CEOs and Supply Chains: UN Issues New Guidance To Manage Climate Risk

The UN Global Compact, which represents more than 18,000 companies globally and reflects CEOs commitments, has issued a new guidance on sustainable supply chains to help companies better manage climate risks by placing the concept of a Just Transition at the center of transition planning and risk-management strategies.

The UN Global Compact, which represents more than 18,000 companies globally and reflects CEOs commitments, has issued a new guidance on sustainable supply chains to help companies better manage climate risks by placing the concept of a Just Transition at the center of transition planning and risk-management strategies.

The UN’s focus on supply chains and a business imperative
Earlier this month (August 2023), the UN Global Compact released new guidance, Just Transition in Supply Chains to help companies better manage climate risks by placing the concept of a Just Transition at the cent3e of transition planning and risk management strategies and as a key pillar in the overall management of supply chains. The UN Global Compact is composed of 18,000 companies globally and is a special initiative of the United Nations Secretary-General. The UN Global Compact is a call to companies worldwide to align their operations and strategies with 10 principles in the areas of the environment, human rights, labor, anti-corruption. Its ambition is to accelerate and scale the global collective impact of business by upholding the 10 principles and delivering the UN Sustainable Development Goals through accountable companies and ecosystems that enable change. With more than 18,000 companies and 3,800 non-business signatories based in over 160 countries, and 62 local Networks, the UN Global Compact is the world’s largest corporate sustainability initiative

The UN’s A Just Transition ensures that environmentally sustainable economies are promoted in a way that is as fair and inclusive as possible to everyone concerned by creating decent work opportunities and leaving no one behind. This entails companies embedding principles around social dialogue, labor rights and decent employment into climate risk management strategies to deliver shared benefits for business, workers and communities.

“Companies have a unique responsibility to ensure supply chains are at the heart of a just transition towards decarbonization to pave the way for a greener, fairer, and more prosperous future for their business, workers, and wider communities,” said Sanda Ojiambo, CEO & Executive Director of the UN Global Compact in an August 2023 statement.

As the UN Global Compact points out companies also need to engage with affected stakeholders to ensure the adequate management of the impact on the communities surrounding transition of their business operations. It also says that  an open and transparent dialogue will facilitate the inclusion of diverse perspectives by fostering trust and ensuring that the plan meets the various unique needs and aspirations of different stakeholders. It says that this is not only crucial for a company’s own operations, but also for its supply chains.

The UN Global Company points out that corporate climate actions targeting company supply chains have gained in relevance in recent years as  value chain emission (referring to emissions outside a company’s organization, i.e., emission from suppliers) are on average 11.4 times higher than companies’ operational emissions. It says that Investors increasingly expect companies to advance on supply-chain sustainability. It points out that the actions taken by businesses to reach net-zero often require them to seek new inputs to supply chains, technologies and skills, which can result in unexpected labor and social risks. This includes impacts on workers’ employment across different sectors and labor issues in the supply chains, including child labor, hazardous working conditions and adverse impact on communities, including Indigenous communities.

The purpose of the UN’s business brief/guidance is to describe how companies can better manage the convergence of different climate risks that they are exposed to through their supply chains by placing just transition at the center of their transition planning and risk-management strategies and making it a key pillar of overall business management. It highlights recent examples of companies implementing policies and practices to manage the environmental and social impacts of their supply chains. The brief also discusses  the importance of multilateral frameworks, the role of governments and multi-stakeholder collaborations. Finally, the brief offers five recommendations for businesses to improve the sustainability and resilience of their supply chains through a just transition.

These five recommendations are outlined below.

Improve awareness of risks of social disruption and climate change in supply chains. The brief points out that it is important for businesses to consider climate risks within a broader context of environmental and social impacts and specifically the exposure of their supply chains to these risks. At the same time, businesses need to minimize and redress any adverse impacts to workers and communities which result from the implementation of mitigation and adaptation measures through engagement with suppliers and social partners. Upskilling suppliers could improve awareness of these risks.

Improve the transparency of supply chains. The brief points out that businesses need to conduct materiality assessments and engage with suppliers to better understand their exposure to climate and social risks across their supply chain as well as the negative externalities that businesses have themselves on the environment and society. The improved visibility of resources, assets and processes across the supply chains will enable companies to identify a broad range of risks and cost redundancies.

Integrate risk management through Just Transition principles. The brief points out that businesses that manage the environmental and social impacts of their supply chains in an integrated manner will be better positioned to take effective and socially just measures and invest in mitigation and adaptation efforts throughout their supply chains. By aligning with the guiding principles of just transition, engaging in social dialogue and stakeholder engagement, supporting skills development, respecting fundamental principles and rights at work and undertaking human rights and environmental due diligence,22 transition planning and climate risk management would strengthen.

Creating market demand from the public sector. The brief points out that businesses, together with employers’ and workers’ organizations, could advocate for governments and local authorities to design, implement and improve policies and incentives that create strong market signals for environmentally and socially responsible business conduct. By reforming public procurement systems, governments and public authorities could leverage their large-scale purchasing power to create market demand for sustainable and socially responsible produced commodities, services and infrastructure.

• Support capacity building and access to small-to medium enterprises. The brief points out that only the public sector, but also private sector actors need to work with social partners to support small-to-medium enterprises (SMEs) with weaker institutional and financial capacity in their efforts to embed labor and human rights into climate mitigation and adaptation measures. While governments should build institutional capabilities and financing instruments to help SMEs implement mitigation, larger companies could also help bridge the financing and educational gap to enable smaller SMEs to deliver solutions to climate and social challenges and adaptation measures.

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