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Tag: sustainability analytics

GHG emissionsRegulations

Now is the time to act on reducing supply chain emissions!

The new report of the Intergovernmental Panel on Climate Change (IPCC) conveyed a strong message last week. Limiting global warming to 1.5 degrees Celsius is beyond reach “without immediate and deep emissions reductions across all sectors”. We argue that more emphasis on reducing supply chain emissions would greatly facilitate this outcome. Policy-makers, businesses, and consumers should all prioritize making progress in this regard.

Slow progress calls for immediate action 

IPCC has relentlessly shown over the last years that deep GHG emissions reductions are necessary to slow down climate change. Extensive evidence underpins the urgency to act on this matter, and the tools and know-how have evolved significantly. Yet, the extent of progress has been very limited. 

One example is the global energy transition. Despite a significant decline in the costs of solar and wind energy technologies – by up to 85% since 2010, energy and industrial systems have not changed drastically.

More so, Russia’s horrendous war in Ukraine has revealed how vulnerable the world is to disruptions in energy and food supply. It clearly exposed how strongly dependent Europe still is on fossil-fuels. It also uncovered the deep interlinkages across geopolitics, supply chain resilience, greenhouse gas (GHG) emissions and social sustainability.

Progress on the regulatory front

But, tremendous untapped potential exists. According to the IPCC, we can achieve a 40-70% reduction in GHG emissions by 2050. This requires, however, the right policies, infrastructure and technologies.

Over the past years, we have seen an unprecedented mobilisation towards sustainability, especially in Europe. The European Union and its member states have proposed and enacted various laws and policies. These include regulatory initiatives on corporate sustainability reporting (eg. the EU’s proposal), supply chain due diligence (e.g. the law in Germany, the EU’s proposal), the carbon border adjustment mechanism (CBAM), the  EU’s action plan for circular economy and related policies to enhance energy efficiency and accelerate deployment of renewable energy.

Yet, we need to make concerted efforts and provide active support to ensure effective implementation and bring about significant reductions in emissions.  

Focus on supply chain sustainability

Targeting these interventions along the supply chains is particularly important. This is because more than 80% of GHG are emitted outside the boundaries of organisations (i.e. the scope 3 emissions). Furthermore, a significant part of anthropogenic GHG emissions originates from industry (see figure), where supply chains are prominent. Only then can we transition from marginal action to meaningful results. 

industrial emissions call for supply chain sustainability

To achieve the IPCC target, businesses need to aim for net zero goals. This requires new production processes that use materials more efficiently (e.g. reuse, recycle products, minimize waste), reduce material demand, and rely on materials produced based on low-to zero-emission processes. 

Businesses can achieve net zero targets, but, again, only if they reduce emissions along the entire supply chain. Such broad actions can also have cascading effects across sectors

To this end, they need to collect extensive and ‘good quality’ data along the supply chain. Data needs to cover emissions from production, along with other environmental and social effects. A good data management system enables one to fully grasp the scope and size of impacts, which is a precondition for effective action. 

Further, to harness synergies and minimise trade-offs, companies also need a comprehensive risk and opportunities assessment process. Such assessments need to go beyond own operations into the supply chains and proactively explore innovative ways for value-creating collaborations across sectors.

Harness synergies and reduce trade-offs

The new IPCC’s report also emphasizes the need to maximize policy synergies and minimize trade-offs. The answer, experts argue, lies in cross-sectoral interventions. Yet, policy frameworks or sectoral strategies need to make further progress in this regard. On the upside, the latest EU policy interventions, such as the circular economy action plan,  increasingly aim for such outcomes. They, for example, encourage the redesign of furniture products to produce less waste and use agricultural waste. In this process, lower emissions, value creation for workers and reduced deforestation would be achieved.

In addition, as the IPCC report stresses, we currently still have limited understanding of the distributional impacts of climate mitigation actions. Experts point to remaining challenges in integrating social with environmental sustainability and addressing trade-offs. Yet, it is of utmost importance to hold the distributional impacts of climate change mitigation action in focus in order to ensure an equitable decarbonised world. Empirical evidence shows that the most vulnerable social groups face the highest costs associated with GHG emissions reductions. 

Therefore, firms and public organisations must demonstrate a clear commitment to deeply integrate environmental and social goals in efforts to reduce GHG emissions along their supply chains and minimise trade-offs. They can achieve this by, among others, conducting comprehensive risk and opportunities assessments along the supply chain and implementing systematic responsible procurement processes.

Act now

It may be easy to get lost in complex science and long reports. But, the message from IPCC’s latest assessments is clear: we need to act now and not later. Collaborations within and between organisations and across sectors, while accounting for distributional impacts, are essential for deep decarbonisation. 

Our Supply Impact team is well positioned to help you navigate the complex landscape of sector level regulations and global frameworks. Our ESG assessments and advanced analytics tools can support you to develop effective interventions for continuous improvement. Get in touch to learn more!

