significant risk

awareness of the topic (see Figure 5).In fact, the results of both the CDPSupply Chain Information Request andthe Member Questionnaire confirm thatthe CEOs and board representativesof Member companies are placingincreasing importance on climatechange and GHG emissions reduction.

Formal strategies with a ocus oneiciencyAll Member companies currently haveat least some general guidelines withregard to climate change strategy. Amajority have taken this further to putin place a formal and documentedclimate change strategy (see Figure6). Over 90% of the Membershave either a board committee oranother executive body with overallresponsibility for climate changemanagement to ensure that thestrategy is turned into action effectively(see Figure 7).

CDP Supply ChainMember Analysis

4Our Group-wideCarbon ManagementBoard has devolvedauthority or themanagement o ourcarbon emissions onbehal o our Board. Itmeets on a quarterlybasis to reviewprogress and providestrategic directionand governanceramework or ourCarbon Managementprogramme.

Royal Mail Group

Climate change couldresult in changes inconsumer preerencesand retail customerdemands we mustanticipate and reactto such changes tomaintain the demand or

our products.

PepsiCo

Regulatory risks

Physical risks

Other risks

89% 11%

82% 18%

84% 16%

63% 37% 91% 9%

YesNo or did not answer

Have a ormal and documented strategyHave some general guidelinesDo not have any strategy (0%)

YesNo or did not respond

Figure 5 Members reportingexposure to risks related toclimate change

Figure 6 Members with acorporate climate change strategy

Figure 7 Members with a boardcommittee or other executivebody with overall responsibility orclimate change


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Efficiency is the most prominentlyexpressed objective for corporateclimate change strategy (71%, seeFigure 8). Topics such as compliance,risk management, brand improvement,product differentiation and cost reductionare also of great concern. To a lesserextent, employee retention is also a partof corporate climate change strategy.

90% of CDP Supply Chain Memberscurrently have a detailed plan in placeto reduce their GHG emissions ortheir energy use an increase of 6%compared to last year (see Figure9). Clearly, these companies are

positioned as trendsetters in terms ofclimate change and carbon emissionsmanagement.

The importance o Scope 3 supplychain emissionsMembers realize that the challenge ofcarbon management needs to stretchbeyond the boundaries of their ownorganizations and into the deepersupply chain.

Members cite several reasons formeasuring supply chain emissions, thefour most important being:

1. Customer demand.Customers increasingly want toknow the carbon content of theproducts they are buying, and many

companies recognize an opportunityto differentiate themselves bydisclosing this information. As aconsequence, more companiesare eager to develop betterknowledge of their supply chaincarbon emissions to supportthe development of low-carbonproducts.

2. Supply chain risk management.Companies also recognize thatcurrent and upcoming regulationsaimed at reducing carbon emissionswill put pressure on their suppliersand ultimately on them. Increasingtheir knowledge of carbon emissionswithin their supply base will helpthese companies to better judge therisks presented by suppliers, and tocollaborate efficiently with them tomitigate these risks and turn theminto opportunities.

3. Stakeholder pressure.Increased public, investor andstakeholder interest has also pushedcompanies to integrate carbonmanagement within their business

strategy. As these strategies usuallyinvolve suppliers, companiesneed to trace supply chain carbonemissions to ensure suppliercompliance.

4. Joint process improvement.The tracking and benchmarkingof supplier emissions will allowMembers to highlight opportunitieswithin their supply base to improvecollaboration and put a process inplace to reduce carbon emissions.Most of these opportunities willbe synonymous with efficiencyimprovements which will translateinto cost savings both for suppliersand Members.

In 2008, IBMs energyconservation projectsacross the companydelivered savings equalto 6.1 percent o itstotal energy use versusthe corporate goal o3.5 percent. Theseprojects avoided theconsumption o 235million kWh o electricityand 6.3 million gallonso uel, representing anavoidance o 215,000metric tons o CO2emissions.

IBM

Recently, having

exceeded a goal setin January 2008 toreduce the energyconsumption o itsvolume desktop andnotebook PC amiliesby 25 percent by 2010,a ull year and a halahead o schedule, HPset a goal to save 1billion kWh o electricity

by 2011 through avariety o productdesign strategies theequivalent o powering90,000 homes or anentire year.

Hewlett-PackardCompany

Cost

Employee retention

Improve brand

Differentiate products

Efficiency

Risk management

Compliance

71%

59%

59%

41%

41%

38%

24%

Figure 8 Objectives by Membersor corporate climate changestrategy

2008

2009

84 % 1 6%

90%10%


Figure 9 2008 and 2009 Memberswith a carbon emissions and/orenergy reduction plan in place


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Facing the challenge o carboninormation within the supply chainMember companies are facingsignificant challenges when it comesto putting their good intentions intopractice concerning their supply chain.Just 20% of Members are currentlyable to report real figures or estimatesof their supply chain emissions (seeFigure 10).

Current knowledge about low-carbonprocurement remains limited, andonly a small number of companieshave extensive knowledge about theavailability of low-carbon products for

their major spend categories (see Figure11). As one would expect, knowledgeis higher for spend categories withhigh carbon content such as energy(58% have extensive experience),packaging (53%) and logistics (42%).However, these percentages suggestthat there is significant opportunity forfurther improvement the knowledgeof low-carbon products is lower for lesscarbon-intensive spend categories suchas office supplies (21%) and marketingservices (21%). At the same time,most Members do not currently havethe tools to track and evaluate theirSuppliers carbon performance (seeFigure 12).

We are working witha number o suppliersacross our business toreduce our emissions.For example, in the UKwe have teamed upwith a supplier to usecarbon-neutral plasticin the production o ourcredit cards.

