As enterprises start getting a handle on managing sustainability data and performance within the enterprise, including scope 1 and scope 2 emissions, they are recognizing the importance of managing the environmental impact of their supply chains. According to Deloitte, supply chain emissions including scope III emissions, are estimated to account for as much as 70% of the carbon footprint of some companies.
To effectively address these emissions, enterprises are beginning to engage with their suppliers to ensure they are monitoring and reporting on their sustainability practices using well-established frameworks such as CDP and Ecovadis.
There are several ESG frameworks and standards that enterprises should encourage their suppliers to understand and monitor. These frameworks can help suppliers to better understand their own sustainability performance and provide a consistent and transparent way for suppliers to align to their large enterprise customer’s sustainability and ESG Goals & Targets.
While ESG standards are well-defined and provide businesses with more clarity on what metrics need to be reported, ESG frameworks provide flexibility and allow businesses room to progress on their sustainability maturity journey.
Here are some of the key standards and frameworks that enterprises should consider collaborating on with their SMB suppliers:
● Global Reporting Initiative (GRI): GRI is an internationally recognized framework for sustainability reporting that provides guidelines for companies to report on their environmental, social, and governance (ESG) performance. Enterprises should encourage their suppliers to use this framework to report on their sustainability performance, as it provides a standardized approach that can be easily compared across companies and industries.
● Sustainable Accounting Standards Board (SASB): SASB is an industry-specific standard that provides guidelines for companies to report on their ESG performance. SASB provides a set of sustainability metrics that are tailored to specific industries, which can help suppliers to better understand the sustainability issues that are most relevant to their business and provide better support to their enterprise clients.
● Science-Based Targets Initiative (SBTi): SBTi is an important framework for companies to set science-based emissions reduction targets that align with the goals of the Paris Agreement on climate change. Enterprises can work collaboratively with their SME suppliers to identify opportunities for emissions reduction and support them in achieving their sustainability goals.
● International Financial Reporting Standards (IFRS): IFRS sustainability disclosure standards aim to make a global comparison of ESG data possible and effective. These standards due in June 2023, are intended to integrate various other ESG standards like CDP, CDSB, GRI, SASB, and TCFD. Enterprises can encourage their SME suppliers to comply with IFRS by making it a requirement for doing business. This can help to create a culture of compliance and ensure that financial statements are prepared in accordance with globally recognized standards.
● European Sustainability Reporting Standards (ESRS): This standard makes ESG data reporting flexible enough to accommodate sector-specific details while ensuring the information is comparable across different economic sectors. While ESRS has come into effect in the European Union from 2023, based upon a phased timeline, adoption would start for some companies for years beginning on or after 1 January 2024. Small and medium enterprises (SMEs) in the EU will need to start their own ESRS reporting using the follow-on, streamlined reporting system designed for small businesses from 2026. Enabling SME suppliers to comply with ESRS is important for creating a level playing field for sustainability reporting and ensuring that all companies are held to the same standards.
● UN Global Compact: The UN Global Compact is a voluntary initiative that encourages companies to adopt sustainable and socially responsible policies and practices. Enterprises should encourage their suppliers to sign up for the Global Compact and to report on their sustainability performance in line with the initiative's ten principles.
● Carbon Disclosure Project (CDP): CDP is a not-for-profit organization that provides a platform for companies and governments to report on their climate-related risks and opportunities. CDP encourages companies to report on their scope 3 emissions, which can help enterprises to better understand the carbon footprint of their supply chains.
● Ecovadis: The EcoVadis Rating covers a range of systems like Environmental, Labor & Human Rights, Ethics and Sustainable Procurement impacts. It helps drive global supply chain sustainability by rating companies on material issues, thus allowing enterprises to push supply chain partners beyond compliance, leveraging the influence of spending as a “force for good”. It enables comparing them against the benchmark in their industry, thus allowing whole industries to compete to achieve global best practices.
● Business Responsibility and Sustainability Reporting (BRSR): The BRSR framework is India’s own set of guidelines for ESG disclosures. It consists of three key segments of data, namely general disclosures, management and process disclosures and principle-wise disclosures. Recently, a BRSR core update was issued by SEBI in early 2023, and some companies are expected to adopt it for FY 2023-24.
● Task Force on Climate-related Financial Disclosures (TCFD): Established in 2015, TCFD focuses on improving the disclosure of data pertaining to climate-related financial information. By helping their suppliers adopt the TCFD framework, enterprises can help SMB Suppliers demonstrate their commitment to sustainability and position themselves as the preferred supplier to companies and investors that prioritize sustainability.
● WEF Stakeholder Capitalism Metrics: This ESG framework, which aligns with the UN SDGs, fundamentally relies on four pillars — People, Planet, Prosperity and Principles of Governance. Together, these pillars include 20+ core metrics and 30+ expanded metrics for ESG reporting. Adopting the Stakeholder Capitalism Metrics can also help enterprises and their suppliers establish a common language and understanding of sustainability.
By encouraging their suppliers to understand and monitor these ESG frameworks and standards, enterprises can gain greater visibility into the sustainability practices of their supply chains and take steps to reduce their scope 3 emissions. This can help enterprises to improve their overall sustainability performance and enhance their reputation with customers, investors, and other stakeholders.
In order to achieve this, enterprises must adopt technology tools that help them gain data clarity, address compliance, build competence within their supplier base, and control and manage risks. This is possible today at a low cost of ownership in platforms such as Treeni’s resustain™ SMB that provide automated data collection from their entire supply chain using templates. With resustain™ SMB, ESG reporting is neither complex nor expensive and creates long-term value and helps enterprises manage their net zero journey.