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Swedish companies preparedness to respond to environment-related risks in global supply chains

By highlighting these issues, we aim to increase the knowledge about how climate-related risks in the supply chains affect Sweden’s sustainable growth, competitiveness and security of supply.

The ongoing climate change is expected to increase environment-related risks in both the short run and the long run. As a reaction to the physical risks of climate change, changes are taking place with regard to law, policy, markets, consumer behavior and technology, which creates new opportunities and challenges for businesses.

In international comparison, Sweden is among the least vulnerable countries to the effects of climate change (Notre Dame Global Adaptation Index 2019). However, as an import-dependent country Sweden is exposed to climate-related risks in global value chains. According to World Economic Forum (2020) the climate-related risks overshadow other risks in both magnitude and likelihood to be realized.
Swedish companies are dependent on global production networks, with complex value chains in several stages. The business models with customized production and delivery mean that a disruption of the supply chain can have severe consequences, especially among import-intensive companies.

Since the EU directive (2014/95 / EU) aimed at making information about how companies handle sustainability issues more open and comparable, the requirements for companies to report their climate-related risks have increased. In order to investigate the climate-related risks in supply chains of Swedish companies, we conducted a qualitative content analysis based on a selection of Swedish companies’ sustainability reports. The selected companies are active in the nine most import-intensive sectors with high exposure to global supply chains.

Within each sector, we selected the three largest companies on the basis of employment rate. Of the remaining companies, seven other companies from each sector with more than 200 were randomly selected. In total, the study covers 90 companies from nine different sectors. The results of the study are thus not generalizable to all Swedish companies.

The main research questions are:

  • To what extent and how do the studied companies report about the climate-related risks in their supply-chains?
  • Are there differences between the studied companies linked to turnover, employment rate, sector affiliation, choice of reporting standards and whether the reporting is carried out at group or company level?

By highlighting these issues, we aim to increase the knowledge about how climate-related risks in the supply chains affect Sweden’s sustainable growth, competitiveness and security of supply.

Low reporting rate in vague terms

The problems associated with the complexity of the companies supply chains are highlighted in about half of the 90 companies’ sustainability reports that were studied. Only 23 of the companies discuss climate-related risks in their supply chain, usually at a general and vague level.

Few companies specify which raw materials or geographical areas are particularly exposed to the risks. We also note that many companies report about general physical risks, such as extreme weather or natural disasters.

All 23 companies that report about climate-related risks in their supply chain also report that they have taken measures to address the risks. The majority do so in a general and non-specific way. The reporting shows that the companies typically focused their actions on their immediate suppliers, not the entire complex supply chain with subcontractors to subcontractors, and so on.

We also observe that many Swedish companies and company groups with Swedish and European affiliates report about the climate-related risks in the Swedish or European part of the supply chain, not globally.
About 87 percent of the 23 companies report according to, or with inspiration from, the Global Reporting Initiative (GRI) Standards.

Out of the full sample of 90 companies, approximately 51 percent report according to, or with inspiration from, GRI Standards. There were notable differences between sectors. Half of the companies within the sectors "Retail trade, except of motor vehicles and motorcycles" and "Manufacture of food products" report about climate-related risks in the supply chain.

In four of the sectors however, only one company per sector report about climate-related risks in the supply chain. Many of the reported risks were linked to food and agricultural products.

How the reported measures are expected to eliminate or reduce the companies' climate-related risks in the supply chains is generally not specified. Our study suggests that companies need to make major changes to increase transparency regarding the climate-related risks in the supply chain.

The possibility to refer to the group's sustainability report reduces transparency

Companies within corporate groups may, according to the Annual Accounts Act (ÅRL 1995: 1554), refer to the group's sustainability report, which 60 out of the 90 companies have done. Of these 60 groups, 38 are not Swedish. This means that we have not been able to analyze whether the size of the companies affects the reporting of climate-related risks in the supply chain, since the majority of the groups' sustainability reports does not include information about the group's number of employees or turnover.

Since many groups include affiliates operating in different sectors and activities, it has been difficult to analyze differences between sectors. The groups' sustainability reports rarely contain specific risks for affiliates with different main activities. Instead, they report at a group-wide level.

There is a long way to go for Swedish companies to report transparently on climate-related risks in the supply chain
The study shows that the majority of the studied companies do not report about climate-related risks in the supply chain. Of the few that do, most report on a general level. The majority does not mention the full implications of the risks and fewer than half discuss how the reported measures are expected to reduce or eliminate the risks. We see great difficulties in comparing and analyzing companies' climate-related risks in the supply chain, and conclude that companies have a long way to go to transparent, comparable information on climate-related risks in the supply chain.

Swedish companies preparedness to respond to environment-related risks in global supply chains

Serial number: PM 2020:09

Reference number: 2020/72

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