RegulationsReporting

How do the CSRD requirements compare to major sustainability reporting standards?

The new Corporate Sustainability Reporting Directive (CSRD) of the European Union (EU) is in the making and due to go live soon. Companies will have to submit their CSRD compliant sustainability reports in 2024, covering financial year 2023. As such, the CSRD adds yet another layer to the already vast universe of sustainability/ESG assessment and reporting standards.

What should companies expect from this new Directive? How will the new EU sustainability reporting standards compare to other major reporting standards? The working papers released by the European Financial Reporting Advisory Group (EFRAG) – the technical body advising the European Commission on the standards – offer us some additional clues in these regards.

We hereby map out key similarities and differences across the new EU and two other major reporting standards used at the global scale: the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB). The GRI is today the most commonly used sustainability reporting framework. The SASB is currently used in more than 170 countries. Its relevance will increase as it provides a starting point for the consolidated standards prepared by the International Sustainability Standards Board (ISSB).

Key Sustainability Reporting Standards

The CSRD, GRI and SASB are complementary standards. They fulfill different purposes, apply to different entities and target different audiences. While there is more overlap between the GRI and CSRD, there are also some important differences.

The GRI standards help businesses and other organizations to communicate their ESG impact to a diverse set of stakeholders. The GRI standards apply to all organizations, regardless of ownership form, size or geography. The SASB standards, on other hand, seek to inform providers of capital about how sustainability issues might influence business performance.

The CSRD aims to strengthen the EU’s existing efforts to enable the investment community, consumers and stakeholders to evaluate the sustainability performance of companies. While the CSRD will incorporate essential elements of globally accepted standards, it is likely to go further, to meet the EU’s ambitious sustainability objectives and be consistent with its legal framework. Moreover, the EU’s CSRD will be mandatory for all large companies and for most publicly listed SMEs in the EU, including the subsidiaries of global companies. SMEs will, however, be able to report according to simpler standards and will have a longer phase-in.

The remaining part of the article discusses some additional distinctions and similarities, summarized in the figure below.

sustainability reporting standards comparison

Sectoral Focus 

The three reporting frameworks differ in the sectoral focus of disclosure requirements. 

The EU’s CSRD follows a cascading approach that includes both sector-agnostic and sector-specific standards. Reporting requirements that apply to all companies are essential to allow comparability across sectors and entities. Sector specific standards, on other hand, address the challenges that entities from a particular economic area are confronted with. 

The GRI framework has consisted primarily of universal – sector-agnostic – standards that apply to all organizations. More recently, however, the GRI has also recognized the need for developing sector-specific standards. The GRI released its first sector standard for the oil and gas sector and plans to develop standards for an additional 39 sectors. The SASB, on other hand, has thus far focused explicitly on encouraging global comparisons at the industry level. As such, it includes a unique set of standards across 77 industries from 11 sectors.

Disclosure Levels

In the interest of clarity, the CSRD will structure disclosures around i) strategy, ii) implementation, and iii) performance assessment. Strategy disclosures will focus on the incorporation of sustainability in the company’s overall strategy and value proposition model, as well as the specific governance and management responsibilities to address and monitor sustainability issues. Implementation will refer to the policies, targets, action plans and dedicated resources mobilized by the entity to translate its strategy into results. Finally, performance assessment will capture how the reporting entity delivers against its policies, targets and past performance.

This layered approach is relatively similar with the GRI reporting approach. SASB also encourages some disclosures on governance, strategy and processes of addressing risks and opportunities associated with an issue. These, however, are primarily to provide context for the performance assessments that SASB standards focus on. SASB industry standards provide a specific set of metrics for each sub-topic to ensure accuracy and standardization.

Key Topics

All three sustainability standards require reporting across social, environmental and governance categories. There are, however, some differences. The GRI and CSRD follow a more comprehensive approach across these three areas. The SASB standards, in contrast, focus on a narrow subset of issues across five sustainability dimensions. In addition to ESG, SASB also includes human capital, business model and innovation, as sustainability dimensions.

The CSRD approach aligns relatively well with that of the GRI, with only minor differences. The social standards included in the EU standards, for example, will require information regarding own workforce; working conditions; equal opportunities; other work-related rights; workers in the value chain; affected communities; and consumers/end-users with their corresponding sub-topics. The 18 social standards of the GRI also address the main social groups related to a company’s activities: workers, including workers of suppliers; customers and local communities.

The SASB standards on other hand, consist, on average, of only six sub-topics and 13 metrics across all the ESG+ dimensions that are unique for each industry. The SASB standards for electronic manufacturing services and original design manufacturing, for example, include water management, waste management, labor practices, labor conditions, product lifecycle management, and materials sourcing.

Materiality

The most significant difference across the three reporting approaches lies in the realm of materiality. Materiality refers to the principle used to identify the relevant sub-topics that an entity should report on.

