The global race to achieve clean energy targets is accelerating, placing immense strain on the supply chains essential to this transition. The International Energy Agency (IEA) estimates that 2,400 gigawatts of clean energy will be deployed from 2022 to 2027, underscoring the urgency of the shift. With increasing demand for renewable products—such as solar panels, wind turbines, and EV batteries—supply chains are under scrutiny for both operational efficiency and environmental impact.
As new clean energy projects emerge, manufacturers face the dual challenge of securing essential materials and meeting rising expectations for sustainability from regulators and consumers. Yet, this progress is complicated by infrastructure limitations, regulatory uncertainties, and bottlenecks within supply chains.
In response, DP World collaborated with Canary Creative on the report "Closing the Gap on Clean Energy Supply-Chain Sustainability," which addresses the primary challenges faced by supply chains today.
Infrastructure Challenges
Infrastructure inadequacies present a major obstacle to sustainable supply chains. The report highlights a shortage of infrastructure necessary for rapidly deploying renewable energy. For example, from 2018 to 2020, 85% of solar modules installed in the U.S. were imported, indicating that domestic production still lags.
Similarly, while electrifying fleets could substantially cut carbon emissions, the global lack of charging infrastructure poses a significant barrier. The Climate Group noted that, although 122 companies have pledged to electrify their fleets, insufficient charging stations threaten these goals. U.S. ports face similar challenges, with diesel-powered equipment accounting for 3% of global emissions and limited progress in electrifying operations.
Without considerable upgrades to both production and transportation infrastructure, scaling clean energy solutions remains difficult. Yet, infrastructure upgrades are costly, time-consuming, and, in areas like ports and EV charging networks, disruptive.
Regulatory Pressures: Scope 3 Emissions and Global Standards
On the regulatory side, supply-chain emissions are receiving unprecedented attention. For example, in the U.S., the Securities and Exchange Commission (SEC) may soon mandate public companies to report Scope 3 emissions, covering emissions across their entire supply chain. This raises the bar for companies to track and disclose the carbon footprint of their operations and suppliers.
KPMG warns that companies not addressing these emissions could fall behind as stakeholders prioritize environmental, social, and governance (ESG) metrics. Europe is already leading with the Corporate Sustainability Reporting Directive (CSRD), effective from January 2023, requiring around 50,000 companies to disclose the environmental and social impacts of their supply chains.
As transparency demands increase, many companies are underprepared. Survey findings reveal that 70% of respondents have limited or incomplete data on Scope 3 emissions, which inhibits informed sustainability decisions.
Benefits of Onshoring: Strengthening Domestic Energy Production
One strategy to address supply-chain vulnerabilities is onshoring—relocating production domestically. The 2022 Inflation Reduction Act (IRA) has spurred investments aimed at expanding U.S. clean energy manufacturing, leading to over 100 new facilities, including battery and solar panel plants. However, the U.S. still relies heavily on imported raw materials; for instance, 85% of solar modules installed in the U.S. come from abroad, and the U.S. holds just 7% of the global battery manufacturing capacity. In contrast, China dominates the market, controlling 75% of lithium-ion battery production and key materials. The U.S. Department of Energy estimates that an additional $175 billion will be required in the next few years to close this gap.
While onshoring could alleviate some supply-chain vulnerabilities, it is not a complete solution. To meet demand, regional supply chains need fortification, and material sourcing should diversify.
Integrating ESG: A Strategic Advantage
With the growing adoption of ESG standards, supply-chain sustainability has evolved from a compliance issue to a competitive edge. A survey by BlueYonder reveals that 84% of executives view supply-chain sustainability as a priority, driven by consumer demand and the need to meet ESG criteria. Businesses with strong ESG practices attract more investment and consumer loyalty.
Currently, 17% of companies already pay a premium for suppliers who meet ESG standards, and 44% of respondents indicated a willingness to pay slightly more, suggesting that companies increasingly see sustainable supply chains as an investment rather than an expense. However, achieving this shift requires accurate data and specialized expertise, particularly for tracking Scope 3 emissions, which remains a challenge for many companies.
In the end, integrating ESG into supply chains offers significant benefits, from increased resilience and reduced operating costs to enhanced brand reputation. However, companies must navigate infrastructure, regulatory, and data challenges to maintain competitiveness in the clean energy market.
Click here to know more about how to plug the gap in building sustainable supply chains.