Previously thought to be a voluntary responsibility, companies operating across the European Union (EU), Australia, Singapore and listed companies on China's three major stock exchanges are no longer immune to averting Scope 3 reporting obligations.
The EU's Corporate Sustainability Reporting Directive (CSRD) since January 2023, and Australia's phased implementation of mandatory Scope 3 emissions reporting starting from the 1st of July 2024 - is expected to challenge many existing procurement professions both directly and indirectly worldwide. CSRD is estimated to impact approximately 50,000 European companies.
When we talk about procurement as a service and operating function, preconceptions are evoked about the role of supply chain management purely being about spend control, supply chain resiliency, cost minimisation and compliance.
Indeed, procurement plays a significant role in asserting compliance and cost control. But what would this look like in an environmentally regulated landscape? One where environmentalism is no longer voluntary, but compulsory?
With the rollout of CSRD in the EU, environmental, social and governance (ESG) principles are no longer about branding a company's tolerance and support for sustainability to appease stakeholders.
We're now entering an era of sustainable procurement compliance which is profoundly challenging our conventional presumptions on the role of procurement beyond simply purchasing.
Procurement leaders are starting to find that spend control and sustainable procurement compliance are mutually inclusive and supportive of one another.
Picture this, you are currently running a sourcing event and your objective is to minimise procured costs. By using DitchCarbon carbon risk ratings, you can select suppliers with a low emissions footprint, and therefore, potentially reduce your Scope 3 procured carbon tax.
Carbon taxes will force finance, auditing and procurement professions to work together to tackle spend on emissions. Demonstrating decarbonisation starts at the supplier selection level and can only be done using accurate, auditable carbon values and calculations. An invoice with a carbon value, can be a good starting point for documenting these emissions. Scope 3 emissions calculators will become a critical part of the procurement ESG toolkit to help users approximate the emissions intensity of that item. In most cases, actual carbon emissions are always preferred over estimated ones because let's face it...who wants to overpay their carbon taxes!
However, collecting and reporting Scope 3 emissions is a significant challenge. Deloitte cites that the poor holistic integration of emissions collection technologies throughout a business's ecosystem, lack of tools especially from small to medium businesses to report Scope 3 emissions, poor supplier engagement, poor data quality and reliability, and rapidly evolving regulatory standards - all discourage many business leaders from investing in Scope 3 collection and reporting solutions...or even championing the cause at all.
This was exemplified greatly in the SEC's recent policy backflip (March 2024) to make Scope 3 reporting voluntary. But bear in mind, that many of these SEC-listed, large companies will more than likely, still have to report their Scope 3 emissions if they have a major presence in the state of California (SB-253 Climate Corporate Data Accountability Act) or the EU.
The Boston Consulting Group survey found that companies using automated digital emissions solutions were 2.5 times more likely to report their emissions comprehensively. Technology, therefore, is a huge enabler of sustainability compliance.
Despite policy setbacks from the SEC, non-EU companies with a significant EU presence (activities greater than €150 million revenue turnover) are expected to report their Scope 3 emissions to the authorities. Most large US companies with a presence in the state of California are already mandated to report Scope 3 emissions. The Biden Administration is currently proposing to enforce mandatory Scope 3 emissions reporting for its major federal contractors (annual contract values of >$US50 million).
With supply chains contributing up to 88% of a company's emissions and 11.4 times that of Scope 1 and 2 primary emissions, it is no wonder that Scope 3 emissions reporting has garnered huge attention among regulators and environmental groups.
Fortunately, at SAP Ariba we are making strides and efforts to ensure that our customers remain compliant to Scope 3 reporting obligations and other ESG regulations. For example, enabling supplier Scope 3 carbon submissions and third-party sustainability certifications.