National AustraliaBank Group

20% 80%


Figure 10 Members reportingigures or estimates or supplychain carbon emissions

Energy Usage

GHG Emissions

32%

26%

68%

74%

Direct materials core to business

Information Technology

Logistics

Waste Management

Energy

Packaging

Facilities and Facilities Management

Travel

Construction

Marketing and Marketing Services

Office Supplies

Paper

Maintenance, Repair, Operations

Professional Services

58%

53%

42%

42%

42%

32%

32%

32%

28%

22%

21%

21%

21%

16%

Track metricDo not track metric

Figure 12 Tracking o Supplieremissions and energy usageperormance

Figure 11 Members withextensive experience concerningsustainable options in key spendcategories

In order to meet

Dells expectationsin quarterly businessreviews, Tier-1 suppliersmust show that they1) Publicly discloseannual GHG emissionsby participating in theCarbon DisclosureProject; 2) Establisha public goal orreducing operational

GHG impacts; 3) Setexpectations or Tier-2 suppliers to manageand publicly discloseemissions per GHGProtocol Failure tomeet these requirementscan impact your rankingand potentially diminishyour ability to compete

or Dells business.Dell


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9

In fact, most Members find reportingtheir supply chain emissions to bedifficult because of the lack of agreedreporting methodology, making thetracking of a large supply base veryhard to manage. The Greenhouse GasProtocol is responding to calls fromcompanies and other stakeholders forstandard approaches to accounting forand reporting Scope 3 emissions. Twonew standards for product and supplychain emissions are being developedusing a multi-stakeholder, consensus-based process with participationfrom business, government agencies,non-governmental organizations and

academic institutions from aroundthe world. CDP is on the steeringcommittee and the final standard willbe published in December 2010.

We have started

collecting suppliersGHG emission data butthe data we have is notcomplete or robust. Inthe ew cases where weare condent with thedata we are using it todrive carbon reductioninitiatives e.g. lowcarbon designs with ourconstruction suppliers.

National Grid

A supplier relationship change matching them to carbonmanagement criteriaCompared to last year, the number ofMembers with a strategy for engagingwith suppliers on GHG emissions andclimate change is broadly similar: anincrease of 8% to reach 89% (see Figure13). Nevertheless, Members realize theirchallenge in carbon management totranslate high-level strategies and targetsinto tangible implementation. As a result,many intend to enact rapid changes tothe way in which they engage with andselect their suppliers.

Within the next 12 months, the usageof supplier relationship managementprocesses such as third partycertification requirements from majorsuppliers or joint process improvement isgoing to increase significantly (see Figure14). From a more long-term perspective,the importance of carbon versus classicprocurement targets is expected to tripleduring the next five years (see Figure 15).It is clear that companies are going tobe adjusting their supply base accordingto green criteria at an amazing rate(see Figure 16), creating opportunitiesfor savvy Suppliers to differentiatethemselves against their peers.

Baxter recentlylaunched its new GlobalSupplier Sustainabilityprogram which ocuseson incorporating greenprinciples into its

purchasing programwith suppliers. Theprogram includes20 green criteriaelements that willbe used to assessBaxters suppliers.

As part o the globalbusiness community,Baxter is committedto working with itssuppliers to improvetheir environmentalperormance, purchaseproducts with reducedenvironmentalimpacts, and minimizetransportation-relatedemissions.

Baxter International

2008

2009

19%

11%

81%

89%


Figure 13 2008 and 2009Members with a strategy orengaging with Suppliers on GHGemissions and climate change

Require 3rd party certification for major suppliers

Improve joint process

25%

54%

75%

46%

Do this todayWill do this within 12 monthsDo not plan to do this (0%)

Figure 14 Member/Supplierrelationship management

Today

89%

69%

11%

31%

Five years from now

CarbonClassic

Figure 15 Importance granted toclassic procurement targets vs.carbon targets

Today

94%

44%

6%

56%

In the future

YesNo

Figure 16 Member willingnessto deselect suppliers or ailing tomeet carbon management criteria


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10

Member Highlights

Reckitt Benckisers carbonemission targets go beyondour own operations toinclude the whole lifecycleof our products. TheCarbon20 programme aimsto reduce our productslifecycle emissions by 20%by 2020. Working withCDP Supply Chain sinceits launch two years ago

has enabled us to betterengage with our supplierson the measurementand management of theiremissions with a view toreducing that part of ourcarbon footprint.

Bart Becht,Chief Executive OfficerReckitt Benckiser

Through our participation inCDP Supply Chain we arenow working with a numberof suppliers to integrate theircarbon emissions into ouroverall carbon reductionstrategy. By working closelywith our suppliers we cancomprehensively assess thefull extent of their emissionswhich relate to ourselves,

take the necessary stepsto incorporate these intoour own Scope 3 emissionfootprint, and plan to reducethem accordingly.

Kevin Page,Operations DirectorClydesdale/Yorkshire BankNational Australia BankGroup

Since PepsiCo operates inmore than 200 countries,we understand that ouremissions are not only withinour own operations, but alsoembedded in our productsthrough our global supplychain. By collaboratingwith CDP Supply Chain, wegather primary data from oursuppliers and growers to be

better positioned to meetour emissions reductiongoals.

Mitch Adamek,SVP & Chief ProcurementOfficerPepsiCo

As a founding memberof CDP, Unilever believesthat CDPs standardisedapproach to emissionsreporting can provide realbenefits. In 2010, we willexpect an increase in thenumber of our suppliersengaged through CDP.Unilever will continue todrive emissions reductionactivities across the supplychain, and we expectreal progress in suppliersemission reduction.

Marc Engel,

Group Chief ProcurementOfficerUnilever

Johnson Controls iscommitted to sustainabilityand as a global leader inenergy efficiency solutionsin buildings and vehicles, weare uniquely positioned tohelp our customers reduceenergy use and greenhousegas emissions. In turn, weask our suppliers to verifythat the products and

services that we purchaseare equally efficient. Wehave benefitted from ourpartnership with the CDPfor several years, and relyon the CDP Supply Chainprogram to provide aneffective global standardin corporate emissionsreporting.

