Only 27 percent of supply chain leaders have conducted a climate change risk assessment to identify their most critical supply chain risks, according to a survey by Gartner, Inc. The survey among 320 supply chain leaders in December 2021 and January 2022 found that just 18 percent of respondents conduct both risk assessments and scenario planning.
"The effects of climate change are hard to predict, but it is possible to model the risks and opportunities that might occur,” said Heather Wheatley, senior director analyst with the Gartner Supply Chain practice. “Chief supply chain officers (CSCOs) regularly assess various risks and opportunities as part of normal business – this must be done for climate change as well.”
According to the survey, 44 percent of respondents have a general sense of potential climate change risks based on previous events. This means they understand that climate change risks are materializing, but those risks are not methodically identified or quantified. However, the past is not a good predictor of future climate change events, as the severity and impact of events will escalate.
“Scenario planning is a crucial part of the process, as it highlights key elements of a possible future and helps draw attention to the key factors that will drive future developments. For example, in a future that includes raw material scarcity and trade uncertainty, organizations that rely on more resilient inputs such as drought resistant crops can gain a competitive advantage,” Wheatley said.
Lack of foresight and long-term decision making are the biggest challenges for climate adaptation
Climate adaptation must be included in investment decisions says Gartner. For example, if building a new manufacturing plant, design considerations should be made for future climate change threats such as heat waves or water shortages. However, the need for financial investment can deter action. The top barriers to planning for climate change in the supply chain include a focus on short-term decision making (57 percent) and an inability to link the cause and investment to benefits (57 percent).
Use of technology to assess climate change risk still in infancy stages
Only 19 percent of surveyed companies are using digital technology to help understand climate change risks. Of those organizations that are using technology, 85 percent are utilizing predictive analysis. Examples of tools that could be used include geospatial analysis, drones and artificial intelligence (AI) capabilities such as ecological simulations. Many organizations are also partnering with external consultants to help model scenarios.
Gartner clients can read more in Supply Chain Executive Report: Supply Chain Adaptation Responses to a Changing Climate.
Non-Gartner clients can find more information in How Supply Chains Are Responding to a Changing Climate.