Beyond Carbon: How Nature Refocuses Supply Chain Commitments

Event Overview

On June 25, 2026, during London Climate Action Week, a group of global leading brands announced the expansion of their freshwater target commitments as part of the Science Based Targets Network (SBTN) pilot program. Participating companies include Adidas, Arla Foods, Danone, Decathlon, General Mills, H&M Group, Metso, and Talawakelle Tea. These companies commit to setting science-based freshwater targets covering water quality, water quantity, and ecological health indicators in their own operations and supply chains.

Supply Chain Background

Traditional supply chain sustainability management has long focused on carbon emissions, i.e., Scope 1, 2, and 3 greenhouse gas reductions. However, with the intensification of biodiversity loss and water crises, companies are beginning to realize the core impact of natural capital on supply chain resilience.

Global supply chains are highly dependent on freshwater resources: the food and beverage industry relies on irrigation and processing water, the textile industry relies on dyeing water, and the electronics industry relies on ultrapure water for cleaning. UN data shows that about 70% of global freshwater is used for agriculture, while industrial water accounts for over 20%. Water scarcity, water pollution, and flood risks directly affect the stability of raw material supply, production costs, and compliance costs.

SBTN released its first set of nature target guidance in 2023, providing methods for setting science-based targets in four areas: freshwater, land, biodiversity, and oceans. This pilot is the first implementation of SBTN's freshwater targets, with participants required to complete target setting and publicly report within 18 months.

Corporate Decision Logic

Multiple driving forces underlie companies' proactive inclusion of natural factors in their supply chain strategies:

1. Regulatory pressure: The EU's Corporate Sustainability Reporting Directive and Nature Restoration Law require companies to disclose nature-related risks, and supply chain due diligence rules further strengthen corporate responsibilities. Although the SEC's climate disclosure rules focus on carbon, California's Climate Corporate Data Accountability Act has already included natural capital.

2. Resource risk exposure: Global Water Research Institute data shows that Adidas' shoe factories in Southeast Asia and Danone's dairy sourcing locations in India and Africa face high water risk. General Mills' commodities (e.g., wheat, corn) rely on irrigated agriculture, and water scarcity directly affects yields and prices.

3. Consumer and investor expectations: The scale of sustainable investment continues to expand, and natural capital is being incorporated into ESG rating systems. CDP's Global Water Security Report shows that in 2025, the total assets of investors requesting companies to disclose water data exceeded $100 trillion. Consumers' willingness to purchase bio-friendly products is increasing, driving brands to take early action.

4. Supply chain resilience needs: In the past three years, global extreme climate events (such as the 2024 Amazon drought in Brazil and the 2025 European heatwave) have caused multiple supply chain disruptions. Natural capital management is seen as a key means to reduce vulnerability.

Supply Chain Impact

Impact on Suppliers## Supply Chain Impact

Impact on Suppliers

SBTN freshwater targets require companies to trace freshwater use and pollution upstream in their supply chains. For example, General Mills needs to assess the irrigation efficiency and local watershed health of its Brazilian soybean suppliers. This will lead to stricter audit standards for suppliers, and non-compliant suppliers may be replaced. Procurement contracts will add water management clauses, requiring suppliers to submit water risk assessment reports and improvement plans.

Impact on Manufacturers

Internal production processes need to achieve zero freshwater extraction or closed-loop water systems. Danone has committed to water recycling at all its factories by 2025; Adidas has installed rainwater harvesting systems at its shoe factories in Vietnam. This increases short-term capital expenditure but can reduce water procurement costs and water treatment expenses in the long run.

Impact on Logistics Companies

Warehousing and transportation in logistics networks are also affected. For example, H&M Group requires its logistics partners to optimize transport routes to reduce fuel consumption and water footprint (e.g., water used for vehicle washing). Cooling water management in cold chain logistics has become a focus.

Impact on the Procurement System

Procurement managers need to incorporate freshwater risk into supplier selection scorecards, with weight possibly reaching 10–15%. Similar to carbon footprint, water footprint will become a new dimension in strategic procurement. At the same time, traceability requirements will increase, requiring the establishment of a full-chain water data link from origin to finished product.

Impact on Inventory Management

In regions with high water risk, companies tend to build safety stock to cope with potential supply disruptions. For example, Metso Outotec uses multi-sourcing for mining equipment components and increases buffer inventory.

Regional Impacts

• Asia: The textile and footwear industry in Southeast Asia and the tea plantation industry in South Asia face the greatest water regulation pressure. In China, as a global manufacturing hub, companies in freshwater-scarce regions (e.g., North China, Northwest China) need to prioritize transformation.
• Europe: EU regulations lead the way, with companies taking the lead. The supplier networks of Arla Foods (Denmark) and Decathlon (France) will accelerate water efficiency improvements.
• North America: General Mills’ agricultural supply chains in Mexico and the US face drought in California and pollution in the Mississippi River.
• Latin America: The soybean and beef supply chains in Brazil and Argentina are high water-risk hotspots, potentially driving procurement shifts to Uruguay or Chile, which have lower water risk.
• Middle East and Africa: Food processing and textile industries in extremely water-scarce regions will face strict controls, which may promote nearshoring to areas with access to desalinated water.

Future Trends

1. SBTN Becoming Mainstream: It is expected that by 2027, SBTN will release an official freshwater target handbook, attracting at least 200 companies to join. Similar to SBTi, nature targets will become a basic requirement for supply chain compliance.

2. Natural Capital Pricing: Companies will internalize the cost of water resources, promoting internal shadow pricing mechanisms for water pollution taxes or water usage fees. Water scarcity premiums will be reflected in procurement decisions.

3. Technology Empowerment: Satellite remote sensing, IoT sensors, and blockchain technology are used to monitor watershed water indicators and supply chain water footprints.4. Supply Chain Restructuring: High water risk areas may see "decentralized" manufacturing, with companies shifting some capacity to water-abundant regions (e.g., Nordic countries, Canada). Meanwhile, suppliers of water recycling and wastewater regeneration technologies will see growth.

5. Collaborative Action: Collective actions at the watershed level will increase, with competing companies jointly investing in watershed restoration projects (similar to General Mills' participation in the Sustainable Water Partnership).

Key Conclusions

• Natural capital management is becoming a new pillar of supply chain strategy, surpassing carbon reduction.
• Corporate decisions are driven by a triple force of regulation, risk, and market, not purely public relations.
• Suppliers, manufacturers, and logistics providers must comprehensively upgrade their water management capabilities or risk elimination.
• Water-stressed regions such as Asia and Latin America will face procurement shifts or technology upgrades.
• Over the next five years, the SBTN framework will reshape global procurement systems and supplier management standards.