Michael Bartschat,Chair, Global PurchasingCouncilJohnson Controls

National Grid remainsfocused on climate change,security of supply, andplaying a leading role inaddressing the longer termissues facing the energyindustry. We continue towork closely with our tier1 suppliers through theCDP Supply Chain Initiative

to understand the risksand opportunities in oursupply chain. NationalGrid is working towardsincorporating carbonmanagement into oursupplier selection criteria inthe future. Our work withCDP is an important elementof our carbon managementstrategy.

Ray Schlaff,Chief Procurement OfficerNational Grid


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A powerful way companiescan drive change is throughthe supply chain -- theglobal network of suppliers,manufacturers and partnersit works with to make anddistribute its products.The CDP Supply Chainprogram helps companiesengage with their supplierson carbon and climate

change issues. Optimizinga supply chain aroundenvironmental sustainabilitycreates an effect far beyondthe corporate headquarters.Operational efficiencybenefits every stakeholderin the chain, all the wayto the customer. If yourenot efficient you cant besustainable or in the longterm, profitable.

Tony Prophet,Senior Vice President,HP Personal SystemsGroup Worldwide SupplyChainHewlett-Packard

LOral recognizes thatcarbon and climate changehave serious operationaland financial implicationsfor our business. We wantour suppliers to understandthe risks and identify thelong-term opportunities ofcarbon management. Weare working with them,through CDP Supply Chain,

to discover opportunitiesfor cost reduction, riskmitigation, and jointemissions reductionactivities. This approachprovides a mixture oflong-term benefits such asenvironmental exchangeson issues like waste andwater consumption/scarcity, and quick carbonwins for LOral and oursuppliers while supportingour extensive ResponsibleSourcing efforts.Miguel Castellanos,Managing Director,Worldwide Environment,Health and SafetyLOral

Acer actively encouragesour suppliers to measureand manage their carbonemissions by disclosingthrough CDP Supply Chain.As we move towards alow-carbon economy it isimportant to recognize thatcarbon and climate changehave serious commercial,operational and financial

implications for business.We want our suppliersto understand the risksand identify the long-termopportunities of carbonmanagement and we areworking with them, throughCDP Supply Chain, toensure they are strategicallyprepared for climatechange.

J. T. Wang,ChairmanAcer

Logica has been reportingvia the CDP since 2006 andin 2009 achieved a leadingposition in our sector inCO2 emission reductionand strategy. We use it todrive reporting across ourorganization and as a resulthave saved 10M in ourUK organization alone. Bysupporting our suppliers to

report via the CDP we wantto help them to make similarenergy, carbon and costsavings. This in turn reducesthe total environmentalimpact and cost on theservices to our clients.

Andy Green,Chief Executive OfficerLogica

I see the CDP Supply ChainProject as a pragmaticway to ensure businesscontinuity and cost controlin a challenging businessenvironment, with physical,regulatory and financialimpacts of climate changealready being felt in ourrespective businesses.

Gary Aldridge,Group ManufacturingDirector

Imperial Tobacco Group


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CDP Supplier Analysis

5 Introduction MeasuringMember expectations versusSupplier capabilitiesCompanies increasingly want to knowthat their suppliers actively participatein carbon management and arealigned with their own ambitions.

To support CDP Members withtheir challenge, we have assessedSupplier perormance across our keydimensions: awareness, ambition,reporting and implementation.

CDP Supply Chain Members are eagerto collaborate with their suppliers tobetter manage climate change risksand reduce carbon emissions. Butare their suppliers up to this ambitioustask?

This section of the report provides anopportunity to evaluate the aggregatesupply base on its ability to fulfillMembers expectations of alignmenton emissions reduction targets,emissions reduction capabilities andactivities. We assessed the supplybase along four dimensions:

1. Strategic awareness aboutclimate change evaluates howaware the supply base is in terms ofexisting and future climate changerisks. Do Suppliers have the ability to

provide solid and precise informationabout risks related to climatechange? Can they derive specificimplications from their findings?

2. Carbon reduction ambitionevaluates the level of sincerity ofSuppliers reported emissionsreduction ambitions. How high istheir level of ambition to reduceGHG emissions measured byemissions reduction targets? Howdetailed is the information that they

provide about their ambition? Whatis their time frame for achievingthese targets?

3. Reporting capabilitiesevaluates Suppliers willingnessand capability to report GHGemissions and climate change-related activities. Are they proactivelycreating transparency for the public,investors and other stakeholdersabout GHG emissions? What aretheir capabilities when it comesto reporting the main emissionscategories: Scope 1, Scope 2 andScope 3 emissions?

4. Implementation practicesevaluates the approaches usedto reach established emissionsreduction targets and whether theyare sustainable. What governancemechanisms are in place to ensureimplementation? What is theSuppliers level of commitmentto reach their targets? Will theseimplementation practices be

sustainable in the long run?

Strategic

Awareness

Carbon

Reduction

Ambition

Reporting

Capabilities

Implementation

Practices

Heinz believes that iconsistent regulationswere implementedand enorced on aglobal scale, everyonewould benetrom the increasedcommunication andcoordination that wouldresult. However, werending that manycountries are movingorward individuallyand are currentlyproposing regulationsthat may impact some

locations but notothers. Corporationssuch as Heinz have animportant role to playin the developmento consistent globalpolicy, incorporatingbest practices amonga broad spectrumo requirements.Obviously, this is a

challenge that needsto be resolved and itrequires the participationand collaboration ocountries around theworld.

