IMPACT OF GHG EMISSIONS AND CLIMATE CHANGE ON ORGANIZATION'S SUPPLY CHAINS

IMPACT OF GHG EMISSIONS AND CLIMATE CHANGE ON ORGANIZATION'S SUPPLY CHAINS
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Introduction
There is a universal consensus that the earth is warming, and the increase in temperature is primarily caused by the emission of greenhouse gases (GHG) in the atmosphere. In the business environment, it is acknowledged that the regularity and dangerousness of climate change can cause disruptions in organizations' supply chains, thus raising costs and decreasing revenues. Such disruptions have already been felt across all five continents through flooding and reduced water levels in oceans and rivers. However, companies, especially those operating in the fuel industry, have discredited scientific data on GHG and even funded counter studies. Nevertheless, some organizations have addressed the problem of GHG emission by adopting Climate Action Plans and carbon pricing strategies. Despite these strategies being helpful in the reduction of GHG emissions, they do not reflect the damage caused by business organizations on the climate. Therefore, employee optimization, strengthening of supply chains rather than focusing on efficiency, and requiring large organizations to invest heavily in green energy are recommended as more appropriate actions. This paper examines how GHG emission impacts global supply chains, how companies have addressed GHG emission, and the challenges that organizations face while responding to climate change.
Economic production at the global stage is structured around a multifaceted system of co-dependent supply chains. Over time, supply chains around the world have been polished to support the trade of goods worth more than $20 trillion each year (Lehmacher 2017). These supply chains and other systems that enhance their performance work better in stable climatic conditions. Therefore, any changes to normal climatic patterns amplify the probability of the occurrence of activities that are more extreme and severe than what established supply chains can handle.
Unfortunately, since the era of the Industrial Revolution, the emission of greenhouse gases, especially carbon dioxide, has increased by approximately 43% (Vitousek et al., 2015). During this era, industrial processes in developed nations emitted much of the greenhouse gases from cement production, extraction of fossil fuels, and natural gas. However, since 2018, the transportation sector has been emitting 28% of the total greenhouse gas emissions, which is the largest among all industries (the United States Environmental Protection Agency n.d). The emission of GHG in the transportation sector comes from fuel used in planes, trucks, cars, ships, and trains, which are essential in moving final products, services, and raw materials around the world.
The impact of greenhouse gases and climate change on organizational supply chains has already been felt by companies. For instance, in Europe, transport on the Rhine in the third quarter of 2018 was down by 27% due to low water levels that were caused by drought. This resulted in a 10 percent drop in Germany's production of chemicals and pharmaceuticals because companies were unable to secure raw materials on time (Woetzel et al., 2020). Likewise, a study conducted by Stecke and Kumar (2009) revealed that by 2040, companies that source leading-edge chips from western pacific countries such as Korea and Japan will experience severe disruptions in their supply chain because the probability of hurricanes occurring would increase considerably.
Based on the available scientific evidence, it is clear that the effects of GHG emission on organizations' supply chains are certain and tangible. This has prompted consumers, especially the young generation, to hold companies responsible for their actions and those of their suppliers. Therefore, business organizations that persist in handling the emission of greenhouse gases and climate change as a corporate social responsibility problem, rather than a business problem, are likely to experience disruptions in their supply chains and even lose customers.
Although all the phases of the supply chain add value to services and products, they contribute to climate change by emitting greenhouse gases. In turn, all the phases of each supply chain are exposed to opportunities and risks that occur in the form of desertification, increased temperatures, rise or fall in the level of seawater, flooding, and hurricanes. As a result, greenhouse gases and supply chains have a direct relationship where one activity in one of them has a corresponding effect on the other.
For instance, the agricultural industry is known for emitting GHG in the atmosphere through fertilizer, enteric fermentation, and soil management. Similarly, companies that rely on agricultural products as raw materials have been affected significantly by climate change. In South-east Asia, for instance, the rising temperatures have resulted in drought and floods, which have impacted the growth of rice. In 2014, flooding in Malaysia caused salt water to intrude and destroy more than 24,000ha of rice fields. This resulted in the closure of more than ten food processing companies in Malaysia and six in Thailand due to the unavailability of raw materials (Haraguchi 2017).
