The Supply Chain Matters blog highlights a ruling by the U.S. Securities and Exchange Commission regarding the disclosure by businesses of greenhouse gas emissions. We  pose the question as to whether this is a setback for business and industry supply chain management teams seeking to address and mitigate reductions in overall emissions.

 

SEC Announcement

This week the Securities and Exchange Commission (SEC) issued long-awaited requirements that businesses must include in their greenhouse gas emissions disclosures.

In a narrow 3-2 vote principally along political party ties, the agency ruled that businesses will not be required to monitor and report indirect emissions, termed Scope 3 emissions, which include respective supply chains, or reportedly customers’ of respective products.

According to a report from The Wall Street Journal (Paid subscription), the ruling for not including Scope 3 emissions was a result of fierce opposition by business lobbyist groups.  Scope 1 emissions are associated directly with operations while Scope 2 emissions are those associated with use and sources of energy consumption.

This released rule reportedly also calls for companies to directly report on climate risks related to natural disasters and actions taken undertaken to mitigate such risks are to be disclosed.

This development comes after the United Nations COP28 Climate Conference held late last year in Dubai agreed, after lengthy discussions and a rather late night sessions, to declare that the “transitioning away from fossil fuels in energy systems, in a just and orderly manner” should occur with the aim of achieving net-zero greenhouse gas emissions by the year 2050. The agreement, even at the start of the conference, provided much skepticism that any significant agreement could be reached among multiple nations and stakeholder interests.

The WSJ report indicates that SEC chairperson Gary Gensler: “Is bracing for potential lawsuits challenging the new rule from industry, state attorneys general and environmental groups.” A coalition of ten mostly Republican leaning U.S. states have already filed legal challenges to the reporting rule. Climate activists and the Biden Administration that advocated for inclusion of Scope 3 emissions reporting have voiced their disapproval and their intention to move forward on climate policies.

Reportedly businesses will need to start the SEC formal reporting process beginning in fiscal year 2026. Certain smaller companies will be exempt from reporting.

Implications for Industry Supply Chains

With Scope 3 emissions representing upwards of 70 percent of GHG emissions among businesses, not included in this reporting, a key question will be what is likely to be the impact from various business and industry supply chain participants. Some have already laid the groundwork for the analysis and reporting in order to establish supply chain wide mitigations efforts.

Prediction Seven within our 2024 Predictions for Industry and Global Supply Chains Research Advisory (available for complimentary downloading), predicted that supply chain ESG initiatives and data collection would take on added significance this year. Thus, we are disappointed and taken aback by the compromised SEC ruling.

It especially comes as the year 2023 was recorded as being the warmest year on-record globally, with expectation that 2024 will likely provide a new milestone for a warming earth and associated implications in natural disasters and climate related disruptive events.

Thus, from our lens, proactive and socially responsible companies have already established their net zero objectives. They have, in-turn challenged their extended supply chain management teams to develop approaches and methodologies for not only identifying and reporting of Scope 3 emissions, but on various initiatives and investments needed to address supply chain mitigation actions. This includes the weighting of materials sourcing decisions with Scope 3 mitigation assessment criteria.

They recognize that customers and company investors seek such information in determining which companies they want to do business with or invest in.

As we observed in our prediction, responsible companies such as Unilever have come to recognize that aspirational climate mitigation goals have failed to deliver shareholder value and that shorter-termed mitigation actions are necessary in the light of the continued acceleration of climate change effects.

While the U.S. may have succumbed to business lobbying force, Europe has a more proactive lens and sense of urgency. Companies doing business across the continent recognize this urgency along with embracing reporting mechanisms.

Let us therefore remember that industry supply chains remain global in-scope, and doing business globally, responsively and ethically requires the identification, mitigation and eventual reduction of Scope 3 emissions.

While the U.S. has incurred a setback, responsible businesses will continue in their efforts of tracking, reporting and mitigation, perhaps in accelerated timetables.

Future generations deserve and appreciate such actions.

We trust our Supply Chain Matters readership has some similar viewpoints.

 

Bob Ferrari

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