TRADING

Kenyan suppliers risk Sh377bn loss in carbon emission plan

Multinational companies plan to cut-off suppliers who fail to curb carbon emissions.

In Summary

•Suppliers in Kenya’s two biggest import market sources of China and India risks losing business worth $512.3 billion and $273.7 billion, respectively.

•However, the study also reveals a $1.6 trillion (Sh172.4 trillion) market opportunity for suppliers who decarbonise in line with MNC net zero plans.

Industrial Area in Nairobi/
Industrial Area in Nairobi/
Image: FILE

Kenyan suppliers risk losing $3.9 billion (about Sh377.2 billion) unless they cut carbon emissions, a new study by Standard Chartered reveals.

Multinational firms plan to cut-off suppliers who fail to curb carbon emissions, with 78 per cent of multinationals (MNCs) planning to remove suppliers that endanger their carbon transition plan by 2025.

This is in line with their biggest clients’ net zero plans with the study revealing that globally, suppliers risk almost $35 billion (Sh3.77 trillion) in exports if they don’t cut carbon emissions.

For South African suppliers who fail to transition alongside their MNC partners, this could mean a loss in export revenue of $33.7 billion (Sh3.6 trillion).

Suppliers in Kenya’s two biggest import market sources of China and India risks losing business worth $512.3 billion(Sh55.2 trillion) and $273.7 billion (Sh29.5 trillion), respectively.

However, the study also reveals a $1.6 trillion (Sh172.4 trillion) market opportunity for suppliers who decarbonise in line with MNC net zero plans.

According to Carbon Dated, which looks at the risks and opportunities for suppliers in emerging and fast-growing markets as large corporates transition to net zero, 15 per cent of MNCs have already begun removing suppliers that might scupper their transition plans.

In total, MNCs expect to exclude 35 per cent of their current suppliers as they move away from carbon.

The study also found that supply chain emissions account for an average of 73 per cent of MNCs’ total emissions, with more than two thirds (67 per cent) of MNCs saying tackling supply chain emissions is the first step in their net-zero transition, rather than focusing on their own carbon output.

“Suppliers in 12 key emerging and fast-growing markets can share in USD1.6 trillion worth of business if they can remain part of MNC supply chains,” the report reads in part.

90 per cent of MNCs with a supply chain in South Africa have set emission reduction targets for their suppliers, asking for an average reduction of 31 per cent by 2025.

In Kenya, the government is keen to set up an emissions trading system that will allow companies and other bodies to buy emissions allowances.

In April, President Uhuru Kenyatta said the government is committed to lowering the country’s greenhouse gas emissions by 32 per cent by the year 2030, and termed climate change as a development and security threat that must be addressed urgently.

Emissions trading is a pollution control mechanism where a central authority issues a limited number of permits for the release of specific greenhouse gases, with companies being able to buy and trade permits.

Countries use a price on carbon to meet climate goals in the form of a tax or under an emissions trading or cap-and-trade plan, where carbon limits are set.

"The government is at an advanced stage in establishing the Kenya Emissions Trading System.. this will enable Kenya to meet her commitments in limiting greenhouse emissions," National Treasury Secretary Ukur Yatani said, during a recent Kenya-Europe online conference.

Racing against the clock to hit their net-zero carbon goals, MNCs are increasing the pressure on their suppliers to become more sustainable, with companies based in emerging and fast-moving markets facing the biggest challenge.

Some 64 per cent of MNCs believe emerging market suppliers are struggling more than developed market suppliers with their net-zero transition, and 57 per cent are prepared to replace emerging market suppliers with developed market suppliers to aid their transition.

MNCs are concerned that emerging market suppliers are failing to keep pace with for two key reasons insufficient knowledge and inadequate data.

Some 56 per cent of MNCs believe that the lack of knowledge among emerging market suppliers (41 per cent for developed market suppliers) is a barrier to decarbonisation.

With MNCs struggling with the quality of data, two-thirds are using secondary sources of data to plug the gap left by supplier emissions surveys and 46 per cent say that unreliable data from suppliers is a barrier to reducing emissions, the study indicates.