H.J. Heinz Company


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Suppliers strategic awarenessStrategic awareness is at a level similarto last year. A group of early movershave a detailed perception of the risksrelated to climate change and arecurrently succeeding in taking actionto turn their risks into opportunities.Nevertheless, the majority of Suppliersstill show considerable room forimprovement. If they are to catch up toMembers level of strategic awarenessthey need to begin utilizing the existingopportunities that climate changeoffers.

The immediate impact o

regulatory changeWe assessed strategic awarenessbased on the number of companieswho demonstrate awareness of climatechange related-risks and who areable to identify specific types of risksthat their businesses are exposed to.Overall, Supplier awareness is at a levelsimilar to last year, particularly whenit comes to risk from regulatory andenvironmental changes (see Figure 17and Figure 18).

Across most of the globe, governmentsand organizations are in the process ofdeveloping emissions standards, manyof which have an immediate impacton the competitive environment uponimplementation. As a consequence,a large part of the supply base (58%)feels exposed to the establishmentof carbon emissions regulations (seeFigure 17). Suppliers who considerthemselves exposed to regulatory risksmost commonly identify risks relatedto general emissions regulations (57%)and cap-and-trade schemes (38%). Toa lesser extent, mandatory technologyrequirements (19%) and energy carbon

taxes (16%) are also perceived as asource of risk. Suppliers also identifyother types of regulatory risks (38%)such as regulation related to wasteand water management and productlabeling (see Figure 19 Otherscategory).

Suppliers 2008

43%

42%

Suppliers 2009

11%

57%

58%

89%

Members 2009

Suppliers 2008

44%

48%

Suppliers 2009

18%

56%

52%

82%

Members 2009

YesNoYes MembersNo Members


Figure 17 2008 and 2009Suppliers reporting exposure toregulatory risks related to climatechange

Figure 18 2008 and 2009Suppliers reporting exposure tophysical risks related to climatechange

Acknowledging the

increased requencyo fooding and stormdamage, RBS hasrecently embarkedon a comprehensivesurvey o food risk orall our UK properties.This process identiesfood risk at specicproperties, determiningthe magnitude o

risk and the extent oimpact at each siterom an individual foodevent or regional foodevents. This sizeableexercise is enabling usto map the impact o ourchanging climate on ourportolio and operationsand eed this into our

long-term strategicplanning. The data willalso be actored intothe Groups incidentreporting proceduresand integrated into localdisaster recovery plans.

Royal Bank oScotland


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The threat o physical changes tothe environmentPhysical risk is another area ofconcern. GHG emissions are causingthe climate across the globe tochange, and companies recognize thatthis environmental change imposesmore extreme and sometimes newphysical risks to their business. Overall,more than half of Suppliers indicatebusiness exposure to physical risks(see Figure 18). Extreme weatherevents threaten almost three quartersof Suppliers (69%), while changesin temperature and rainfall patterns(49%) as well as flooding and rising

sea levels (46%) are in the minds ofalmost half of Suppliers (see Figure20). Again, some Suppliers (24%) pointtowards other company-specific risksthat their businesses face such ascrop infestation or coastal erosion (seeFigure 20 Others category).

Turning risk into opportunityA group of early movers in the supplybase distinguish themselves fromtheir peers in terms of strategic riskawareness. They manage to combinetheir high level of strategic awarenesswith forward-thinking approaches tocarbon management in order to realizenew business opportunities. In short,these Suppliers are looking beyond therisks that climate change imposes onthem and are turning them into preciseand concrete opportunities.

The global carbon

market amounted totraded volumes o 4.9gigatons o carbonreductions with a valueo 92bn in 2008.Regulatory changesto combat climatechange are providinga huge portolio oopportunities. Theyarise in their majority

rom instrumentso climate changemitigation such as theKyoto mechanisms(emissions trading,clean developmentmechanism and jointimplementation) or atthe level o nationalpolicies such as

subsidies or renewableenergy (e.g. theenergy eed-in law inGermany).

Allianz SE

Extreme Weather Events

Changing Temperatures and Rainfall Patterns

69%

49%

46%

Flooding and Sea Level Rise

Security and Supply

Disease

32%

13%

Others

24%

Figure 20 Core types o physicalrisk

General Regulations

Cap-and -trade Schemes

57%

38%

19%

Mandatory Technology Requirements

Energy Carbon Taxes

Others

16%

38%

Figure 19 Core types oregulatory risk


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Suppliers carbon reductionambitionThe success of long-term globalcarbon reduction among Suppliers willdepend on the ability of those who setgood targets today to sustain theselevels in the long run. It also dependson how quickly those who do not havetargets put ambitious ones in place.

The ambition to reduce carbonemissions is variableThe number of Suppliers who clearlycommit to reducing their company-wide emissions is relatively low. 56%have a reduction plan in place but

only 38% describe clear and detailedreduction targets. Although there is asignificant and very positive increasein the number of Suppliers who havean emissions and/or energy reductionplan in place (27% more Supplierscompared to last year), the gapbetween Suppliers and Membersin this regard remains very large(see Figure 21). For instance, 82%of Members are committed to clearreduction targets (see Figure 22).

The majority choose absolutetargets over intensityA major differentiator between targetsis whether they are absolute orintensity-based. Absolute emissionsreduction targets5 are defined by theGHG Protocol as goals to reduceabsolute emissions over time. Theyare most frequently expressed inpercentages or in tons of CO2-e6.Intensity emissions reduction targets7are defined by the GHG Protocol asgoals to reduce the ratio of emissionsrelative to a business metric over time.They are linked to another measure,such as revenue, sales or a production

unit. A 2% absolute target willgenerally deliver far greater emissionsreduction in a growing business thana 2% intensity-related target. For thatreason, absolute targets are generallyconsidered more robust than intensity-related targets.

Among Suppliers who have a targetin place, 70% are working towardan absolute target while 30% use anintensity target (see Figure 23). Nearlyall of the intensity denominators usedare a proxy for the size of the business(e.g. production or sales volume).

