Rising pressures from climate change present an array of strategic and operational risks for companies and their supply chain. According to the World Economic Forum, the environmental risks of highest concern in the next ten years are water shortage, weak climate change response, and extreme weather . In 2016, 40% of filed shareholder resolutions related to environmental and sustainability issues, demonstrating the rising concern of companies related to climate change . In addition to climate-related risks, there is increasing social instability and unemployment. These social trends exasperate the impact of environmental disasters.
Climate change presents unique challenges for companies as decisions made today tie directly to future risks as the impact of climate change is cumulative. Carbon dioxide and other greenhouse gases can stay in the atmosphere for hundreds of years and higher concentrations of these gases lead to increased global temperatures and shifts in weather patterns . However, it is difficult for companies to assess how they should respond to such risks. Two challenges that complicate climate change responses are the sheer magnitude of change required and the inherent “free rider” problem . It is unclear who should help foot the cost the climate change initiatives and if regulatory or market forces should help address the problem.
Intel is a technology company, specializing in semiconductors, with a global footprint and vast supply chain. Semiconductor production requires the use of fluorinated gases, which is frequently targeted in climate change policies and restrictions for its impact on global warming . As such, climate change and supply chain sustainability is a critical risk and concern for Intel. Intel’s management believes global climate change is a serious environmental, economic and social challenge and has set forth efforts and plans to respond accordingly . In the short term, Intel has instituted a Supply Chain Responsibility program, to reduce risks associated with climate change in the supply chain. To support these efforts, Intel has established key performance indicators for environmental sustainability and supply chain responsibility. Metrics include total water withdrawn (billions of gallons), energy use (billion kWh) and greenhouse gas emissions (million metric tonnes of CO2 equivalent).
An additional component of Intel’s efforts is its Program to Accelerate Supplier Sustainability (PASS). PASS includes commitments to compliance, transparency and capability-building. All suppliers are given access to educational resources, including webinars on a range of critical topics. As of 2016, Intel reported participating suppliers represented over 69% of its supply chain spending . As part of PASS, suppliers are asked to participate in a supply chain survey that assesses their climate change risk and opportunities to improve transparency. PASS includes Responsible Mineral Sourcing for Tin, Tantalum, Tungsten and Gold . To ensure these efforts are honestly represented and communicated, Intel completes on-site audits for its 75 top suppliers with assessments on 300 factors. In the next two years, Intel aims to have 90% of its suppliers in PASS meeting advanced expectations. Additional short term goals include 85% “green” Intel ground transportation fleet and continue 100% green power in U.S. operations .
In the medium term, management has set corporate goals to further environmental sustainability and supply chain responsibility. Climate change-related goals include :
- Increase alternative energy use for international operations
- Reduce direct greenhouse gas emissions by 10% per unit basis by 2020 from 2010 levels
- Implement an enhanced green chemistry screening and selection process for 100% of new chemical and gases by 2020
- Reduce water use on per unit basis below 2010 level by 2020
In addition, Intel has set a long-term goal to restore 100% of global water use by 2025. To achieve this goal, Intel plans to support local watershed and restore the equivalent amount of water consumed .
In evaluating management’s goals in the short and long term, I would recommend management evaluates the overlapping risk profiles of its suppliers. For example, if an earthquake occurred in China, how many suppliers would be impacted by one earthquake? How many suppliers have emergency plans in place to respond to idiosyncratic events and risks? An in-depth analysis of suppliers with similar geographic locations, risks preparedness and percent of total product produced may highlight additional supply chain risks.
A few important questions remain regarding climate change and Intel’s supply chain. As a company, what type of financial and non-financial resources does Intel need to provide to its suppliers to comply with risk mitigation programs? Is the cost of these efforts absorbed by the supplier, Intel, or the customer?
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,  Nottingham, Lucy. “Unlock Growth by Integrating Sustainability: How to Overcome the Barrier,” Marsh & McLennan Companies (2016)
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 Henderson, R. M., et al, Climate Change in 2017: Implications for Business (HBS No. 317-032)
,  “Global Climate Change Policy Statement”, Intel (2015)
, , ,  “Intel 2016 Corporate Responsibility Report,” Intel (2017)
 Brady, Tom. “Our Commitment to Restore 100% of our Water Use,” Intel (Sept. 19, 2017)