A CEO’s Guide to Navigating the New Wave of Sustainability Regulations

While 2024 has only just begun, it’s clear that this is the year social and environmental regulations will push companies to go beyond voluntary disclosures and shift to mandatory compliance. We’re already  seeing it with the European Commission’s Corporate Sustainability Reporting Directive (CSRD), which has shifted regulatory compliance from voluntary to mandatory. This transition isn’t isolated to Europe; similar policies are emerging in the United States, such as California’s Climate Corporate Data Accountability and Climate-Related Financial Risk Disclosure Acts and the SEC’s recent landmark climate disclosure rule. As CEOs steer their companies through these waters, it’s not just about ticking boxes; it’s about embracing a new era of knowing your supply chain and having primary data as the linchpin to compliance, transparency, and leadership.

From carbon emissions to water usage, waste management, and the impact on people and local communities, focusing on immediate regulatory requirements is just the tip of the iceberg. Measuring environmental and social performance has become a fundamental expectation of responsible business in today’s marketplace. These evolving policies demand fresh perspectives and subject matter expertise from CEOs and their leadership teams.

Primary Data vs. Global Averages 

As we witness this shift towards transparent, data-backed sustainability reporting, leaders must examine how they can meet these regulations by accurately collecting and interpreting their supply chain’s environmental and social impact data. Delving into the primary data of a company’s specific supply chain impacts is essential.

Unlike secondary data, which may be aggregated or lack specificity, primary data offers a clearer, more accurate view of the impacts of every node within the supply chain. This level of precision empowers CEOs to make informed decisions that drive meaningful investments and improvements.

Historically, collecting primary data from manufacturers has not been reliable, standardized, or GHG-compliant. Data is typically collected manually via Excel spreadsheets, with limited or no aggregation or normalization, or it is collected yearly, which can be too infrequent to be actionable. As a result, industries rely on estimates and models to understand many supply chain impacts, making it hard to measure the impact of improvements to product design, materials, and manufacturing processes.

Gathering primary data should not be seen as an inconvenience but rather a powerful tool for building trust among stakeholders. Investors, customers, and the broader community increasingly scrutinize businesses for their environmental and social practices. To build a clear picture of their social and environmental impact, make smarter improvement decisions faster and more efficiently, and ultimately reduce global emissions equitably, businesses need tools that enable them to gather accurate, reliable, and actionable primary data within the value chain at a global scale.

Connecting your company’s value chain partners beyond its tier 1 suppliers is critical. While a lot of the relevant sustainability data is already available for tier 1 suppliers, the reality is that a substantial portion of a company’s carbon emissions and environmental footprint is embedded in the deeper layers of its supply chain. Take the apparel industry, where 91% of greenhouse gas (GHG) emissions come from tier 2-4 suppliers; if unchecked, the industry’s overall emissions will increase by 54% by 2030 rather than decrease by 45% to limit warming to 1.5°C in line with the Paris Agreement. CEOs must recognize the importance of extending their data collection efforts beyond the surface level, ensuring that all supply chain tiers are accounted for. Recognizing and addressing environmental challenges farther upstream not only enhances the accuracy of sustainability reporting but also positions companies as proactive leaders committed to driving positive change throughout their entire supply network.

As consumer and stakeholder expectations grow and companies are required to provide greater transparency in product labeling and environmental disclosures, quality supply chain data is necessary to facilitate honest discussion and reporting. Transparency is becoming the norm, and industries must push for the evolution of sustainability and ESG data to meet this demand. When data is more comprehensive, specific, and actionable, companies can make better decisions and foster impactful change in the consumer goods industry’s social and environmental practices.

Beyond compliance and credibility, primary data’s strategic value lies in its ability to drive innovation, efficiency, and investment. CEOs armed with comprehensive and detailed information about their supply chains can identify areas for improvement, implement targeted interventions, and drive sustainable practices throughout their organizations. Primary data is not just a means of meeting obligations; it is a catalyst for positive change and a cornerstone for building a resilient, sustainable future.

Leveraging Technology for Efficiency and Stakeholder Buy-in 

The harsh reality is that many businesses do not have the infrastructure in place to efficiently collect the behemoth amounts of primary data needed for accurate disclosures. This isn’t through any fault of their own but simply because the need was not there until now. However, the time has come for industries as a whole to shift to regularly collecting primary data to ensure preparedness for upcoming reporting requirements.

As addressing climate change becomes increasingly enforced by global governments, companies need to collect and verify primary data frequently to present the clearest possible picture of sustainable management trends and global opportunities. This data must effectively convey ESG initiatives to shareholders and the public.

When it comes to sustainability measurement and disclosures, we are transitioning from the era of the carrot to the era of the stick. CEOs who approach disclosure as an opportunity for distinction will stand out as exemplary leaders. By navigating the sustainability data revolution with purpose and leadership, CEOs can guide their companies toward a greener, more sustainable global landscape. It’s not just about compliance; it’s about setting a precedent for responsible business conduct that goes beyond meeting regulatory requirements to create a lasting legacy of environmental stewardship and ethical leadership.

The right tools will transform how companies and vendors in their supply chain collect, share, and interpret their social and environmental data. Advanced data analytics tools, artificial intelligence, and machine learning algorithms can streamline the otherwise intricate data collection process, making it more efficient and systematic. Technology opens the door to real-time monitoring and analysis, giving companies a dynamic understanding of their footprint. This facilitates compliance with regulatory requirements and enhances collaboration across the supply chain.

Collaborative sustainability tools enable seamless communication between companies and their suppliers, facilitating the exchange of environmental data in a secure and transparent manner. This integration ensures accuracy and promotes a collective effort towards sustainability goals. As CEOs embrace these technological advancements, they will pave the way for a more interconnected, transparent, and sustainable supply chain ecosystem. In essence, technology catalyzes an innovative and efficient approach to navigating the complexities of ESG compliance.

The journey toward a sustainable future mandates a collective commitment to transparency, innovation, and responsible business practices. As the captains of industry, CEOs are responsible for recognizing the interconnectedness of supply chains and the shared obligation for social and environmental stewardship.

Written by Scott Raskin.

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