Our business

opportunities increasedas o last year dueto a growing numberand tightening oexisting carbon-related regulationsand because o anincreased awarenessby governments andsociety about reducinggreenhouse gas

emissions.

BASF

44% 56%

Suppliers 2008

Suppliers 2009

Members 2009

56% 44%

90%10%

31% 69%

Suppliers 2008

Suppliers 2009

Members 2009

38% 62%

82% 18%

70% 30%

Absolute

Intensity

Figure 21 Companies with a GHGemissions and/or energy reductionplan

Figure 22 Companies with adetailed GHG emissions and/orenergy reduction target

Figure 23 Suppliers with absoluteor intensity target in place

5 See glossary or detailed deinition.6 CO2-e = CO2 equivalent. See glossary or detailed deinition.7 See glossary or detailed deinition.




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Existing targets are aligned withscientiic requirements or the38% o Suppliers who have set oneIn 2007 the IPCC stated thatdeveloped economies must reduceGHG emissions by 80-95% by 2050in order to avoid dangerous climatechange8. Are Supplier targets sufficientto reduce emissions in line with thesescientific requirements to mitigateongoing climate change?

To answer this question, we calculatedthe annual average absolute reductionacross the Supplier base. Theintensity-related targets (30% of the

targets) were adjusted for real GDPgrowth to give an accurate reflectionof what they will deliver in terms ofabsolute reductions.

The analysis showed that Supplierstargets are widely spread (see Figure24), with targets from less than minus2% an absolute increase up tomore than 10%. A majority (52%) setthe target between 0 and 4%. Onaverage, the annual absolute reductionfor Suppliers with a target in place isequal to 3.6% when intensity targetsare adjusted for real GDP growth.

In comparison, the percentage ofannual absolute reduction requiredin order to achieve the IPCCrecommended reduction of 25-40% by2020 and 80-95% by 2050 against the1990 baseline has been calculated9.A global reduction rate per annum of2.6% is required to achieve a 25%reduction by 2020, while a 3.9% rateis required to reach an 80% reductionby 2050.

The average of the Suppliers who seta target (the above-mentioned 3.6%) isnot far from the IPCC target (see Figure25). If this rate were to be achieved

and extended over time, then theseSuppliers would achieve the 80%reduction target by 2053.

This analysis is based on twoconservative assumptions. First, 2009is assumed as the starting point forreductions. This is because there is alack of corporate data from 1990 levels the majority of companies baselineyears are set between 2005 and 2009.Second, it assumes that companiescut yearly emissions at a rate identicalto the one indicated in their currentplans.

EDPs strategic plan,

issued on the investorday in 2008, statedthat the CO2 emissionsactor (EF) will bereduced by 56% by2012 in comparisonwith 2005 emissions.EF will drop rom 600tCO2/MWh in 2005 to270 tCO2/MWh in 2012.These targets apply

to energy productionactivities.

Energias de Portugal

In 2008, Telenicacommitted to reducingits consumption onetwork electricity by30% per equivalentaccess and its oceelectricity consumptionby 10% per employeeby 2015. This will reducethe companys directand indirect emissionson a global levelconsiderably.

Telenica

8 Statement rom the Intergovernmental Panel or ClimateChange (IPCC) Fourth Assessment Report, 2007.

9 These requirements apply to Annex 1 under the Kyoto Protocol industrialized countries and countries in transition.

6

Less than minus 2%

From minus 2% to 0%

From 0% to 2%

39

64

68

From 2% to 4%

From 4% to 6%

From 6% to 8%

33

18

From 8% to 10%

More than 10%

18

12

Figure 24 Number o Supplierswith corresponding annualabsolute reduction

Figure 25 Estimated carbonpercentage reduction over time orSuppliers with a target in place

2009 2010 2011 2012 2013 2014 2015

%reduction

30

25

20

15

10

5

0

-5

21%

25%

20%

3.9% IPCC required reduction3.6% average reduction or Suppliers withtargets in placeIPCC 2020 target

Emissions reductionEmissions increase


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The challenge o long-termachievementSuppliers with emissions reductiontargets set target years ranging from2009 to beyond 2015 (see Figure 26).A majority of them commit to targetsthat do not exceed 2 years (52%).Furthermore, a very large majorityof them (81%) do not set targetsbeyond 2012, which correlates withthe final year of the Kyoto Protocol.This suggests that businesses, beforesetting longer term reduction goals,are waiting to hear the outcomes ofthe United Nations Climate Changenegotiations that are intended to define

the targets to meet from 2012. TheIPCC clearly states that reductions arerequired well beyond 2012at leastuntil 2050. However, a very limitedpercentage of Suppliers (8%) havecurrently set targets beyond 2015.With an average commitment period of5.2 years, it remains unclear whetherthese companies will be able to sustaintheir targets in the long run.

The slow and continuous increaseo global emissionsSo far, we have not included Supplierswho do not report a target. However,they represent 62% of all Supplierswho responded to the CDP SupplyChain Information Request. Assumingthese Suppliers without reductiontargets will keep their emissionsintensity constant, their absoluteemissions will grow, on average, at thesame rate as the real GDP.

Now, if we look at the entire Supplierpool with or without a reductiontarget, the annual average absolute

reduction drops to negative 0.8%.This represents an average carbonemissions increase that will driveSuppliers emissions far from anysustainable targets (see Figure 27).

It is therefore critical that Supplierswithout a reduction target in placequickly commit to ambitious targets.Member companies who are atthe forefront of carbon emissionsmanagement have an important roleto play in convincing these Suppliersto react quickly and thoroughly to thecurrent situation.

