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A recent surge of environmental consciousness has put pressure on companies to reduce their greenhouse gas (GHG) emissions and shrink their environmental footprint. Businesses, large and small, are scrambling to present a ‘green’ image. However, an increasing trend of ‘greenwashing’ – presenting a misleading impression of environmental responsibility – is raising concerns. A significant part of this phenomenon is centred on the supply chain, where the majority of a business’s emissions are generated (Scope 3). As such, governments, particularly those in the UK and the European Union (EU), are setting legislative actions to confront this concern head-on.
For businesses, it has been all too easy to concentrate on direct emissions (Scope 1) and energy indirect emissions (Scope 2), while overlooking supply chain emissions. However, Scope 3 emissions, stemming from sources such as raw material acquisition, manufacturing processes, and product end-of-life, often comprise the largest proportion of a company’s total emissions. This neglect can be, in part, ascribed to the complexity and opacity of many global supply chains. However, there’s also a suspicion that businesses are intentionally ‘greenwashing’ their data, giving a rosier environmental image than reality.
Greenwashing isn’t just a morally dubious practice; it’s potentially a legally dubious one, too. In an effort to address the prevalence of greenwashing, the EU, under its 2020 Green Deal strategy, has advanced numerous initiatives to promote corporate transparency and clean supply chains. Among these, the Corporate Sustainability Reporting Directive (CSRD) is instrumental. This directive, a revamp of the Non-Financial Reporting Directive, has far-reaching impacts on what, and how, businesses must report in terms of their sustainability performance.
The CSRD requires larger companies to follow stricter reporting standards regarding their sustainability metrics, which includes detailed disclosures on their supply chains. Such robust reporting will make it harder for businesses to gloss over or underplay their Scope 3 emissions, thereby discouraging greenwashing. This directive will apply to over 50,000 companies in the EU, significantly expanding the number of businesses that need to disclose sustainability information.
In the EU the new Corporate Sustainability Due Diligence Reporting Directive (CSDDD) will enforce a new set of obligations for businesses. These will involve recognising and counteracting the potential and actual effects of their operations on both the environment and instances of human rights abuses. These checks will not be limited to one’s immediate operations but will extend to subsidiaries and other stakeholders across value chains to ensure they have both direct and indirect established business relationships. The EU announced the possibility that the CSDDD should align with the CSRD with the aim of a manageable and efficient transition.
In the UK, despite leaving the EU, there is a strong commitment to countering greenwashing. The UK government has indicated it will Launch a call for evidence on Scope 3 emissions reporting to stakeholders in order to implement similar rules to the EU’s CSRD as part of its ‘Green Finance Strategy’. Moreover, since 2021 the Financial Conduct Authority (FCA) has mandated that all UK premium listed commercial companies to disclose in accordance with the Taskforce on Climate-Related Financial Disclosure (TCFD). This mandate is a clear move towards eliminating greenwashing and emphasises the importance of transparency in corporate environmental responsibility.
Notably, the EU and UK’s legislative efforts are being mirrored worldwide, with more nations acknowledging the significance of supply chain emissions and the pernicious role of greenwashing. For instance, China’s latest Five-Year Plan includes stronger provisions for environmental regulations and disclosures.
Although these legislative measures are positive steps towards greater transparency, their effectiveness is largely dependent on the rigour of their enforcement and the willingness of corporations to comply genuinely. The onus is on businesses to step beyond mere compliance and adopt a true commitment to sustainable supply chain practices.
In summary, both the EU and the UK are taking significant strides to prevent the greenwashing of supply chain data, with legislation such as the CSRD and FCA rules aimed at enhancing transparency and accountability. As companies grapple with these new reporting requirements, they will need to engage in more profound, systemic changes to their supply chain operations to truly reduce their Scope 3 emissions. Only through genuine action, beyond the allure of public image enhancement, can businesses hope to fulfil their environmental commitments and contribute meaningfully to the global fight against climate change. The time has come to unravel the ’emerald web’ of greenwashing and forge a path of genuine corporate sustainability.
As with the EU CSRD, all large businesses are at risk of impact if they trade with the EU or have operations there. The priority for business leaders should be to prioritise conducting Supply Chain Sustainability Audits according to rigorous principles aligned to established ESG frameworks.