Navigating 2024: Key sustainability challenges and opportunities in supply chain risk management

As we step into 2024, the landscape of supply chain risk management is evolving rapidly, presenting both challenges and opportunities for businesses worldwide. This article explores the critical issues to watch out for in the coming year, with a focus on regulatory developments, supplier transparency, greenwashing, and third-party verification.

Global ESG reporting and legislation

2024 is witnessing a global push towards more stringent sustainability reporting requirements:

• The European Union is at the forefront of this movement with directives like the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).
• Germany has already taken a proactive stance by implementing the German Supply Chain Due Diligence Act (GSCA).
• The United States is strengthening regulations surrounding ESG disclosure, as evidenced by the establishment of a climate and ESG task force by the US Securities and Exchange Commission (SEC). The purpose of this task force is to address instances of ESG-related misconduct.

Active involvement with both internal and external stakeholders, collaboration with industry peers, and ongoing engagement with regulatory bodies are instrumental in keeping businesses abreast of evolving ESG standards and legislation. This proactive approach ensures that businesses are well-informed about the impact of new rules on their operations as they come into effect.

Scope 3 emissions regulation

In addition to overarching ESG regulations, there is a heightened emphasis on Scope 3 emissions, which specifically pertain to the emissions produced by organizations through their supply chains, and which will be a key focus for companies to start planning for in 2024:

• In the United Kingdom, according to Public Procurement Notice 06/21, businesses vying for public procurement contracts exceeding £5 million are required to annually assess their Scope 3 carbon emissions. Additionally, they must demonstrate the existence of a Carbon Reduction Plan, aligning with the objective of achieving Net Zero by 2050.
• Starting in 2025, European companies, as well as those with European operations based elsewhere, will have an obligation to disclose Scope 3 emissions.
• California has enacted legislation mandating that both public and private companies with annual revenues surpassing $1 billion must report their Scope 3 emissions by 2027.

Supplier scrutiny

The push for carbon accountability across the supply chain is not solely a response to regulatory requirements; it is significantly shaped by proactive initiatives taken by industry giants. Leading corporations, including Amazon, Walmart, and Apple, are no longer passive observers, waiting for regulatory bodies to mandate Scope 3 emissions reporting. Instead, they are proactively compelling their suppliers to disclose greenhouse gas emissions, creating a ripple effect throughout the entire supply chain.

Consequently, businesses of all sizes, whether publicly listed or not, must adopt carbon accounting. This is not merely a reaction to regulatory demands but a strategic imperative to stay relevant and competitive in the marketplace. Misleading or inaccurate information regarding environmental or sustainability practices not only poses a reputational risk but also carries the potential for severe consequences, including exclusion from valuable partnerships.

In this evolving landscape, platforms dedicated to decarbonization, such as Avarni, are crucial. These platforms, equipped with features for supplier mobilization, play a vital role in ensuring alignment and desired outcomes across the supply chain.

Crackdown on greenwashing

The issue of greenwashing, misleading consumers about an organization's environmental and sustainability claims, is gaining global attention. Regulatory bodies around the world are taking decisive steps to combat greenwashing, emphasizing transparency and trust.

• The Financial Conduct Authority (FCA) in the United Kingdom has proposed a comprehensive set of new measures aimed at fostering transparency and trust.
• The European Union has established new minimum standards for companies to substantiate, communicate, and verify their environmental claims through the Green Claims Directive.
• The Australian Competition and Consumer Commission (ACCC) has published draft guidance on environmental claims, identifying key principles to avoid greenwashing (Greenwashing Guidance).
• In the United States, the Federal Trade Commission (FTC) is addressing greenwashing by major businesses through an update to its "Green Guides," providing clarity on instances where deceptive marketing practices related to sustainability violate federal law.

Businesses are urged to prioritize transparency within their operations and supply chains, providing tangible evidence of their genuine commitment to sustainability.

Increasing focus on third-party verification

The heightened emphasis on third-party verification underscores its strategic importance for businesses grappling with the complexities of an evolving risk management landscape. Popular third-party verification providers play pivotal roles in shaping and endorsing these verification processes:

• Science-Based Targets initiative — The SBTi defines and promotes best practice in science-based target setting. Offering a range of target-setting resources and guidance, the SBTi independently assesses and approves companies’ targets in line with its strict criteria. Over four thousand companies have currently set science-based targets.
• The Carbon Disclosure Project — CDP supports thousands of companies, cities, states and regions to measure and manage their risks and opportunities on climate change, water security and deforestation.

Stakeholders increasingly seek this form of assurance when evaluating potential partnerships. Notably, industries and governments are now placing a premium on third-party verification, often requiring it to meet compliance with rigorous standards and legislation.

Making the most of 2024

As businesses navigate the intricate terrain of supply chain risk management in 2024, proactive engagement with sustainability, transparency, and evolving regulations will be pivotal. Embracing these challenges as opportunities for positive change and innovation will not only enhance resilience but also contribute meaningfully to global sustainability goals.