75

2009

2010

2011

60

25

49

2012

2013

2014

14

2

2015

Beyond 2015

13

20

Figure 26 Number o Supplierswith corresponding reductiontarget year

Figure 27 Estimated carbonpercentage reduction over time orall Suppliers

2009 2010 2011 2012 2013 2014 2015

21%

25%

20%

-5%

%reduction

30

25

20

15

10

5

0

-5

3.9% IPCC required reduction3.6% average reduction or Suppliers withtargets in place-0.8% average reduction or Supplierswith and without targets in placeIPCC 2020 target

We have committed to

reducing our absolutecarbon emissionsby 50% by 2020,where carbon is takenas carbon dioxideequivalent and includesany GHG.

Cadbury


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Suppliers reporting capabilitiesSupplier willingness to discloseemissions has risen signiicantly,especially when it comes to Scope1 and 2 emissions. The challengeis now to understand supply chaincarbon drivers and the underlyingcauses through the lower supplychain tiers. This is essential to enableaction to be taken. Collaboration andbest practice sharing are the wayorward or closing the gap betweenSupplier and Member reportingperormance.

An increase in Suppliers

willingness to discloseReporting capabilities are a significantcornerstone in the success of acompanys carbon managementprocess, as they lay the foundationfor goal-oriented emissions reduction.The reporting process begins withmeasuring emissions data. Thisprocess allows companies to establisha baseline to set emissions reductiontargets for the future which will bemeasured against yearly progress.

We assessed the reporting capabilitiesof Suppliers by participation rates,companies abilities to report Scope1, Scope 2 and Scope 3 emissionsand the willingness of companies tobe transparent about their emissionsthrough external verification andcommunication activities.

The Supplier participation rate asa percentage of requests madeincreased from 27% in 2008 to 51%in 2009 (see Figure 28). Membersaimed to gain a more in-depthunderstanding of their supply chainscarbon management performance and

focused on inviting a more targetedgroup of Suppliers to participate.Increased public and investor interestin carbon management performancealso prompted more companies torespond to this years InformationRequest. Last, but certainly not least,an important reason for this drasticparticipation rate increase was theSuppliers own pro-active interest inimproving their carbon managementpractices, motivating additionalcompanies to participate.

Juniper had one

supplier who believedthat they did not havea carbon ootprintas they were in anon-manuacturingenvironment. We wereable to educate themabout the CDP andexplain why managingtheir carbon ootprintmakes good business

sense. Another supplierelt that they had noneed to participatesince their companywas not publicly held.We convinced themotherwise.

Juniper Networks

Vivendi reports on thesignicant environmentalimpact o its operationsin the Annual Reportto Shareholders. Thisinormation includesnot only global climatechange inormation (e.g.,total annual equivalentcarbon dioxideemissions) but alsoinormation about otherrelevant environmentalparameters (e.g., wastegeneration, waterconsumption, etc.).

Vivendi Universal

27% 73%

2008

2009

51% 49%

Figure 28 2008 and 2009 Supplierresponse rate

RespondedDid not respond


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An overall increase in emissionsreporting, but still a low level oemissions transparency throughSuppliers own external supplychainsIn 2008, less than one third ofparticipating Suppliers were ableto report Scope 1 and Scope 2emissions. This years results showa dramatic improvement in Suppliercapabilities to report Scope 1 andScope 2 emissions: the numbers havemore than doubled 62% of Supplierscurrently report Scope 1 emissions and63% report Scope 2 emissions (seeFigure 29).

The number of Suppliers now reportingScope 3 emissions has increasedcompared to 2008, but there is stillroom for improvement. Suppliers mustbecome as motivated as Membercompanies to better understand theirsupply chain emissions, as well asthe key drivers that affect emissionsoutside of their own company walls.The fact is, however, that reportingon supply chain emissions is still verydifficult, and Suppliers face challengessuch as a lack of standard reportingmethodology and the resource-intensiveness of the supply chainemissions evaluation process.The new GHG Protocol Scope 3standard will provide a standardizedmethod to inventory the emissionsof corporate value chains using acombination of data sources so thatcompanies can focus on the greatestopportunities to reduce emissions inthe value chain.

Enhanced data quality assurance

One area of major improvement thisyear is the enhanced quality assuranceof the reported data. Compared to2008, the number of companies whohad their emissions data externallyverified increased by nearly half. Today,30% of Suppliers10 report emissionsdata that has at least in part beenverified by an external third party (seeFigure 30). Again, this demonstratesSuppliers willingness to make carbondisclosure more accurate.

Millipore posts

inormation on ourcorporate climatestrategy, climate risksand opportunities,GHG management andreduction strategies,and progress towardsmeeting our GHGreduction goal, in ourannual SustainabilityReport. We also report

on our participationin the EPA ClimateLeaders program,including our GHGreduction goal, which ispublicly available on ourcompanys individualClimate Leaderswebpage.

Millipore Corp.

Inormation aboutclimate change risksand opportunities, aswell as about past andpresent emissions, iscommunicated throughour companys Annual

Report. We also plan topublish a specic annualreport on sustainabledevelopment actions inJune o 2009.

GDF Suez

Figure 29 2008 and 2009 Scope1, Scope 2 and Scope 3 emissionsreporting

30%

62%

97%

31%

63%

93%

Scope 1

20%

28%

55%

Scope 2

10%

13%

39%

Scope 3 Business travel

3%

8%

27%

Scope 3 Use and disposal of company products

Scope 3 Distribution & logistics

5%

8%

20%

Scope 3 Supply chain

Suppliers 2008Suppliers 2009

Members 2009

21% 79%

Suppliers 2008

Suppliers 2009

Members 2009

30% 70%

83% 17%

Figure 30 2008 and 2009 externalemissions data veriication

10 Excluding Small to Medium Enterprises. See glossary or adetailed deinition.



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Suppliers implementationpracticesAn increasing number o Suppliershave energy and/or emissionsreduction plans, using a variety oapproaches. Companies have alsosucceeded in making the topic oclimate change an important priorityat the board level. Nevertheless, thedepth, commitment and sustainabilityo implementation across the ullsupply base are questionable.

