Sustainability Regulations Call for Increased Visibility
Businesses have become more attuned to social and environmental issues, and it is not just because they believe it’s the right thing to do.
Existing sustainability regulations and the potential for future regulation are prompting them to assess their current operations, as well as the Scope 3 emissions generated by their suppliers and customers.
Data around Scope 3 emissions is also of interest to corporate investors. So, it would make sense that the U.S. Securities and Exchange Commission (SEC) has considered requiring companies to disclose Scope 3 emission data. Because this data can be difficult to calculate, the commissioners have considered phasing in this requirement in the future and limiting it to only the largest firms.
Nevertheless, disclosure requirements like these have big implications for the entire supply chain. Requiring companies to reveal their greenhouse gas emissions will help hold businesses accountable for their actions and give those investing in these companies a more standardized way to assess who to do business with.
Requiring businesses to be more transparent in their operations can help both organizations and investors with sustainable practices. However, we cannot ignore that new requirements will further strain companies that are facing supply chain issues, inflation, labor shortages, and other economic concerns. Amid these challenges, how can organizations prepare for this type of regulation while ensuring any processes implemented are non-disruptive and beneficial to the company?
The Impact of Sustainability Regulations
Sustainability regulations have the power to impact industry in both positive and negative ways. Disclosing Scope 3 emissions would provide the transparency needed to hold people accountable for their business practices. Additionally, having access to consistent data makes it easier for organizations to compare and connect with partners that reflect their corporate environmental strategy.
However, this assumes the data collected is both verifiable and accurate. In today’s climate, transparency of data is a big concern, and recent high-profile cases have added to these concerns. For example, in 2021 China released its national emissions trading scheme (ETS), which offered incentives to businesses and investors who contribute to its decarbonization and clean energy transition. But less than a year into the program, China’s Ministry of Ecology and Environment (MEE) group found that multiple data verification firms were forging reports and making false claims.
The disclosure of Scope 3 emissions can also impact end users and consumers. Having access to emission information gives end users and consumers better visibility into the environmental operations of the companies they do business with, enabling them to make more sustainable purchasing decisions. The downside is, with any new regulation comes a cost. These costs can result in higher prices and potentially decreased wages or job losses.
How Organizations Can Meet Requirements
The most important part of reporting emissions to meet requirements is collecting the right data. Organizations can gather operational data, such as consumption details within energy bills, emissions from logistics tracking and travel, and waste programs. This type of information provides a way to validate a supplier’s claims. Companies can also hire data validation firms to provide external certification.
Technology solutions can also play a significant role in enabling organizations to simplify the collection and processing of data, including consumption and travel information. Though gathering the right data is important, organizations should not make new requirements that disrupt current business processes. When introducing new metrics, we recommend they embed them into already established programs so employees are set up for success.
Finally, it is important for supply chain professionals to start enhancing their strategies with sustainable metrics today. That way, if the SEC or any other entity issues a new regulation, they won’t have to scramble to comply. And there could be huge benefits. What may seem like a minor change could result in a big boost for an organization’s corporate sustainability strategy, helping not only to ensure that the company is meeting requirements, but also to conduct sustainable practices that contribute to the greater good.