It’s not just the right thing to do to start tracking and looking to ways to reduce your emissions footprint – it will increasingly become an expected part of business. If you get ahead of the curve, you will gain a competitive sustainable advantage in the new metrics that will determine where your clients and customers want to do business. Not acting could also potentially limit your access to capital in the future.
Supply chain emissions – Large firms with sophisticated carbon reduction plans and ambitious climate pledges are looking outside of their core business emissions (known as Scope 1 and Scope 2) to how they can also reduce their Scope 3 emissions – i.e. those that come in their supply chain and from the products that they sell. You can learn more about these different emissions scopes here.
As a result, these firms are increasingly looking to their suppliers’ emissions footprints, asking questions and making policies to only work with companies that have a dedicated carbon reduction plan in place.
Perhaps the most prominent example of a company that is expecting action from its suppliers is Apple, which has set a target for not just its direct operations but also its manufacturing supply chain to be carbon neutral by 2030. It has already convinced certain suppliers to deliver their products using only renewable energy. Microsoft has a similar goal to cut supply chain emissions in half by 2030. The UK retailer Tesco is offering financial incentives for its SME suppliers to report on their carbon emissions as part of its drive to reduce Scope 3 emissions.
More generally, around a third of large companies are planning on making their supply chains more sustainable and 2020 saw a 24% rise in corporates demanding increased disclosure on environmental issues from their suppliers. Software is also increasingly enabling firms to track estimated emissions from their supply chain – meaning if you don’t track emissions yourself, someone else may be estimating them on your behalf.
Access to capital – Climate disclosure regulation for the finance sector is expanding, meaning investors are increasingly having to report on how green their assets are. The appetite for more transparent emissions data, with firms expected to report under frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), means investors will be asking more questions of their investees regarding emissions and plans to reduce these.
The G7 has recently agreed to make climate risk reporting mandatory for banks and companies, and a possible global framework for all listed companies to disclose their climate risks may soon be achieved.
Taking one example, Aviva Investors has said it will divest from firms that are not taking climate disclosures seriously.
A price on carbon – Finally, it’s worth pointing out that emitting will eventually become costly. Carbon pricing schemes – through either carbon taxes or emissions trading schemes – are becoming more prevalent around the world and regions such as the EU are expanding existing schemes to cover more emissions. If you put measures in place to emit less now, you will pay less in the future when these schemes reach you.