istock image: 1352151857 ESG blue.jpg
(BTW: for those unfamiliar with the 12 Days of Christmas – they end on Jan. 5)
You’ve heard both angst and excitement over sustainability disclosures for the past year.
But what is the basis for all the discussion?
As with everything at its start, there is much to be confused about.
There are different regulations in different parts of the world, or even within a country, trying to accomplish the same end effects, using similar, yet different, methods of achieving end results.
Different wouldn’t be bad except for the fact that a single supply chain may have many different, yet similar, regulations to meet and then disclose data on.
And most of you have more than one supply chain.
Because of the level of concern and need to act rapidly, I believe the regulatory environment will settle on global definitions, processes, and requirements as much as it realistically can. But that will take a bit more time.
In the meantime, you still have regulations to meet. But what are they?
Below are 9 regulations you’ll become familiar with if you have any reach to your supply chains.
Why do you specifically need to know?
Shouldn’t this be someone else’s responsibility?
Because supply chains create most of a company’s Scope 1 GHG (some estimate over 80%), the disclosure captured in the following regulations must be gathered by the supply chain. This includes both environmental and social disclosures.
So , the answer is no, supply chain management cannot escape embedding required metrics to capture required data in their supply chains.
According to CliftonLarsonAllen Wealth Advisors, LLC (CLA) you need to answer a few questions to determine how quickly your company (we’ll substitute in supply chain) needs to get its sustainability efforts moving. In fact, CLA states that the “average company may take up 24 months of sustained effort to prepare for ESG”.
As you’ll read, for many regulations, there is no more runway. The time is now.
The following 6 CLA questions determine the haste you need.
Is your company:
doing business with publicly traded companies,
selling to non-US entities in Europe,
>$1B in total worldwide revenue and is selling to companies in the state of California,
>$7M in sales to the U.S. federal government,
aspires to go public,
using a bank that has ESG requirements you must meet?
Your supply chains are probably caught in there somewhere. Few are not. If you found yourself in the questions above, the time is now for you to get ESG embedded in your supply chains.
Let’s take a look at regulations you’ll be meeting up with (to learn how to embed them effectively, learn more here)
Since Europe leads the world in this area, we’ll start there.
The European Parliament and the UK
Europe wants low carbon economies. So does the UK, hence it’s version of some European regulations. Transformation into low carbon economies happens with new sustainable products reaching markets by receiving investment. However, financial investment hasn’t always been surrounded by trustworthy environmental claims.
You’ll find that many country regulations are being designed to prevent green-washing by increasing the transparency and standardization of sustainable investment products’ environmental claims. Basically, entities that are in investment, retirement, banking, finance, financial advisors, etc. must report on what is going on sustainably within their portfolios using standardized reporting.
This is where companies with supply chains come in.
The financial market entities must rely on supply chains and their companies to provide the data.
By the way, mandatory means now.
The following regulations provide coverage for a more complete transition into a cleaner, more sustainable environment for all life from environmental, social, and governance aspects. Many also address problems of false information in disclosures to prevent further green-washing.
Click on the regulation title to link to its specific regulation pages.
Sustainability Disclosure Requirements (SDR) – UK, expected release Q4 2023
The Sustainable Finance Disclosure Regulation (SFDR) – EU, mandatory reporting now
Corporate Sustainability Reporting Directive (CSRD) – EU, mandatory reporting now
The EU Taxonomy – EU, mandatory now
Directly links into supply chains
5. The Corporate Sustainability Due Diligence Directive (CSDDD) – pending now
Basically, this regulation supports and makes possible compliance with above regulations for supply chain activities. It demands risk management, risk analysis, risk mitigation, prevention of risk, risk and complaints procedures and measures, risk monitoring of areas of interest, communication of due diligence on risk matters, climate transition plans to meet treaties and agreements, and for very large companies (over 1000 employees) linkage of climate transition performance to targets which are directly tied to board of directors’ compensation.
What are the risk and due diligence matters for supply chains? Human rights, climate risk, anti-corruption requirements, ie: all the above aspects dealt with in other regulations.
You may be wondering if there are regulations from entities other than the EU. There are.
Here are a few:
Canada
Standards, rules, and requirements for 2024 mirror EU efforts in regulatory and taxonomy requirements. Specifically for supply chains, Canada has introduced:
6. S-211 Supply Chain Reporting: reporting on forced and child labor as well as human rights in supply chains – aligns with EU laws. Disclosures start May 31, 2024
7. Supplier ESG Disclosure for Large Federal Contractors for procurements over $25 M Canadian. Large supplier disclosure of GHGs and target setting for reduced GHG emissions. Already in effect.
California
California passed legislation for climate change ahead of the expected SEC federal climate related disclosure regulations. The bills are far reaching in that their corporate requirements extend to all doing business in California and meeting the size/revenue criteria wherever they may be formally located. Both the main supply chain and its partners are captured via Scope 1, 2, and 3 disclosure requirements. Both have 2026 dates for disclosures.
8. S.B. 253, the Climate Corporate Data Accountability Act. Disclosure of Scope 1, 2, and 3 Greenhouse Gas (GHG) emissions, and
9. S.B. 261, the Climate-Related Financial Risk Act. Disclosure of corporate climate related risks.
Learning a new acronym soup probably wasn’t first on your New Year’s resolution list.
To help, start with a framework so that you have an organized method of going through and pinpointing where measurements should be taken and how the data will be gathered and distributed. This is an integral component of SCOR and its implementation – true supply chain mapping with attached metrics that drive both performance and adherence to regulations while providing transparency.
The time for your supply chain to shine is now.
#sustainability #supplychains #sustainablesupplychains #regulations #ESG #greenwashing #EU #EuropeanParliament #Canada #California #green-washing #SCOR #SupplyChainMavens
Thank you for reading my blogs.
Cynthia Kalina-Kaminsky is an ASCM Master SCOR instructor and consultant. She’s also a supply chain professional.
Supply Chain Mavens is teaming up with Process and Strategy Solutions to offer SCOR classes.
Learn more about the courses and register on the Process and Strategy Solutions website.