09 December 2022
Topics in this article
  • Cost Optimization
  • Net Zero | Scope 3

It’s been almost a month since COP27 drew to a close on what was arguably a disappointing note. Leaders gathered in Sharm-el-Sheikh to cement the world’s confidence that the commitments made in Paris and Glasgow were still achievable, yet the 1.5oC target seems to now be hanging by a thread.

For businesses, however, real change was arguably happening elsewhere, as the US and EU announced legislative proposals that would mandate a huge number of businesses to improve transparency around their emissions reporting. In the latest step in its Federal Sustainability plan, the Biden administration proposed a Federal Supplier Climate Risks and Resilience Rule. The Rule requires federal government suppliers to disclose emissions and climate-related financial risk data, as well as to set science-based emissions reduction targets. The significance of this rule goes without saying; with the US being the world’s single largest buyer of goods and services, spending over $630 billion last year.

Almost simultaneously, the EU announced the Corporate Sustainability Reporting Directive, which obliges all large businesses to publish regular reports on their activity around societal and environmental impact. This will impact around 50,000 companies and bolster their public accountability on sustainability targets.

These legislative plans have set a hugely significant precedent for global business in recent weeks, shifting the impetus to report emissions from a voluntary to a mandatory basis. Businesses are also feeling the pressure from investors – our research shows that 85% of investment managers believe that businesses that do not implement supply chain sustainability initiatives will see share prices fall.

Companies are being increasingly obligated to meet required standards if they are not already doing so, setting them up for future scrutiny on the tangible steps they have genuinely taken to combat climate change. As Scope 1, 2, and 3 reporting grows, so too will the scrutiny from governments, business partners, and environmental groups, meaning that those that are not able to align with their competitors and prove progress will soon fall behind.

It’s undeniable that progress was still made at COP27. The significance of the first loss and damage fund should not be dulled in the business world – it drives home the real impact that climate change is having on vulnerable nations and the global consequences that arise. Yet there was minimal progress at the Summit around tackling the widespread burning of fossil fuels, the root cause of the crisis. The path to 1.5oC seems to be swiftly evaporating, and businesses must now prepare themselves for the realities of how a 2, 3, or even 4oC rise could impact their supply chains. Some are already looking at how they can adapt. Measures include shifting production to inner cities, favoring building supplies that will be more resilient against extreme weather, and a focus on more vigorous risk reporting.

COP Summits have been and will continue to be representative of the global effort to combat climate change, but the dial will be truly shifted by businesses who take their emissions reporting seriously. Transparency will put pressure on creating and driving targeted reductions, ultimately pushing action on climate change onto supply chains and ensuring that businesses make progress in line with others in their sector.

If you are not tracking your Scope 1, 2, and 3 emissions yet, now is the time to start. Proxima is a member of the Scope 3 Peer Group, working alongside industry-leading procurement and sustainability professionals to create the Scope 3 Maturity Benchmark. Find out more about the Benchmark here.

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