As regulatory bodies grapple with climate-related risk disclosure rules, corporations are proactively embracing voluntary climate reporting within their supply chains. This trend is driven by increasing demands for carbon emissions data, supplier diversity, fair labor practices, and other key sustainability metrics.
The Proactive Approach to Climate Reporting
Despite the ongoing legal challenges surrounding the SEC’s climate-related risk disclosure rule, major corporations are not waiting for regulatory clarity. Instead, they are voluntarily advancing climate reporting within their supply chains. This proactive approach is in response to the growing requests for information on carbon emissions, supplier diversity, fair labor practices, and other crucial sustainability metrics.
Progressive companies are recognizing the necessity to expand their sustainability tracking across the supply chain. This is to address consumer concerns, assess risk across their entire operations, and fulfill net-zero emissions commitments. The impact of climate change has become a significant supply chain issue, especially for the world’s largest companies, and is a growing area of investment for procurement teams.
Demand for Sustainable Supply Chains
Whether it’s a B2B or B2C company, customers are increasingly focused on purchasing from companies that are committed to sustainability. This pressure can manifest as a supplier questionnaire from larger buyers or a petition from a climate-conscious customer base for a product-driven brand. Ignoring this pressure can pose a real reputational risk to your brand and potentially result in the loss of significant contracts.
Companies can respond to these demands by engaging directly with stakeholders and requesting sustainability strategies, emission sources, and other key data. This customer-driven push is leading businesses towards more effective climate reporting, beyond what regulators are currently demanding.
Net-Zero Commitments and Supply Chain Considerations
Corporate net-zero climate commitments are becoming increasingly popular, driven by demand from investors, customers, employees, and regulators. These commitments involve reducing emissions across Scope 1 and 2 (direct) emissions and Scope 3 (indirect) emissions, which necessitates considering the full supply chain.
In 2024, 3,278 companies globally had net-zero commitments on record, and over 47,000 companies received requests for supply chain sustainability data from the Carbon Disclosure Project (CDP). For the growing number of companies seeking net-zero commitments, their underlying supplier networks will also need to become familiar with climate reporting and target setting in the near future.
The Financial Communications Impact
Companies are increasingly being compelled to disclose risks to their business model, including those related to climate change, in their financial communications. Incorporating climate reporting into the supply chain is another positive metric to include in financial communications, including the annual report, sustainability report, and specialized measurement tools.
While the SEC’s climate reporting may be at a standstill for financial and compliance professionals, supply chain and procurement efforts continue to advance corporate reporting, offering a glimpse into a more sustainable future. Effective supplier engagement represents a powerful tool for driving sustainability, innovation, and financial value. All companies would do well to consider how a greener supply chain would affect their business operations today and in the future.
