Indian Exporters’ Failure To Cut Carbon Emissions Will Be A $274 Billion-A-Year Risk
Multinational firms plan to cut off suppliers that endanger their net-zero transition, says Standard Chartered.
Indian companies risk losing $274 billion in exports every year if they fail to curb carbon emissions by 2025, according to a new Standard Chartered report.
More than 75% of foreign multinational companies are planning to remove suppliers that endanger their net zero commitments by 2025, the report titled Carbon Dated said. “Racing against the clock to hit their net-zero carbon goals, MNCs are increasing the pressure on their suppliers to become more sustainable, with companies based in emerging and fast-moving markets facing the biggest challenge.”
Standard Chartered surveyed 400 of the world’s largest multinational corporations for the report. Of them, 93% of the MNCs that had a supply chain in India said they had already set targets for their suppliers—an average 30% reduction in emissions by 2025.
For Indian suppliers who fail to transition along with their MNC partners, this could mean an export revenue loss of $273.7 billion—the second-highest in the world after China.
Businesses are increasingly looking to transition to net carbon zero—by cutting emissions or offsetting their carbon footprint. Corporates in all sectors are also being pressed by investors, governments and general public to cut operations to avoid an impending climate catastrophe.
About 67% of the MNCs surveyed said that reducing supply chain emissions is the first step in their net-zero strategy. And their logic is sound: an average 73% of the MNCs total emissions come from their supply chains, according to Standard Chartered.
However, this creates challenges for suppliers in fast-growing markets like China and emerging economies like India or Bangladesh. A majority of the MNCs believe that emerging market suppliers are struggling more than their developed market counterparts. And more than half of the MNCs are willing to cut off these emerging market suppliers that risk their net zero goals.
The interplay between these businesses and their MNC partners will be a defining factor in the global race to net zero.Carbon Dated—Standard Chartered Report
Globally, MNCs expect they would have to cut around 35% of their current suppliers to stick to their net-zero plans, the report said. “Our study finds that almost a third of MNCs are already taking a zero-tolerance approach to their supply chain, swiftly removing suppliers that endanger their transition.”
Standard Chartered said the same risk could be an opportunity for suppliers. MNCs are willing to spend more on net-zero products and services. About 45% said they would pay a premium, on average 7%, for a product or service from a net-zero supplier.
Yet, suppliers cannot be expected to pick up the slack alone. To make net zero a reality, Standard Chartered said MNCs will have to collaborate with their partners to help them transition.
Some multinational firms are already exploring strategies to do this. About 64% of the MNCs surveyed said they’re developing shared sustainability goals with their suppliers. Almost half of MNCs are also offering sales advantage through a preferred status for sustainable suppliers. A handful of them are also offering preferential pricing, grants and loans to invest in reducing emissions.
“To reduce emissions, MNCs cannot just push targets down the chain,” said Roshel Mahabeer, executive director of sustainable finance at Standard Chartered. “Developing targets together is a good start, but MNCs also need to provide more concrete, specific support to suppliers if they expect them to align with their net-zero strategy.”