ESG Reporting Requirements and Supply Chain Impacts

There is a  lot happening in the world of reporting and disclosure requirements for businesses. We are witnessing a big shift in stakeholder expectations which is reflected in regulatory changes on the horizon.  In US, the proposed  climate-related disclosures from the U.S. Securities and Exchange Commission (SEC) will require businesses to disclose how they identify and manage climate risks, and how those risks will affect the company; what they are doing in terms of scenario analysis; and how the board oversees climate risk.  Companies with revenues of more than $75 million will have to report on not just their Scope 1 and 2 emissions (those that derive from their own operations) but also Scope 3, which covers emissions from their supply chains and customers. 

In EU the rules differ from SEC recent proposals because under Corporate Sustainability Reporting Directive (CSRD) companies will be required to publicly disclose information about a broad range of ESG matters not just climate risk, on a “double materiality” principle (risk to business but also adverse impacts through the value chain). Sustainability disclosures will be required across a number of key topic areas-  environmental matters as well as social factors. 

Although there are some differences in the approaches and expectations one key common theme is the impact these regulations will have on Supply Chains. It is unavoidable and fundamental for businesses addressing Scope 3 emissions to pursue climate change commitments within the value chain since those have the biggest impact. Yet not enough companies today  have set up goals and targets for scope 3 and do not have enough visibility nor influence into the nth tiers of supply chain to drive action. It is a difficult and complex task yet not impossible. Listening on a recent event on Maximizing Supplier Collaboration the companies on the panel all agreed that to be successful in delivering sustainability ambitions the suppliers must be part of the solution and transform alongside. Supplier engagement , training and education, will be key for alignment in goals and targets  between companies Net Zero strategies and their supply chain partners, while collaboration, partnership and transparency will be needed to work together towards meeting those goals. We at Intertek are also here to help with supplier management and supply chain solutions providing visibility and management of risks.

The good news is that this will create momentum, will push the sustainability agenda further, will create a community effect with a shared vision.