Analysis-Companies buy into suppliers to secure deliveries, hit green targets
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By Clara Denina and Sarah McFarlane
LONDON (Reuters) - Major brands, including the investment arm of the IKEA group, are following automakers' lead in snapping up stakes in suppliers of raw materials and energy, seeking greater control over their production to meet emissions targets and limit disruptions.
After global supply chains buckled under pressure from the coronavirus pandemic and the war in Ukraine, a wider array of companies are embracing vertical integration and investing in suppliers of renewable energy, metals, agricultural products and many more.
In the past six months, more than $4 billion was spent by firms investing in their supply chains across industries including food, batteries, chemicals, autos, mining, and waste and recycling, data from market intelligence platform Climate Tech VC shows.
While global supply networks recover from the pandemic shock, fresh impetus is coming from tougher environmental standards, which drive companies to invest in new technologies to reduce their and their suppliers' emissions.
"We are in the fastest transition in our industry ever... We are sending clear signals to the innovators in our supply chain that we will support them," said Andreas Follér, head of sustainability at truck maker Scania.
"So in battery, steel, aluminum and cast iron we will only source green materials and technologies by 2030," Foller told Reuters.
Efforts to reduce reliance on China and Russia also play a role, even though for many buying into their supply chains could be a big and costly leap into the unknown.
"The events of the last three years have taught businesses a lot about the fragility of supply chains. Vertical integration is first and foremost a strategy that minimizes risk of disruptions," said Rebecca Campbell a partner at White & Case law firm that advises companies on such deals.
Export controls Beijing is due to impose next month on
gallium and germanium, used in the semiconductor and defence industries, are a case in point.
China's move took end-users in multiple sectors by surprise, with some fearing more curbs could follow from the world's largest producer of many raw materials.
RETAILER-TURNED-SHOPPER
Although not a new phenomenon, control and ownership of key aspects of production have made a comeback since the pandemic's outbreak in 2020, with global automakers, including GM and Stellantis, under added pressure to go electric fast, investing in lithium, copper and nickel mines.
Other sectors, including retail, are also shopping around.