Climate reporting is nothing new, but the extent of what’s being reported on is rapidly expanding. In particular, we are seeing new regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) implement enhanced requirements, including disclosing scope 3 emissions.
This is most often part of the clause reflecting ‘double materiality,’ which means your business will be required to report on both how the climate will impact the company AND how the company will impact the climate. Current reporting only requires businesses to report on their scopes 1 and 2 emissions. However, CSRD, which is replacing the existing Non-Financial Reporting Directive (NFRD), is going to require scope 3 emissions as well.
Scope 3 emissions are notoriously difficult to calculate, despite the estimation that this category accounts for an average of 80% of companies' emissions. For businesses, that presents a significant risk, both in terms of fines and reputational damage. In the UK, every misreported tonne of CO2e could result in a £40 fine.
In general, small businesses emit between 1 and 6 tonnes of emissions per employee per year, so mistakes could add up quickly. Meanwhile, larger multi-national companies (which are more likely to be impacted by CSRD) are the 5th largest cause of emissions globally. One of these companies emits roughly the same amount as the entirety of China’s food sector that feeds 1.3 billion people. That means their calculations could easily be thousands or even millions of tonnes off with relatively little margin for error.
This research aimed to shed light on the state of emissions reporting readiness across industries. Within this, we wanted to understand the level of awareness new regulations have, identify opportunities for real reporting and reduction readiness, and help businesses identify where they sit in comparison with other companies.
(If you’d like to know more about how we came to these results, you can skip down the page to the methodology section.)
You will learn:
The first round of reports for the EU’s Corporate Sustainability Reporting Directive (CSRD) will apply from the 1st of January 2024. The first reports will be required by 2025. And not all businesses which will be impacted by it are ready. While 96% of businesses have heard of it, there are clear readiness gaps that need to be addressed quickly.
To get a clearer understanding of what this looks like in businesses, we asked a series of questions to explore how ready businesses really are for both upcoming regulations and the consumer desire for lower emissions. These were the results:
For example, 31% of businesses suggested that their CEO would be the person in charge of reporting. However, CEOs were the group least likely to know about CSRD at all. (7.1% compared to supply chain leaders at 2.7%) This could mean that businesses have not communicated their strategy well for these upcoming changes.
“CEOs were the group least likely to know about CSRD”
🌱 Are you ready for CSRD? Check out our CSRD & Scope 3 workbook for leaders like you.
Despite the resounding confidence with which respondents said they knew about CSRD, confidence in how prepared they are varied significantly. The discrepancies in preparedness have left many businesses uncertain and others in significant angst about the impact this will have going forward.
Only 38% of respondents feel completely prepared to monitor, report on and reduce their scope 3 emissions in time for CSRD coming into effect by the January 1st start date.
The other 62% are all lacking some degree of readiness. These businesses could all be risking fines and reputational damage if they aren’t able to ready themselves in time. With the start date of CSRD fast approaching, they’ll need to act quickly and use rapid methods (like AI) to sort out their scope 3 emissions data.
👉 Bigger businesses are generally more prepared compared to 29% of smaller enterprises (turnover £100,000 - £999,999) who are hesitant about whether they will be ready to report.
This suggests that almost one-third of companies are either worried or are being caused significant angst by scope 3 reporting requirements. For those companies, it is all the more urgent that reporting and calculation capabilities are enhanced, particularly through technology. The data showed that worry was especially high in the healthcare and pharma sectors (25% and 30% of respondents reported concern) compared to others.
“More than 1 in 4 companies are worried about calculating and reporting their scope 3 emissions.”
Close to a fifth of businesses have reporting in place, but don’t believe that it has helped reduce their carbon footprint. This highlights the fact that knowing what your emissions are isn’t enough; you need to be able to act on that data and understand your best path to impacting the outcome.
What this shows is that there isn’t an agreed-upon path to scope 3 readiness yet, so organisations are using multiple methods, potentially spending money and time that they don’t need to. Many of these options fulfil the same role, so businesses that can tackle this leanly may find themselves able to pull ahead quickly.
All in all, we’re seeing that businesses seem to be aware that reporting requirements are coming, but the actual feelings of preparedness aren’t as widespread. With this coming into effect at the beginning of 2024, it seems like many UK businesses will need to step up their activity to be ready.
Investing in SaaS technology is already starting to pull ahead as the lead solution. And for good reason. Compared to hiring an in-house specialist and creating a solution from scratch, working with a pre-existing SaaS (software-as-a-service) platform can save huge amounts of time.
Hiring alone can take over a month and then they’ll need time to be onboarded and start creating your solutions. That means a full quarter can go by easily without any results. And building a bespoke piece of software can take a long time. According to monday.com, the build can take up to six months. But software development company Radix Web suggests that the process can take well over a year. And even then, you’ll need to be constantly updating and innovating to keep up competitively.
Brands that can implement quickly will get a rapid advantage. Which means that seeking an external resource, like 7bridges, can get you up and running with much more robust capabilities than hiring a new person for your team.
Alongside the variable readiness of businesses, there are several different ways that they are integrating emissions, especially scope 3, into their strategic planning. From offsetting to managing suppliers to investing in the right tech, businesses are still trying to understand what is the right path forward. However, the data shows that certain strategies are pulling forward. Could acting fast in these areas be what makes the difference in long-term sustainability success?
