By Jennifer Cheng     Photo：Gustavo Fring

Climate change is having a huge impact on today's fragile supply chains, causing serious disruption to businesses around the world. Last year, power plants in France and factories in China had to close due to record heat waves. Floods swept through Pakistan, affecting millions of people and killing more than 900,000 livestock. According to a 2020 study, environmental risks could cost businesses up to $120 billion over the next few years. While large companies are beginning to recognize the existence of climate risk, they are overlooking a major challenge: how climate change affects the small and medium-sized enterprises (SMEs) on which they depend, and thus their profits. In fact, more than 70% of corporate GHG emissions occur elsewhere in the supply chain, and more than 90% of the workers who come into contact with large companies' products are not direct employees, many of whom work for SMEs.

This situation puts SMEs under greater risk and pressure. Climate disasters can lead to interruptions in production, financial losses in the manufacturing process and even bankruptcy of SMEs. In addition, climate change may also affect the supply of raw materials and the logistics and transportation needed by SMEs, increasing costs and uncertainty. More seriously, these impacts will also indirectly affect the business of large corporations. Large companies rely on a stable supply chain to ensure the manufacture and distribution of their products, and SMEs play an essential role as a vital link in this supply chain. If SMEs are unable to cope with the challenges posed by climate change, it will have a significant impact on the business operations of large companies.

The global supply chain is facing increasing pressure and scrutiny. New regulations from the European Union and higher expectations on supply chains mean that companies need to exercise stricter oversight of their suppliers. Collaborating with small and medium-sized enterprises (SMEs) in the supply chain can bring competitive advantages to businesses. However, establishing partnerships with SMEs can present challenges. The supply chain is complex, and many SMEs may go unnoticed by larger companies. Nonetheless, despite the complexity of relationships between large and small businesses, their economic fates are interconnected. For instance, according to analysis, by 2030, the impact of heatwaves on workers could result in annual economic losses of $200 billion. While pursuing sustainable supply chain goals, larger companies should provide ample support. Collaborating with SMEs can help address the challenges posed by climate change and ensure that workers are prepared for future job requirements. This can yield long-term competitive advantages for businesses and mitigate the impact of climate change on supply chains. Companies should actively seek partnerships with SMEs and aid them in adapting to sustainability requirements and regulatory compliance. By nurturing these collaborations, businesses can foster transparency, resilience, and innovation in their supply chains, ultimately benefiting both larger corporations and smaller enterprises.

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