Since SASB is more investor driven, the materiality principle underpinning its reporting standards is that of financial materiality. SASB standards identify the issues that influence the financial performance of a typical company in that industry. The GRI reporting framework, on other hand, focuses on impact materiality, that requires reporting on issues that are relevant in terms of the impact of the reporting entity’s own operations and its value chain, identified in consultation with stakeholders.

By contrast, the CSRD adheres to the principle of double materiality. Double materiality requires that both impact and financial materiality perspectives are applied in their own right, without ignoring their interactions. The EU thus encourages companies to identify sustainability matters based on: 1) the severity and likelihood of actual or potential negative impacts on people and environment; 2) the scale, scope and likelihood of positive impacts, and 3) the urgency derived from social and environmental public policy goals. Additionally, it also encourages reporting entities to focus on those sustainability matters that are financially material.

Reliability of Reporting

Another essential difference across the three reporting standards relates to assurances regarding the accuracy and reliability of the reported data

The CSRD will, for the first time, introduce a general EU-wide assurance mechanism to ensure that these conditions are met. The GRI or SASB reports require no external verification. Rather, they rely primarily on guidelines and technical protocols to encourage accuracy and reliability. The CSRD, in contrast, aims to have a comparable level of assurance for financial and sustainability data reported. It allows EU Member States to open up the market for sustainability assurance services to provide independent audits. This would go a long-way to address the widespread criticism regarding the low quality of the data reported in corporate sustainability reports.

Beyond Sustainability Reporting

It is important to remember, however, that assessment and reporting by no means guarantee sustainability improvements on their own. Rather, reporting efforts need to be accompanied by additional measures for continuous improvement. These often require bolder efforts, such as new purchasing practices and collaborative efforts, to improve the financial and technical capacity of suppliers to meet sustainability standards. Advanced ESG analytics can also shed further light on the conditions under which major challenges can be addressed effectively.

Contact us if are interested in advancing the assessment and reporting process of your company towards improving the sustainability performance of your organization and its supply chain.

Procurement

Sustainable Public Procurement – Awakening the Sleeping Giant

We place our full range of talent and technology at the service of each and every client. We want to bring a splash of colour into a seemingly grey world and become a global leader in consultancy.

Regulations

Upcoming EU Regulations Require Sustainable Supply Chains

Upcoming EU regulations will require major adjustments by companies to ensure that their supply chains are sustainable.

The EU Due Diligence Act seeks to introduce binding requirements for companies to address negative impact on human rights, environment and good governance throughout their supply chains. The EU has also taken steps towards an import ban on products related to severe human rights violations. The Corporate Sustainability Reporting Directive sets out to establish standards regarding sustainability reporting. These will be mandatory for all large companies and most publicly quoted SMEs.

These EU regulations extend the scope and intensify the stringency of sustainability requirements. Addressing them will raise difficult and complex challenges for companies, particularly for those with less mature supply chain sustainability arrangements.

Supply Impact can help companies meet these challenges and unlock the business potential of sustainability. We offer a combination of purpose-built tools, advanced analytics and domain expertise to achieve these ends. Below, we highlight some of the major challenges raised by these regulations and discuss the ways in which Supply Impact can help companies overcome them.

Supply chain mapping

Firstly, companies will have to identify and map their business relations with suppliers at consecutive tiers of their supply chain. In practice, this requires significant effort, resources and expertise. Building on the data that companies already have, Supply Impact helps companies collect additional information to map their supply chain. 

Risk (and opportunity) assessment

Secondly, companies will have to identify sources of social and environmental harm in their supply chains. Supply Impact provides tools to evaluate sustainability risks related to the location, production and relations of a particular company.  Our team also helps companies integrate sustainability in the companies’ value-creation strategy. 

Sustainability analytics

Assessing and analyzing social and environmental impact constitutes an essential part of a company’s efforts to become more sustainable. This, however, requires relevant data and adequate methodology. Supply Impact helps companies collect such data and evaluate their sustainability performance. Our team also analyzes the complex relations across economic, social and environmental dimensions in the supply chain.

Continuous improvements

Given the aim of these regulations to encourage an on-going and dynamic approach towards sustainability, companies will have to aim towards continuous improvement. Supply Impact offers a set of tools – including optimization and predictive analysis, capacity building and other forms of supplier engagement –  to help companies make their supply chains more sustainable over time, while retaining profitability.

Effective communication

One way to capture the market value of improved supply chain traceability and sustainability is to better communicate the progress achieved. While the EU reporting standards have not been set yet, Supply Impact follows closely the work of the technical body responsible for making recommendations in this regard. We can thus help companies highlight their achievements and disclose areas that need further attention, in a reliable and persuasive manner. 

Let’s engage in the sustainability journey together! Contact us and our team would be glad to assist you.