How public procurement is creating a snowball effect for corporate climate action

0

Congressional and federal climate action in recent weeks is likely to have a significant impact on the climate movement for years to come. It will also have a snowball effect on the climate actions of American companies. The Cut Inflation Act earmarked about $369 billion for climate and energy projects and tax credits, and the Biden administration announced a plan to partner with the private sector to tackle carbon emissions. greenhouse gas (GHG) emissions from federal buildings by setting agency emission reduction targets. and investing in energy efficiency. The Department of Defense also issued a Request for Information (RFI) asking federal suppliers if they would be able to provide their GHG accounting data.

This flurry of federal climate action will create a domino effect on federal suppliers and beyond. What will this mean for your business? Let’s dig.

It probably won’t surprise you that the US government buys a lot of stuff. During the Obama administration, one of us (Mike) met Jed Ela, Nancy Gillis and Kate Brandt, all of whom worked in Washington, DC for the federal government while Mike represented the Global Reporting Initiative in North America.

This flurry of federal climate action will create a domino effect on federal suppliers and beyond. What will this mean for your business?

Their work, in collaboration with many others, has resulted in a little-known but highly influential ripple through the US government’s own supply chain, the Federal Supplier Greenhouse Gas Management Scorecard. The original dashboard was published in 2015 and listed the government’s top suppliers, including information on whether those companies disclosed their emissions and climate risks, or whether they had set a carbon emissions reduction target.

When it was published, it fueled many exchanges between companies and actors in the field. This was a bold and unprecedented way to allow all interested stakeholders to see if and how these companies were acting.

The 2020 iteration of the scorecard provided a more detailed look at climate action on over 100 companies, including whether they publicly disclose their emissions (via CDP) or have set GHG targets.

GSA2 Dashboard

The progress of the government dashboard is indicative of the direction that carbon reporting is taking. At first, stakeholders just wanted to know if a company was reporting. Now they want companies to commit to annual reporting and prove their credibility by aligning with widely adopted carbon reporting and emissions reduction initiatives.

In addition to the federal scorecard, the Biden administration’s climate agenda has tied procurement to a central part of the government’s ambition to create a net-zero economy by 2050. It’s an important piece of the jigsaw. This means that affected companies (federal suppliers and companies subject to the SEC’s proposed climate rule) will likely be required as early as 2023 to conduct independent audits and provide assurance on the accuracy of the emissions data they disclose.

As the dashboards show, many companies already disclose their GHG emissions and targets to CDP, and some go far beyond that. Lockheed Martin, for example, also publishes a TCFD report, an ESG report and an ESG performance index.

“Transparency about our environmental, social and governance performance represents our commitment to working collaboratively to achieve sustainable development goals that will produce positive results for customers, employees, shareholders and other stakeholders,” said Leo. Mackay, senior vice president of ethics and corporate assurance at Lockheed Martin. , which leads the company’s sustainability program and reports its progress to the CEO and Board of Directors. “Our continued focus on energy and carbon management includes Scope 1 and Scope 2 carbon reduction targets, as well as measures to increase visibility and, where appropriate, to develop a strategy key Scope 3 emissions reductions.”

Everyone is in someone’s supply chain

Since federal suppliers are required to report their GHG emissions to the government, requests for GHG data will trickle down to markets. The full scope of an organization’s GHG emissions can be organized into Scopes 1, 2 and 3. Here we will focus on Scope 3.

According to the Greenhouse Gas Protocol (GHG Protocol) and the Partnership for Carbon Accounting Financials, each institution’s value chain should be considered when calculating its scope 3 emissions. Put simply, scope 3 includes the goods and services that your organization has chosen to purchase in order to do business, as well as the GHG emissions of the goods and services that it has purchased. As federal agencies require their suppliers to report on their GHG emissions, these companies will in turn be required to request GHG emissions data from all of their suppliers.

For example, if the DoD asks healthcare provider McKesson to provide their GHG emissions, McKesson will begin the process of calculating their footprint, including Scope 3 (assuming they haven’t already) . From there, the company will likely ask its suppliers for their GHG emissions, whether or not those companies are also federal suppliers. In its latest Sustainability Impact Report (PDF), McKesson revealed that it is working with its suppliers to set science-based targets for tracking and reducing emissions, which, in turn, will help McKesson itself. even reduce its scope 3 emissions.

Although it is also possible to calculate Scope 3 using expenditure-based formulas that simply multiply the amount of money spent, or the amount of goods purchased, by emissions factors based on averages industry, it is more accurate to collect actual emissions data directly from Suppliers. Suppliers are likely already receiving GHG emissions questionnaires from customers, perhaps at extremely high volumes. To meet the high demand for this information, a number of survey and rating companies have sprung up to collect ESG data on companies, including their GHG emissions.

Yet federal suppliers have difficulty calculating Scope 3, especially for those who provide goods and services to national security-related departments such as NASA, the DoD, and the Department of Homeland Security. For example, some companies cannot include sensitive and confidential information for the Scope 3 category “Use of products sold”, which asks for data on the breakdown of emissions generated by the end user after purchase and use. of the product.

A global phenomenon

This is not just happening in the United States; the UK directly asks government suppliers to disclose their GHG emissions as part of its own sourcing requirements aimed at accelerating progress towards the UK’s goal of net zero by 2050. emissions, major government suppliers are already required to supply Scope 1 and 2 emissions and a subset of Scope 3 emissions, including upstream and downstream transmission and distribution.

Other jurisdictions in the EU have their own ways of ensuring that companies’ supply chains not only disclose their emissions, but also reduce them. For example, the Netherlands has a CO2 performance ladder, which is considered for the whole EU. It provides companies that accurately disclose their emissions and have a strategy to reduce them with a certificate that potentially gives them a competitive advantage.

The snowball effects of global governments setting ambitious climate goals and creating sustainable sourcing policies are spreading a wide net through global supply chains, sparing no company from having to master GHG information . Almost every business, regardless of size, is part of someone’s supply chain. The best thing a company can do, if it hasn’t already, is to prepare to measure, manage and reduce these emissions. The time to start is now.

Share.

About Author

Comments are closed.