You may be accounting for carbon, but these mandates expect much more.
CSRD and CBAM. CA SB 253 and CA SB 261. SASB and GRI. TCFD and ESRS. Sustainability can feel like an alphabet soup of mandates, frameworks, and protocols, all attempting to rapidly reduce our environmental impact. While the specifics and terminology may seem overwhelming, if you step back, you’ll realize it all carries a core value set.
This year, several pieces of regulation crystallized, providing some solid handholds in our attempts to achieve essential – but knowingly optimistic – climate goals. As CSRD, CBAM, and regulations from California have passed into law, we’ve noticed a commonality: they’re about a lot more than just carbon.
While reducing greenhouse gas emissions is a shared goal of these mandates, it’s not the only effort being measured, analyzed, evaluated, and scrutinized. You may (or may not – in which we can help) have your carbon accounting strategy buttoned up and ready to go, but here are a few other aspects of these mandates you’ll need to plan for.
Assessing Financial Risk
Europe’s CSRD and California’s SB 261 both require companies to report on climate-related financial risk. For CSRD, this can be accomplished through a Double Materiality Study, which evaluates what is most material to a company and overlays that with financial risk and responsibility (learn more here). For SB 261, companies are required to respond to the Task Force for Climate-Related Financial Disclosure (TCFD).
In either case, these regulations recognize that “climate risk is financial risk,” a phrase coined by Larry Fink, head of one of the world’s largest asset managers, BlackRock. Choosing not to address environmental impacts is now being addressed as an investment risk, and companies are being expected to articulate, measure, and mitigate these financial risks.
Evaluating Supply Chains
While direct emissions (Scope 1 & 2) were expected to be included in this wave of mandates, it was a surprise to see an increased focus on supply chain emissions (Scope 3). While many criticize the inclusion of Scope 3 in California’s SB 253, policymakers understand that 90% of a company’s emissions are in its supply chain. This mandate puts the onus on the reporting company to engage with, motivate, and mobilize their suppliers to take sustainability seriously.
Several industries, like automotive and furniture, are already feeling the ripple effects of corporate sustainability goals. These carbon-neutral or net-zero goals aren’t achieved alone; they require effort, data, and transparency from whole supply chains.
If you haven't yet begun a journey with Scope 3, we recommend you start with a Screening to determine which of the fifteen categories are material to your business. From there, you can strategically engage with the most carbon-intensive suppliers. Learn more here.
The S & G of ESG
While the US climate-related mandates lean most heavily on the E of ESG, CSRD requires KPIs and reporting for environmental, Social, and governance metrics, including business model resiliency and social responsibility. Companies need a well-rounded, diverse set of ESG metrics that cover more than just environmental impact. Over time, these reports must be third-party verified to stave against greenwashing.
At this point, the proposed mandates from the SEC in the US lean heavily on environmental reporting, but we can consider Europe's efforts a foreshadowing of what's to come. A Materiality Study can help you understand what issues are most material to all stakeholders at your company, giving you visibility into options for a holistic approach to sustainability.
It can be argued that these mandates will be challenged and changed, eventually hitting companies with only a whiff of their proposed impact. While that may be true, is it worth the risk? Whether the minute mechanics change or not, the trajectory of sustainability regulation is clear: it’s coming, and it’s about more than carbon.
You can either view it as an obstacle or an opportunity.
Those who figure out how to embrace these challenges and overcome them will have a major leg up in their industries, attracting market share, investor interests, and upcoming talent.
Ready to build a proactive, profitable approach? We can help with all the above and more.