A variety o approachesOur approach to assessingimplementation capabilities within the

supply base focuses on measuring: Theexistenceofemissionsand/

or energy reduction plans, as wellas the reduction approaches thatare identified and utilized;

Thetypesofgovernancemechanisms in place;

Howemployeesareincentivizedtoimplement emissions reduction on aday-to-day basis;

HowSuppliersengagetheirownsupply bases.

A signiicant increase in Supplierswho have an emissions reductionplanThis year, more than half of Suppliershad an emissions and/or energyreduction plan, which represents astrong increase compared to last year(27% more Suppliers see Figure21). However, this overall level issignificantly lower than for Membercompanies.

To fulfill these reduction plans, severalapproaches to emissions reductionare in use. While some Suppliers usea single approach, others use up tothree or more approaches at the sametime to reduce emissions. Nearly threequarters (72%) of Suppliers currentlyreduce emissions by improvingenergy efficiency (see Figure 31).Approximately 40% of Suppliers workon process improvements, while only22% of them use renewable energy asa way to reduce carbon emissions. It isinteresting to note that an insignificantminority of Suppliers use sequestrationto reach their GHG emissions goals.

A marginal improvement ingovernanceAn increasing number of Suppliers areestablishing governance within topmanagement to ensure the completionof carbon reduction activities currentlyin place. 60% of Suppliers haveelected a board committee memberor other executive who has overallresponsibility for carbon managementand climate change issues (seeFigure 32). Again, the gap comparedto Member companies remainssignificant.

Our warehouse

in Mexico City hasinstalled solar panelswhich now power therecharging o orklits.This is one o the largestsolar installations inLatin America...ourBeauty Tech actoryin China has installed2,000 solar tubes orthe preheating o water

used or both processesand domestic useour actory in Burgos,Spain has made a publiccommitment to becomecarbon neutral by 2015.This will be achieved byusing a number o greentechnologies, includingsolar arrays, biouel, and

geothermal energyournew building at Chevillyla rue is heated withgeothermal energy.

LOral

Ater successullypiloting one 7.5 ton

electric truck in 2007,TNT UK introduced asignicant number oelectric vehicles into itsstandard operations.Currently, 50 vehicles inthe 7.5 ton segment areoperational in about 22locations throughout theUK.

TNT

72%

Energy efficiency

Process improvement

Renewable energy

40%

22%

2%

Offsets

Sequestration

Others

1%

12%

Figure 31 Supplier approaches to

reducing GHG emissions

54% 46%

Suppliers 2008

Suppliers 2009

Members 2009

60% 40%

91% 9%

Figure 32 2008 and 2009

companies with a board committeeor other executive body withoverall responsibility or climatechange



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A lack o employee incentivesAligning employee objectives withthose of the company requiresappropriate incentives they area key factor for the successfulimplementation of changemanagement. However, within thecontext of carbon emissions reduction,the number of Suppliers whoprovide incentives for the successfulimplementation of emissions reductionplans and the achievement of targetsis stagnating at a very low level (seeFigure 33). On a positive note, 75% ofthe incentives that are currently givenout by Suppliers to their employees are

related to monetary rewards, which areprobably the most effective incentivesa company can provide.11

In order to globally

promote a CO2reduction initiative whichcan be applied widely,Panasonic establishedan intranet in September2008 which containsa Beore/Ater chart oreduction examples. Inthis intranet site, eachplant can search areduction initiative with

a keyword. As o June2009, eleven hundredreduction initiatives havebeen registered andPanasonic is strivingtowards widespread,eective CO2 reductioninitiatives.

Panasonic

Our climate protectionprogram GoGreen isan essential part oour Groups Strategy2015...thereore it isoverseen by a SteeringCommittee which is

chaired by our CEO.

Deutsche Post DHL

Siemens considers

climate change todaysmajor task with regardsto environmentalprotection. Within theSiemens board, onemember has beenassigned as the seniorexecutive in charge oenvironmental protectionat the corporate level.This executive reports

directly to our CEO.Further responsibilitiesor environmentalprotection at Siemenshave been organizedon a worldwide basisin the orm o a 3-tiermodel: a corporate tier,a divisional tier and atier o environmentally

relevant units (mostlyactories). At eachlevel, specializeddepartments or expertsserve the manager incharge o environmentalprotection. These tiersare linked via denedauditing and reportingschemes.

Siemens

Oversight o Citisclimate strategy andperormance is providedat the most seniorlevel by the Board oDirectors Public AairsCommitteeCiti alsohas an Environmental

and Social PolicyReview CommitteetheCorporate Sustainabilityunit provides advice andsupport or Citis climateinitiatives, plays a keyrole in policy/initiativedevelopment, and isresponsible or ongoingcoordination o Citisclimate initiatives at thecorporate level.

Citigroup

26% 74%

Suppliers 2008

Suppliers 2009

Members 2009

28% 72%

84% 16%

Figure 33 2008 and 2009

companies providing incentivesor attainment o climate changetargets

11 This igure excludes Small to Medium Enterprises. See glossary.



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Suppliers need to engage their ownsupply baseSuppliers involvement with their ownsupply base, although increasing,remains limited. 33% of all Suppliersnow have a strategy to engage withtheir own suppliers on climate changeissues and GHG emissions, whichrepresents an increase of about onethird compared to last year (seeFigure 34).

The achievement

o perormance anddevelopment targetsrelated to socialand environmentalresponsibility isintegrated into incentiveprograms. UnderNovozymes stockoptions program, allemployees can beallocated stock options

i Novozymes achievestheir overall targets,including targets on CO2emissions reductions.

Novozymes

Each business unit

has sustainability intheir strategic plan andis held accountable.Thereore, incentivescome in the orm ointernal recognition(publicly recognizedby the CEO withincommunication vehiclesor highlighted with theBoard, etc.) and external

recognition (pressreleases, customers,etc.) which can driveincremental business.

