Reprinted from GreenBuzz, a free weekly newsletter. Subscribe here.
The global policy ecosystem is the focus at COP27 taking place in Sharm el-Sheikh, Egypt, and to radically oversimplify, the big question is what governments should do about climate change. So, it’s appropriate that something the U.S. government may or may not do about climate has been dominating the conversations I’ve had with corporate sustainability professionals in the United States and abroad: the Securities and Exchange Commission’s proposed new rules for climate risk disclosures.
As it stands, the proposal would pose challenges for large companies required to disclose Scope 3 emissions to the SEC — but those are not the companies I’m hearing from. Instead, it’s the midsize companies whose activities make up the supply chain emissions of their bigger, publicly traded customers that are gazing warily at the policy horizon.
Midsize companies are gazing warily at the policy horizon.
These suppliers are already the targets of increasingly detailed requirements rolled out by many publicly traded firms with mature sustainability strategies (Salesforce, Walmart and many more) in recent years. Some companies are setting targets around the decarbonization of both upstream and downstream partners. Flex, a $26 billion global diversified manufacturer, is partnering with suppliers to set GHG reduction goals and, with their customers, to set science-based targets, Barjouth Aguilar, head of global sustainability, told me in an email.
Programs such as these build upon decades of scrutiny big companies have trained on their supply chain partners on topics from labor practices to wastewater. And while some suppliers were already crying uncle during the 2010s, as growing customer demands for information coalesced into sustainability ratings and rankings for suppliers, the draft SEC rule sharpened their customers’ focus.
Big companies are doubling down on supplier decarbonization, in particular. It’s also the right place for companies to look for the next wave of reductions — since, according to the World Economic Forum, supply chains are responsible for 60 percent of all global emissions, and on average their greenhouse gas emissions are more than 11 times those within downstream companies’ boundaries.
As requirements to achieve steep emissions reductions have soaked into the outermost fibers of big companies’ supply networks, more suppliers are finding themselves "engaged with" than ever.
That happens in a number of ways, beginning with data disclosure inquiries. Some customers offer financing for energy improvements, faster invoice payment terms, educational resources and convenings, and vetted lists of sustainability service providers offering net-zero consulting. Others require emissions-reduction commitments such as science-based targets and penalize noncompliance with fines. Some decide against working with new suppliers lacking adequate emissions reduction measures, and some threaten existing partners with contract nonrenewal (although it’s unclear if many go through with it).
Leaving aside questions about the accuracy, meaningfulness or necessity of big-company Scope 3 emissions data-gathering, sustainability professionals at every supplier company I have spoken with wholeheartedly welcome their customers’ engagement. But there’s room for improvement in how they engage.
Monica Baron, an independent ESG and CSR strategy consultant, shared her experience working with a 30-year-old privately owned floral company based in Latin America, whose midsize business grows and distributes flowers in the United States. and Europe. The company has for years participated willingly in standard industry certification processes around issues such as child labor and agricultural practices required by many major U.S. retailers.
Part of Baron’s work with the flower grower is to help it climb a steep learning curve between the prescriptive, technical requirements of yore and the net-zero commitments and other emissions reduction initiatives major customers increasingly require. That gap exists in part because these varying expectations are being communicated to salespeople at the company who are "completely disconnected with what's happening at the farm."
But even when new emissions reduction requirements make it past the sales team to flower company decision-makers, confusion abounds. Baron indicates that one major point of confusion is around whether and how what has been required in the past with "solar, plastic wrapping alternatives and fertilizers" is being discontinued or enhanced. Are they in compliance or not, and if so, how?
Better communication is necessary, Baron emphasized. "Not because they don't have contact; they have it," she told me. But a big downstream company’s "future vision needs to be communicated … so that everyone can understand where we're headed and feel part of it." Those I’m hearing from would prefer not just additional training for procurement professionals but more sustainability-to-sustainability team contact. As it is, a transactional salesperson-to-procurement-person conversation fails to get the job done.
Increasingly, the interaction between suppliers and their customers sounds a lot like dating. Salesforce sustainability lead Patrick Flynn recently wrote for GreenBiz that any team engaging with suppliers should "start by asking partners about their values, whether sustainability is included and what their sustainability goals are." He advised that "partnering with suppliers to reduce emissions can strengthen relationships, build trust and result in cascading positive impact up and down the value chain." Just add candlelit dinner.
But most companies levying requirements are not "interested in the nuance," said Asheen Phansey, director of ESG and sustainability at PagerDuty, a publicly traded U.S. company with annual revenue just under $300 million that specializes in incident response software for IT professionals. Just like in the flower business, a procurement representative requests emissions data (from a salesperson or via an RFP) rather than the bigger company "brokering a conversation" between sustainability counterparts, Phansey explained. From a dating perspective, it feels like they’re just not that into you.
Phansey allowed that he’s welcomed the opportunity customer pressure creates to have conversations with his company’s CFO and other leadership. "I get what you’re doing," he said to his nameless downstream sustainability counterpart. And in some ways, "the existence of that pressure makes my life easier."
Regardless of whether the SEC’s Scope 3 rules become final in the United States, supply chain issues have the attention of businesses across sectors and borders. And while the supply chain companies I hear from stop short of breaking into "Try a Little Tenderness," what they’d like from downstream companies is the same thing anyone wants in any relationship: two-way communication; authenticity; and empathy.