However, supply chain disruptions caused by the presence of excessive GHG in the atmosphere are also felt in other industries. For instance, in 2011, flooding in Bangkok lasted for 60 days and resulted in significant knock-on effects on major global key supply chains. The electronics and automotive industries were greatly affected and experienced an 80% year-on-year decline in production (Abe 2017). During this period, the supply chain of large Japanese companies that outsource large parts of their inputs from Thailand was affected for one to three months, while small companies that have smaller warehouses were closed for more than six months (Bank, 2012).
In recent years, the effects of GHG and climate change have been felt by companies that rely on water to move around their raw material and final products. Ships transporting goods and raw materials through the Panama Canal, which shortens the 8,000-mile journey around Cape Horn to just 48 miles, have been forced to reduce their cargo due to reduced water levels caused by increasing temperatures (Oxford Analytica, n.d). Similarly, along the Mississippi River, droughts and floods have disrupted supply chain logistics and agricultural production over the past decade. In the 1970s, a single tow on the upper Mississippi River had 15 barges, each capable of carrying more than 1,000 tons of goods. However, in recent years, tow capacities have been reduced by more than 255 tons due to the consistent fall in water level (Haddeland et al., 2014). In both cases, business organizations that rely on the Panama Canal and the Mississippi River to move goods within the US and across the two American continents had to constantly alter their supply chains because of the uncertainties caused by GHG and climate change.
Furthermore, GHG and climate change have increased costs associated with organizations' supply chains. The movement of raw material and final products from one location to another requires an efficient transportation system that eliminates delays. As a result, when facing delays, some companies resort to the use of air transport, which is costly and carries fewer goods compared to large water vessels. For instance, when the movement of goods decreased along the Rhine River in 2018 due to low water levels, some pharmaceutical companies in Europe turned to air transport. A study conducted by Meyer (2017) revealed that those companies incurred more than $220 million in additional logistics costs.
The debate on how organizations should respond to increasing levels of GHG in the atmosphere is based on two distinct but interrelated issues. The first is the exact actions that should be taken to successfully reduce the quantity of GHG in the atmosphere, and the second is the problem of who should incur the cost of those changes. Nevertheless, there is a universal accord that the quantity of GHG in the atmosphere must be reduced to pre-industrial levels. As a result, business organizations across the world have implemented various strategies to reduce the emission of GHG based on the nature of their products and operations.
A growing number of companies have voluntarily adopted Climate Action Plans because they can be tailored to reduce GHG emissions while also maintaining the quality of their product and business models. Climate Action Plans are targeted, which drive innovation within a company to reduce or eliminate the quantity of GHG emitted into the atmosphere. Through extensive renewable energy portfolios, companies such as Apple, Walmart, Microsoft, and Google were among the first organizations in the world to adopt Climate Action Plans. In the case of Walmart, the company has pledged to have zero GHG emissions in its supply chain by 2045. This will be achieved by powering all its operations with 100% renewable energy and using low-emission coolants in all its HVAC systems and warehouses (Cohen, 2020). Climate Action Plans have also been used by Toyota and Honda in the manufacture of hybrid cars and hydrogen fuel-powered vehicles.
Carbon pricing is a strategy that involves a reward and penalty for reducing the emission of GHG in the atmosphere. Carbon pricing was first used by governments to tax fossil fuels and discourage companies from using them. However, business organizations adopted the strategy to encourage suppliers, customers, and employees to reduce the emission of greenhouse gases. In 2014, more than 1,249 companies had either adopted carbon pricing strategies or were in the process of establishing policies that would help in the implementation of carbon pricing (Bartlett et al., 2016). In the majority of the cases, business organizations that implement carbon pricing offer incentives to em...