KRAFT

TIBCO oers a cashincentive or employees

who purchase hybrid/electric vehicles orpersonal use. We alsoprovide rechargingstations or electricvehicles in the TIBCOgarage.

TIBCO Sotware

We are working with50% o suppliers byspend to develop mutualplans to reduce CO2.

Vodaone Group

Anheuser-BuschInBev employees at all

levels are entitled tobenet rom achievingenvironmentalperormance targets.

As an example, topperorming acilitiesreceive an award andall acility employeesqualiy or a nancialbonus.

Metal ContainerCorporation12

26% 74%

Suppliers 2008

Suppliers 2009

Members 2009

33% 67%

88% 12%

Figure 34 2008 and 2009strategy or engaging with their

own suppliers about their GHGemissions

12 Metal Container Corporation is a wholly owned subsidiaryo Anheuser-Busch InBev



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The Way Forward

6Conclusion: SustainableCooperation, Sustainable Future CDP and the Supply ChainMembers at the oreront o carbonmanagementThe Member and Supplierassessments speak for themselves:

Member companies are withouta doubt at the forefront of carbonmanagement. The formal integrationof climate change into corporatestrategy, the creation of carbon policiesin procurement and the existence ofreduction plans all indicate Membersleading position in the context ofcarbon management. However, theimplementation of good intentionsstill presents challenges for Members,particularly when it comes to low-carbon procurement and the trackingof their own supply bases emissionsreduction performance both of whichare necessary for reducing the majorityof Members emissions.

Bringing Suppliers to the next levelo carbon managementMembers are aware of the largegap between Member and Supplierperformance along the four dimensionsof carbon management strategicrisk awareness, carbon reductionambition, reporting capabilities and

implementation practice which couldhinder Members carbon managementimplementation intentions.

The challenge for Suppliers now liesin bridging this gap. They must catchup to Member companies in orderto fulfill the Member goals to reduceemissions. At the forefront of the raceis a group of early mover Supplierswho are already demonstratingexcellent carbon managementperformance. We expect these earlymovers to become role models forother Suppliers, as well as catalystsfor change in the entire supply basetowards better carbon management.

The remaining majority of Suppliers willbe forced to improve their capabilitiesin order to catch up to the marketleaders. Some of them will need tostart from scratch, while some of themcan build upon a solid foundation ofcarbon management. The bottom lineis that the Supplier market has started

to adapt to current conditions and thatthis development is not one that anycompany can afford to miss.


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CDPs role in supporting MembersMembers own responsibilitiesMember companies need to recognizetheir own roles and responsibilitieswhen it comes to supporting theirSuppliers in this challenging task.Supplier performance is crucialfor their own success, as both aretightly interconnected. Therefore,collaboration and best practice sharingbetween Members and their supplybase will be crucial on the journey tobringing carbon emissions and climatechange management to the next level.Responses to the SupplementaryMember Questionnaire highlight the

fact that Members are becomingincreasingly prepared to deselectSuppliers who do not take the carbonmanagement challenge seriously. Thismeans that Suppliers now have aclear business case for improving theirperformance to meet their customersobjectives.

Annual supply chain performancetrackingCDPs role is to support Members asthey establish and evolve effective andefficient carbon management practicesthroughout their supply chain. Assuch, CDP offers annual supply chainperformance tracking that analyzesthe carbon management capabilitiesof a companys supply chain overtime through standardized metrics.The performance scoring takes intoaccount the four carbon managementdimensions of strategic awareness,carbon reduction ambition, reportingcapabilities and implementation

practices. To provide a comparison,the scores are benchmarked againstcompanies from the CDP Supply Chaindatabase, which includes more than700 top-tier suppliers across the globe.

Customized dashboardMember companies receive acustomized dashboard (see Figure 35)report that highlights the performanceof their Suppliers. This dashboard alsohighlights leading supplier practicesin the Supplier database, providing abest practice comparison. Companiescan use these results to engage withtheir own Suppliers in order to transferbest practices and drive improvementthroughout their supply base.

Becoming a CDP MemberIf you are interested in becoming aCDP Supply Chain member company,

please visit http://www.cdproject.netto find out about the benefits availableto your organization. The websitealso contains the CDP Supply ChainInformation Request and informationabout becoming a member.

Figure 35 Customized dashboard sample (sample data)


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Glossary of Key Terms

7Absolute emissions reductiontargets: Absolute targets are targetsthat are not linked to any othermeasure such as revenue or sales.They are most frequently expressed inpercentages or in tons of CO2-e. Forexample:

Reduce CO2-e emissions by 50%

by 2020 based on 1990 levels;Reduce CO2-e emissions by 120million tons by 2012 based on 2004levels.

CO2, Metric Ton of: A metric ton(metric tonne in British English) ofcarbon dioxide. Please note that ametric ton is equivalent to 2,204.6 lbs(1,000 kg).

CO2-e, Metric Ton of: Emissionsunder the Scopes must be reportedin metric tons of CO2-e. CO2-e standsfor carbon dioxide equivalent. This isthe universal unit of measurement usedto indicate the global warming potential(GWP) of a greenhouse gas (GHG),expressed in terms of the GWP of oneunit of carbon dioxide. A metric ton ofCO2-e means one metric ton of carbondioxide or an amount of any of theother GHGs with an equivalent GWP.

GWP or Global Warming Potential:The GHG Protocol defines a globalwarming potential (GWP) as a factor

describing the radiative forcing impact(degree of harm to the atmosphere)of one unit of a given GHG relativeto one unit of CO2. By using GWPs,GHG emissions can be standardizedto a carbon dioxide equivalent (CO2-e).GWPs allow the effect of differentGH

cdp supply chain report 2010

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