GHG emissions reporting is moving down the value chain: What does this mean for suppliers?

While stakeholders are waiting for SEC’s final rule on GHG emissions disclosure, the market has already been shifting in anticipation of the proposed policy and pressure from customers and investors. Scope 3 targets are becoming more common and leading companies are increasingly engaging with suppliers to collect data and reduce their GHG footprint.

For companies early in the supply chain, Scope 3 targets represent a significant new component in their customer relations strategy. Examples of companies switching suppliers based on GHG emissions are rare given that GHG reporting maturity is still low across industries. Currently, companies focus on rewarding suppliers that work with them on emissions reductions. However, as a broader swath of companies puts more effort into baseline assessments and target-setting, those behind on their GHG reduction efforts might be sidelined by leading brands and lose market share.

Scope 3 emissions reporting continues to be on the rise. Companies are increasingly looking at their supply chains to understand their cumulative climate impact. For many industries, supply chains constitute most of their emissions. According to a 2022 CDP analysis, Scope 3 emissions account for 75% of total emissions on average across sectors.

The proposed SEC rule that would require many public companies to report on Scope 3 is also spurring data collection and supplier engagement efforts. While it is possible that Scope 3 reporting requirements will be scaled back in the final SEC rule, companies are preparing to report. Even if a company is private, being in the supply chain of a public firm would make them part of GHG reporting frameworks.

Structured supplier engagement programs are becoming more common. Leading companies in this effort, for example Unilever or Apple, are asking hundreds of key suppliers to adopt GHG emission reduction targets and report on progress. Companies are providing support and tools, such as training, software solutions, and individualized capacity-building for key supply chain partners. Companies early in the supply chain can deepen relationships with their customers and prepare for eventual data requests by taking the following actions:

• Proactively identify and engage customers with sustainability targets. Identify key customers’ existing sustainability goals and engage early in conversations around Scope 3 targets. Providing input on targets, process, timelines, and resources needed to collect data and facilitate emission reductions will help ensure a smooth partnership.
• Build the right team. Sustainability reporting and strategy requires these skillsets in your core team or available when you need them: knowledge about sustainability frameworks, such as the GHG Protocol and Science-based targets, deep technical expertise on GHG emission reduction opportunities, and local energy market knowledge.
• Understand your emissions. Create an inventory of your Scope 1 and Scope 2 emissions based on guidance from the GHG Protocol. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Our team can help streamline the process and ensure the latest industry best practices are followed.
• Develop processes to respond to data requests. Multiple customers will likely be reaching out on an annual basis to collect your Scope 1 and 2 data that is associated with products you sell to these firms. Establishing a team responsible for handling data requests and tools (whether it is Excel or sophisticated software) can keep this process organized and streamlined.

As more companies begin to set scope 3 targets, suppliers will be asked more often to measure and provide data. Suppliers that are proactive about engaging their customers, calculating their emissions and building out their team and internal processes will be better equipped to manage their changing market conditions.

Want to learn more? Need help getting started with addressing scope 3 requests? Reach out to our Ramboll expert below for more information!