Can supply chains gain competitive advantages by becoming more climate resilient?

Blog by Maribel Hernandez, Senior Consultant at Acclimatise, and Svante Persson, Coordinator, PROADAPT/IDB

Can supply chains gain competitive advantages by becoming more climate resilient?

How can businesses, large and small, make their supply chains more climate resilient and simultaneously become more profitable? Almost any supply chain, but particularly those that are dependent on natural resources, will experience the impacts of a changing climate in all its parts. A recent study by Acclimatise for the IDB’s PROADAPT program, shows that assessing climate change risks and their effects helps businesses better understand their supply chains and strengthen their resilience, and in that process, give them a competitive advantage in the market.

PROADAPT was launched in 2013 by the Inter-American Development Bank (IDB) in partnership with the Nordic Development Fund to improve climate resilience among small and medium enterprises and to foster business opportunities to provide climate resilience solutions, or products and services that help buyers to reduce or transfer their vulnerability to climate risks. This study specifically looked at the effects on a dairy supply chain in Mexico.

Turning climate risks into opportunities

Climate change increases the occurrence of extreme weather events which means increased risks to business assets and operations. It can also reduce the availability and increase the price of certain inputs. Agrifood industries are particularly affected, as they are dependent on the climate. Contrary to what is commonly assumed, reducing these risks can lead to new opportunities. Companies that adapt their strategies become more resilient and thereby increase their competitiveness through more efficient production and cost reductions. The emergence of new products and solutions that improve climate resilience such as heat-resistant building material, drought resistant seeds, water harvesting services, low-drip irrigation, or new insurance schemes also generates new opportunities to local businesses.

Addressing climate change impacts on a supply chain

Being aware of climate change risks and their impacts on a company’s supply chain is the first step towards building climate resilience. The next step is to map the supply chain in detail, including geographic locations, to identify the most vulnerable parts of the chain and target the most appropriate adaptation measures. Finally, adaptation and resilience enhancing measures can be identified and prioritised, such as:

• Mainstream climate change into the decision making processes and setting risk management procedures according to the identified vulnerabilities, etc.
• Fine-tune the company’s supply strategy based on the analysis of the relative climate exposure of key commodities and suppliers; expand the supply to other possible suppliers and/or locations; switch to domestic suppliers to reduce risk inherent to long-distance transport logistics, etc.
• Introduce institutional, commercial and financial arrangements, capacity building activities, awareness-raising and communication options, actions to support community development, social, economic and environmental sustainability, etc.

The implementation of climate adaptation measures can also have positive social and economic impacts on local economies through more sustainable businesses, technology transfers and new markets niches, which enable the development of new local technologies, products, and services at a lower price. Oftentimes, resilience improving measures also mean reducing carbon emissions, like for example biodigestors and clean energy, thus presenting a double benefit.