Fifteen Eighty Four

Academic perspectives from Cambridge University Press


Supply Chain Disruption: Risks and Opportunities for A Net Zero Transition

Mokbul Ahmad, Jahan Chowdhury

A consortium of over 160 firms, with net assets of more than USD70 trillion, are now members of the Glasgow Financial Alliance for Net Zero (GFANZ), a COP26 initiative set up under the leadership of former Bank of England Governor Mark Carney. GFANZ aims to unlock the trillions of dollars needed to achieve a resilient, zero emissions future. The GFANZ aims to establish a framework for credible net zero commitments, with interim targets, which it will then expand to other financial institutions to aid their commitments and plans to net zero transition. GFANZ also supports technical collaboration and advocates for public policy to support economy-wide transitions to net zero.

GFANZ has a unique opportunity to help ensure the transition to net zero emissions does not place an unfair and undue burden on suppliers from emerging and developing countries. By working with governments, multinational corporations, and financial institutions along the supply chain, GFANZ can play a crucial role in a successful net zero transition that is equitable and just.

While the exact definition and scope of what constitutes “net zero” is still under discussion, the term broadly means reducing carbon emissions to nothing by 2050, with any residual emissions not possible to cut needing to be offset. Achieving such a goal would require immediate rapid emission reduction cuts and halving them by 2030 at the latest (Pineda, 2021). GFANZ members, most of whom can be categorized as Multinational Corporations (MNCs) must use science-based guidelines to reach net zero emissions in line with the UN Race to Zero criteria.

Given that supply chain emissions account for an average of 73% of MNCs’ total emissions, a top-down net zero target-setting will have severe implications for MNCs’ suppliers (Standard Chartered, 2021). In fact, in a survey of 400 sustainability and supply chain experts at MNCs across the globe, conducted by Standard Chartered, 67% mentioned that reduction of supply chain emissions is the first step in their net zero strategy. To address Scope 3 emissions , the majority of MNCs say they will take a zero- tolerance approach and remove some suppliers that endanger their carbon transition plan in just three years’ time.

The impact of the net zero transition will therefore be felt mostly by the suppliers in emerging and fast- growing markets, shifting the pressure of the transition from the global north to south, and from MNCs to smaller companies. This essentially means that emission hotspots risk dislocating smaller supply chain players, who are often the least equipped to deal with the transition, due to their limited capital, skills set, and size.

From the suppliers’ point of view, there are five key challenges associated with a net zero transition.

  • First, MNCs located in developed countries are imposing stronger emissions goals than suppliers’ local governments require. This could mean suppliers may will the carbon offsetting requirements in their own domestic markets but are likely to fail to deliver on the targets set by markets where they supply.
  • Second, inadequate “know how” about decarbonization approaches and technologies and services further adds to the complexity of net zero.
  • Third, potential costs and the scale of investment required for decarbonization without long-term offtake guarantees pose significant risk (WEF, 2021).
  • Fourth , gathering and reporting of reliable, high-quality emissions data is also a real challenge in emerging markets, where actual data are more often replaced by proxy measures.
  • Finally, a single supply chain may be fragmented and move across countries, posing further challenges to standardization, monitoring, and reporting and thus making data aggregation and comparison difficult (WEF, 2021).

Irrespective of conceptual and application challenges related to net zero, the pressure is on suppliers to take swift and decisive action now or risk being displaced from the market. Supplies may end up riding the tailwind of the net zero movement and/or helping lead it through early adoption.

Successful net zero transitions by suppliers require the collaboration and support of MNCs, governments, and financial institutions across the whole supply chain.

MNCs are exploring a range of joint strategies to help their suppliers’ transition, including offering their supply chain partners incentives such as preferred supplier status, preferential pricing, as well as grants or loans. The economic model, developed by Standard Chartered reveals that across 12 key emerging and fast-moving markets, a net zero transition can create a USD1.6 trillion business opportunity (Standard Chartered, 2021). According to Standard Chartered survey, MNCs are, contrary to common belief, often willing to pay more to compensate suppliers for their cost towards zero carbonization. For example, 52% of MNCs are willing to pay a price premium – about 5% on average – for a measurably sustainable product or service over one that is not. The premiums can rise to 7% for a product or service that has net zero emissions over one that does not (Standard Chartered, 2021). While there may be fear that a significant percentage of such cost may ultimately be transferred to end-consumer prices, according to WEF (2021), this price increase is likely to be restricted within the range of 1-4%.

Governments in emerging markets will need to enact laws, policies, and infrastructure to support public net zero commitments to level the playing field for their domestic suppliers in international markets. Such regulations could be fodder in international trade negotiations where green credentials may lead to preferential treatment, thereby bringing broader rewards (Standard Chartered, 2021).

The role of financial institutions is also critical to provide needed transitional capital for the suppliers to unplug from carbon-intensive practices. The likelihood of acquiring such capital is higher when MNCs and governments can join forces to offer guarantees or some other form of blended financing.

Decarbonizing supply chains presents an important opportunity for international climate action. Suppliers will see new growth opportunities through green products and service innovations; efficiency enhancements that lower production costs through energy efficiency and other means; and brand enhancement and preferential access that comes with deep decarbonization in the global market. However, the journey towards a net zero transition will be difficult, time-consuming, and come with some costs. However, it will not be impossible. Local economies will be disrupted, and in some senses, this is needed. But such fundamental dislocation and change should not overly burden the actors further down the supply chain. MNCs and others should make sure the brunt of the cost is not paid by those who have the least means. To ensure a minimum amount of negative disruption for suppliers in emerging markets, it is critical for an alliance such as GFANZ to work together with governments and financial institutions across the value chain, from top to bottom, and from global to national, offering integrated knowledge, capacity, and financial solutions to suppliers for a successful net zero transition.


GHG Protocol (2020). Frequently Asked Questions. https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf

Lazarus, A. A. (2001). Multinational Corporations. International Encyclopedia of the Social & Behavioral Sciences.

Pineda, A. C (2021). What is good net-zero – and how is the SBTi helping to define it?. https://sciencebasedtargets.org/blog/what-is-good-net-zero

Standard Chartered (2021). Carbon Dated: The Net Zero Supply Chain Revolution. https://standardcharteredbank.turtl.co/story/carbon-dated/page/2/2?teaser=yes

World Economic Forum (WEF, 2021). Net-Zero Challenge: The supply chain opportunity. Insight Report

About The Authors

Mokbul Ahmad

Mokbul Morshed Ahmad is Associate Professor of Development Planning Management and Innovation in the Department of Development and Sustainability, School of Environment, Resources...

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Jahan Chowdhury

Jahan Chowdhury has 19 years of experience working as a climate and development professional. His work in over 50 countries ranges from mainstreaming climate in national developmen...

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