Both investing in technology and encouraging suppliers to change practices were very high on the list of activities respondents felt they can take action on already. While both are important and can be effective individually, using data to enhance your conversations with suppliers may be more effective by giving you a better negotiation position.
In addition, reviewing and optimising their shipping routes needs data-led solutions because most supply chains don’t have the visibility of end-to-end data to do this effectively and quickly.
But this only works if you know how to choose the right technology for your supply chain. To help identify this, really understand what you want to do with the technology. Do you just need reporting? Or are you interested in getting a baseline and then understanding how to take action on that data?
Interestingly, 84% of businesses responded saying that offsetting was part of their business strategy at the moment. Even in light of the difficulty the offsetting industry has had with verifying overall impact.
For these businesses, it will be important to extend their net-zero planning beyond offsets to avoid the backlash that can come from the claims of greenwashing that persist in that area. Especially as the scientific community increasingly recommends focusing on reduction before including carbon offsets.
Almost half of businesses within the UK feel that releasing their scope 3 emissions would benefit them because they’re certain that their emissions are lower than the competition. Which shows that as releasing these figures becomes mandatory there will be clear, early winners amongst businesses who tackle emissions reduction early.
Meanwhile, nearly 1 in 10 businesses believe that their customers do not care about the emissions they produce. But as sustainability becomes a greater necessity for organisations, B2B trends may show the same shift that consumer markets did toward green credentials being a major sales driver. (According to research we did with YouGov, 58% of consumers looked for green and/or carbon-neutral delivery options as a purchase differentiator)
🍃 Check out why tackling your emissions matters in this blog post.
What we can see throughout this section is that confidence in how businesses will approach scope 3 emissions reporting is much more varied than how aware they are of CSRD and reporting standards. This could be an excellent opportunity for green-ready businesses to get ahead and gain a competitive advantage.
For far too long, supply chains have been managed reactively, instead of being driven by outcomes and possibilities. Which is why tackling priorities like calculating and reducing your scope 3 emissions can be painful. The average supply chain doesn’t allow for thinking and optimising in those terms. Especially not while still meeting all of your other, seemingly conflicting targets.
By comparison, outcome-driven supply chains shift the focus towards a more holistic approach that fully considers business goals and strategy. Which means more of the work you and your team do makes a difference to the metrics that matter to your business.
When it comes to sustainability, the reason outcome-driven supply chains work is that they are both powered by data AND are specific to your business. They proactively deliver value that really matters to your organisation, based on metrics that make sense.
For example, when a business is looking at cutting down emissions at the same time as cutting down costs, using an outcome-driven approach can help you find a solution that delivers both of those outcomes through your supply chain.
And when you can deliver outcomes that are simultaneously sustainable both your business and the planet, that is when you can make a real difference. With our Green Ratio simulation, we helped one company discover how to reduce both costs and emissions by 19%.
💡Learn more about how outcome-driven supply chains can help you find the perfect balance between cost savings and carbon reduction in The Green Ratio.
Scope 3 emissions are notoriously difficult to calculate and, therefore, report on. That’s why, until recently, most businesses have focused on the much more measurable scope 1 and 2 emissions. One of the biggest challenges around calculating scope 3 emissions is making sure that you have accurate and usable data.
Explore the challenges with scope 3 data (and how to address them) here.
To help supply chains, the greatest source of scope 3 emissions for many businesses, overcome these hurdles, here at 7bridges we have introduced emissions monitoring and simulations into our platform. This capability takes in invoice data that your supply chain is already producing, uses our AI prediction engine to calculate the mode of transport for each shipment and uses that alongside other shipping data to calculate the carbon and CO2e emissions for it.
By using AI, you can get clear, accurate emissions data without having to do extensive work on your supplier relationships, without having to call in a consultant and without having to pay your providers for the privilege. On top of that, this data is yours and is updated as often as your invoices are. That means when you have to make your next report, you already have the data you need. But even more importantly, you can start taking actions to reduce your emissions and see the results immediately.
Our platform gives you the ability to automate the calculation of your logistics emissions, report on those emissions to meet regulatory requirements and react to them to make your supply chain more sustainable while also reducing costs and improving performance.
Overall, awareness of the upcoming reporting directives seems widespread. However, the capability to both understand the data being reported and the ability to act on that data is falling behind. Organisations are unclear on how best to proceed which is slowing down progress.
This means hundreds of UK businesses are risking financial and reputational damage by not being able to comply with these measures.
But they don’t have to be. Investing in technology like data-led reporting and AI can help businesses calculate their current emissions, identify emissions hot spots and see results when they take actions to mitigate them. This data can also be used to leverage more impactful negotiations with suppliers, getting them to make greener choices alongside you.
For anyone who wants to see how we did this, here was our methodology:
In March 2023, we conducted this research (via an online survey) with the independent market research consultancy, Censuswide. We polled 801 UK businesses trading in the EU in sectors affected by the corporate sustainability reporting standards.
The breakdown of responding businesses was as follows:
Read more about this story in:
London Loves Business:
edie:
https://www.edie.net/british-companies-not-ready-for-eus-scope-3-emissions-reporting-mandate/
Logistics Manager:
Business Money:
Carbon Pulse:
https://carbon-pulse.com/203637/
Money Marketing:
ESG Clarity:
https://esgclarity.com/csrd-uk-emissions/
The Actuary:
https://www.theactuary.com/2023/05/24/fines-hit-uk-firms-over-scope-3-deadline
Sustainability Future News: