The opportunity for net-zero-focused suppliers

Almost a third of multinational companies will cut suppliers who aren’t decarbonising fast enough, creating new opportunities for net-zero-focused suppliers.

A USD1.6tn incentive
Our study reveals that almost a third of multinational companies (MNCs) (31 per
cent) are taking a zero-tolerance approach to their supply chain, swiftly removing suppliers that endanger their transition. Our economic model reveals that – across 12 key emerging and fast moving markets alone – this approach could create a USD1.6 trillion opportunity for the net-zero club: those businesses reducing emissions in line with MNC net-zero plans.

This represents a major opportunity for net-zero-focused suppliers, but also quantifies the potential losses to companies not embracing net-zero transition.

Whether MNCs take a zero-tolerance approach or are more flexible with their suppliers, by 2025 the vast majority of MNCs (78 per cent) will be starting to remove suppliers that don’t meet expectations.

^{Size of export market subject to decarbonisation zero-tolerance:

close to a third of each market’s annual OECD exports}

The net-zero premium
The pressure is on suppliers to take swift, decisive action on sustainability, or risk losing access to this market. But who absorbs the cost of this action? Fifty-two per cent of MNCs would be prepared to pay a premium – of 5 per cent on average – for a product or service from a supplier that is measurably sustainable over one that isn’t. Forty-five per cent of MNCs would be prepared to pay a premium for a product or service from a supplier that has net-zero emissions over one that doesn’t; a premium of 7 per cent on average.

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*Figures modelled using projected export revenue in 2030}}

_{^{For the net-zero trailblazers, outsized opportunities await. Those that fail to take up the challenge, meanwhile, can expect to lose access to a significant slice of business in the near future. Everyone has a role to play; suppliers may have to spend more to align with MNC net-zero strategies, but MNCs may need to pay more for their products or services. Ultimately, this increased cost may have to be passed on to the consumer.}}

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Simon Connell
Global Head, Sustainability Strategy, Standard Chartered Bank

Carbon Dated markets and their net-zero commitments to date

Governments have a vital role to play in the decarbonisation agenda through incentives, regulation and investment, yet many have not made public net-zero commitments.Suppliers need policies and infrastructure to support their decarbonisation journey but many governments in emerging markets, where much of the supply chain is located, are yet to make public net-zero commitments or outline their strategies.Policymakers can drive the net-zero agenda incentivising decarbonisation and distributing the cost of transition, but the actions of the private sector – including MNCs, their supplier network and financial institutions – will also be important. This will bring broader rewards: when governments are negotiating trade routes, green credentials are increasingly necessary for preferential treatment.

^{1 _{China refers to its 2060 commitment as a goal}}

_{^{If a supplier is based in a market with a fossil-fuel-powered grid, reducing their scope two emissions will be difficult. They could face the stark choice of disconnecting from the global economy or disconnecting from the local energy grid and developing their own renewable energy supply privately, with all the costs that would entail.

As governments consider strategies for keeping global trade flowing, the decarbonisation of national energy supplies must become part of the conversation. Otherwise, we may see a two-tier system developing, as suppliers based in markets with clear net-zero roadmaps are more attractive supply chain partners for MNCs.}}