As we approach the end of 2022, it's becoming increasingly clear that the corporate world is shifting from merely reporting on sustainability to actively taking measures to address it. With 60% of the decade behind us, the urgency to act on climate commitments is palpable.
The Immensity of Scope 3:
Scope 3 emissions, which encompass all indirect emissions that occur in a company's value chain, are vast and complex. They can be several times larger than a company's direct emissions, making them a critical focus area.
The Rise of Supplier Engagement:
Companies are recognizing that to truly tackle Scope 3 emissions, they must engage with their suppliers. This is where a significant portion of their carbon footprint lies. By collaborating with suppliers, companies can drive meaningful change, ensuring that sustainability efforts are amplified across the supply chain.
Integrating SBT and CDP Targets with Suppliers:
Leading companies are now integrating Science-Based Targets (SBT) and Carbon Disclosure Project (CDP) targets into their supplier engagement strategies. By doing so, they ensure that suppliers are aligned with the company's sustainability vision and are working towards shared goals.
Action Plans with Suppliers:
To accelerate the transition from reporting to action, companies are now putting in place detailed action plans specifically tailored for their suppliers. Given that for most companies, up to 80% of their emissions can be attributed to their top 100-200 suppliers, these action plans are crucial. They outline clear steps and milestones for suppliers to achieve sustainability targets. These plans serve as a roadmap, guiding suppliers in their sustainability journey and ensuring that they contribute effectively to the company's overall sustainability goals.
Why are CEOs and Boards Asking the Questions?
- Strategic Alignment: CEOs and boards are responsible for setting the strategic direction of the company. As sustainability becomes a critical component of business strategy, they need to understand the company's environmental impact to make informed decisions.
- Risk Management: Environmental risks can have significant financial and operational implications. CEOs and boards must be aware of these risks to manage and mitigate them effectively.
- Stakeholder Pressure: With increasing pressure from consumers, employees, and the public for companies to act responsibly, CEOs and boards are seeking answers to ensure they meet stakeholder expectations.
- Regulatory Compliance: As governments worldwide implement stricter environmental regulations, CEOs and boards need to ensure that the company is compliant to avoid legal repercussions and potential financial penalties.
- Reputation and Brand Value: A company's environmental practices can significantly impact its reputation. CEOs and boards recognize the value of positive brand perception and its influence on consumer loyalty and trust.
Why are Investors Asking?
- Financial Risk: Investors are increasingly aware that environmental risks can translate into financial risks. They want to ensure that their investments are secure and that companies are taking steps to mitigate potential environmental liabilities.
- Long-term Value Creation: Investors are looking for companies that can create sustainable long-term value. Companies with robust environmental practices are seen as better positioned for future challenges and opportunities.
- Stewardship and Responsibility: Many investors have stewardship responsibilities, where they must consider the broader societal impact of their investments. They seek companies that align with these values.
- Portfolio Diversification: Investors are diversifying their portfolios by investing in sustainable companies, reducing potential risks associated with environmental challenges.
- Regulatory and Policy Changes: With the global shift towards stricter environmental regulations, investors want to ensure that their investments are future-proof and won't be adversely affected by regulatory changes.
Who Should Have the Answer?
- Sustainability and ESG Teams: These teams are typically at the forefront of a company's environmental efforts and should have detailed insights into the company's practices, risks, and strategies.
- Operational Heads: Leaders of various business units, especially those directly impacting the environment (like manufacturing or logistics), should be equipped with answers related to their specific domains.
- Supply Chain and Procurement Managers: Given the significance of Scope 3 emissions and the environmental impact of the supply chain, these managers should be well-versed in the sustainability practices of suppliers. Procurement, in particular, plays a pivotal role in selecting and engaging with suppliers, ensuring they align with the company's sustainability goals and standards.
- External Affairs or Regulatory Teams: These teams, which deal with government and regulatory bodies, should be aware of the company's compliance with environmental regulations.
- CFOs and Financial Teams: They should understand the financial implications of environmental practices, both in terms of risks and opportunities.
- CEOs and Boards: While they may not have detailed answers to every question, they should have a high-level understanding and be able to speak to the company's commitment and strategic approach to sustainability.
The corporate world's shift from transparency to transformation is a promising sign for the future of sustainability. By focusing on Scope 3 emissions and actively engaging with suppliers, companies are taking meaningful steps towards a more sustainable and resilient future.