In the last two years, new regulatory rules requiring companies to disclose sustainability information have sprung up across the globe. The Corporate Sustainability Reporting Directive (CSRD) for companies with an EU presence, the SEC's proposed climate disclosure rules in the United States, SB 253 for businesses operating in California, and other initiatives like SFDR and TCFD form an expanding "alphabet soup" of compliance requirements. Together, these rules vastly expand the breadth and rigor with which companies must track and report sustainability information.
While these reporting requirements can place great pressure on businesses, especially given legal and/or financial ramifications for non-compliance, they actually pose an opportunity to gain a competitive advantage. Leading companies are embracing the chance to lower costs and reduce risks, with supply chain teams at the forefront.
Strategic Imperative for Entire Companies, But Especially Supply Chain Teams
The EU’s CSRD and related regulations require companies to report on a vast array of information. This includes metrics and strategies such as emissions reports, energy consumption, and climate-related risks not only within the reporting business, but also across their supply chain. And it requires assessment of items on a double materiality standard – i.e., not only how these matters affect the business, but how the business affects the broader environment.
Given this unprecedented scope, tackling the CSRD and other reporting requirements is not a task that can be siloed to a single department. It will require a concerted effort from the entire organization. Leaders must come together to assess which requirements they need to meet, how their decisions, processes, and operations impact sustainability.
However, procurement and supply chain departments find themselves at the forefront of this initiative. These teams own a particularly difficult piece of the pie, as the CSRD, the SEC, and others not only require critical details on the role of supply chains in organizational sustainability, but also expect companies to work with their suppliers to reduce their carbon footprint.
The European Sustainability Reporting Standards (ESRS), for instance, which form the backbone of CSRD reporting, place significant emphasis on supply chain-related metrics:
- Scope 3 Emissions: These indirect emissions, often stemming from supply chain activities, form a substantial portion of many organizations' carbon footprints.
- Biodiversity Impact: The ecological effects of sourcing and transportation decisions are under increasing scrutiny.
- Labor Practices: Ensuring ethical labor standards throughout the supply chain is a key component of CSRD reporting.
As the custodians of this critical data, supply chain leaders are uniquely positioned to drive their organization's CSRD compliance strategy. This regulatory convergence underscores a fundamental shift: supply chain sustainability is no longer a peripheral concern but a core business imperative.
Transforming Compliance into Competitive Advantage
While challenging, supply chain leaders' role at the forefront of these reporting requirements, offers a unique opportunity to drive organizational value beyond mere regulatory adherence. Let’s review three examples of how the important work of driving compliance with sustainability disclosures can offer business value far beyond procurement departments.
Move from Data Collection to Operational Intelligence
Historically, the most painful part of preparing for sustainability disclosure regulations has been collecting the right data from the right teams. Companies have traditionally relied on spreadsheets, manual data entry, and endless email exchanges both internally and with external stakeholders. This is a particular nightmare for supply chain leaders, as accessing the relevant data requires engaging with their partners.
New digital tools, however, can vastly ease the data collection burden. You shouldn’t be spending your time manually transcribing utility bills or worrying about which spreadsheet version received from a supplier was the latest. Technology can automate these and other processes.
With the time to collect and calculate disclosure-ready data reduced, supply chain leaders can spend time actually making sense of the results and thinking through proactive strategy.
Empower Suppliers and Strengthen External Relationships
Data collection also creates a powerful moment to engage and empower suppliers. Many businesses will just bombard suppliers with data demands or resort to other “sticks” to incentivize action. The challenge is that many suppliers don’t have the tools to measure and reduce emissions with ease. As a result, bigger companies don’t necessarily get the granularity of data they need, all while smaller companies feel overwhelmed by the demands. Transitioning from sticks to carrots when it comes to engaging supply chains creates new opportunities for engagement. With new tools that make it easier for suppliers to measure and implement reduction projects or models, it’s time for a more positive-sum model of supplier engagement.
Prioritize Cost-Saving Emissions Reduction
Today, many projects that reduce emissions also reduce costs. Measuring your emissions and energy use is a critical first step toward taking action that will deliver financial returns. Once you have reported, your measurements can serve as a tailored blueprint for optimizations and efficiencies that can lead to cost savings and improved performance for your company, as well as your suppliers.
In working with many customers on energy efficiency projects, we find it effective to start with low-hanging fruit projects that offer a relatively quick ROI to galvanize momentum. A few of these include:
- Energy efficiency measures. Upgrading cooling or heating systems, like HVAC optimization, typically presents cost savings and emissions reductions. There are plenty of no-brainer projects, like LED lighting upgrades and fixing air compressor leaks, that quickly pay for themselves but have not been fully implemented by many companies. Newer energy efficiency measures use AI to intelligently optimize energy use and, therefore, costs.
- Targeted fleet electrification. As the cost of gas remains high, in specific geographies and use cases (e.g., companies with high mileage, located in regions with tax incentives), the total cost of ownership or cost of leasing an electric vehicle can be lower than traditional internal combustion engine vehicles.
- Demand response and battery energy storage systems. Lowering energy consumption at high-use times can yield immense benefits and can be targeted to prevent impacts on critical factory operations.
Sustainability data often reveals opportunities for operational improvements across your supply chain. For example, analyzing Scope 3 emissions data may uncover inefficiencies in logistics or manufacturing processes. Highlighting energy efficiency opportunities for suppliers can yield mutual benefits in terms of cost savings, operational efficiency, and emissions reductions.
Preparing for an Evolving Future
The current regulatory landscape, characterized by CSRD, SEC rules, and other initiatives, is likely just the beginning of a broader trend towards mandatory sustainability reporting and action. By developing robust systems and processes for sustainability data management now, organizations can position themselves advantageously for future regulatory developments.
Moreover, this proactive approach allows supply chain leaders to shift from a reactive, compliance-focused mindset to a proactive, value-creation orientation. In doing so, they can transform their supply chain operations into key drivers of organizational sustainability and competitiveness in an evolving global marketplace.
