Do I Have to Report my Carbon Emissions?
by Mike Troupos
One of the most frequent questions I get from clients is, "Do I have to report our GHG emissions?" My usual response is, "No, you don't HAVE to do anything. However, you might want to report your GHG emissions when you understand what is at stake."
Regardless of if you're publicly-traded or privately-held, domestic or international, consumer-facing or insulated by a large supply chain, here are a few reasons you might want to report your GHG emissions.
It might be mandated for public companies.
On March 21, 2022, the SEC passed a rule called "The Enhancement and Standardization of Climate-Related Disclosures for Investors" by a vote of 3-1. This rule could have significant implications for all companies listed on the stock market. If passed in April 2023, the rule would require publicly traded companies to report on their Scope 1, 2, & 3 GHG emissions annually. The timelines and granularity will vary based on company size, but this will NOT be optional if it passes.
If you're privately held and think you get a pass, hold on before you disregard: it is highly likely that your Scope 1 & 2 emissions are Scope 3 for a publicly-traded company, which means they need to report that data, even if you don't (Natalie explains more on that here). Many public companies and retailers are working hard to figure out how to engage their supply chain and collect this carbon information. How can you wow your customers? Be ready for their requests for carbon disclosure.
Your customers might want to know.
We are amidst a multi-year transition where Baby Boomers aren't those with the purchasing power anymore; Millennials are. This continues to push businesses to offer more transparent and sustainable products, supply chains, policies, and business practices. Over half of the people in the US say that the brands they purchase from have values that align with their own.
This pressure extends beyond just your brand when it includes commitments such as anti-slavery, no conflict minerals, and GHG reductions, to name a few. In a few short years, the supply chain has morphed into a significant area of risk for brands, and they are acting accordingly. If you are a manufacturing company, take note of what your customers are asking for and align yourself quickly to reduce your risk of being passed over for another supplier who meets their sustainability requirements.
Your investors might give you a better valuation.
In a previous article, I discussed how Blackrock, the world's largest asset manager, pushes public companies to report and reduce their GHG emissions. Since I wrote that article, there has been considerable backlash against Larry Fink, Blackrock, and ESG investing overall. Frankly, some of the critiques are founded and reasonable, as ESG has become politically charged, not just financially appealing. While Democrats and Republicans are distracting one another by arguing about ESG, some companies have positioned themselves as market leaders and have enjoyed outsized returns as a result - Tesla is a perfect example.
Tesla took a 100-year-old industry and revolutionized technology (electric vehicles instead of internal combustion) and sales (direct to consumer instead of dealerships). Their ability to understand the current marketplace and where mobility is going allowed them to leapfrog their competition. Tesla trades at an incredible premium to its peers because of that; GM produced 6-fold more vehicles, but Tesla's value is over ten times higher than GM's. This green premium has been assigned to Tesla because it lays out a compelling vision for the future and explains to investors how it is better positioned to fit into that future than its competitors.
It provides differentiation.
Each company may have a different reason to report GHG emissions, but the common theme is differentiation. The world is a big place, but all the momentum as a culture today is to make it smaller with access to more information about each product's where, how, and why. Tracking and reporting GHG emissions is one way to help your customers get to know you better. The minimal effort associated with reporting GHG has a major upside in building more trust for investors, consumers, and employees alike.
So even if you don't have to, you most definitely should.
Learn more about how we support companies with carbon management, carbon reporting, and supply chain engagement.