The Securities & Exchange Commission’s (SEC) newly proposed rule lays down the marker for public companies when it comes to climate disclosure and reporting.

In its proposal, the SEC said the requirements would be phased in over several years. This means the largest corporations would need to start disclosing climate risks in fiscal 2023, while other firms would have until fiscal 2024. Companies will get an extra year beyond those dates to include supplier and customer emissions, and to get emissions data audited.

The U.S. trails other countries that have already proposed climate disclosure rules. Britain and Japan plan to require certain large businesses to disclose their emissions starting next month, while the EU is set to require all large companies listed on the European stock exchange to report their emissions beginning in 2024.

Nonetheless, the writing is on the wall for companies about carbon disclosure. It’s a matter of “when” and not “if” climate reporting will be required. It’s noteworthy that so-called “Scope 3” or supply chain emissions are included in the SEC proposal. This is important because it means that ESG corporate professionals must now begin to grapple with the challenges associated with measuring and influencing their supply chain emissions if they haven’t already.

For companies looking to develop a Scope 3 program across their enterprise, here are four recommendations: 

• Measure Scope 3 emissions for each spend category and create a spend category assessment;
• Enrich supplier data with public and private information such as company sustainability reports;
• Use this information to identify supplier-specific emissions reduction opportunities, and
• Build a supplier influence program based on corporate strengths, weaknesses and capabilities.

These steps are presented below in Table 1.

The advantage of this structured approach is that it leads organizations through the entire Scope 3 journey, from initial measurement to supplier influence. The result is a program that not only meets forthcoming carbon disclosure requirements but moves organizations through the process of minimizing Scope 3 emissions by influencing suppliers. Several large companies have already implemented programs that provides suppliers with more favorable terms if they make decarbonization progress or set science-based targets. It’s time for organizations of all sizes to develop and implement similar programs before carbon disclosure filing day is suddenly upon us.

Brandon Owens is vice president of sustainability at Insight Sourcing Group.

Read more of SupplyChainBrain's 2022 Supply Chain ESG Guide here.