Strengthening your supply chain one link at a time.
The Paris Climate Agreement, a legally binding international treaty on climate change adopted by 196 Parties, has given way to the need for regulators of these Parties to implement reporting requirements. 2024 is the year in which the United States will begin requiring companies to report their greenhouse gas emissions (GHG). With these requirements, it is essential to understand whether your business will be required to report greenhouse gas emissions and what emissions are considered in scope. The approach to defining GHG, developed by the Greenhouse Gas Protocol, divides emissions into three scopes.
Source: WRI/WBCSD Corporate Value Chain (Scope 3) Accounting and Reporting Standard (PDF), page 5
As you can see from the graphic, these scopes cover the entire value chain, from upstream activities to the final downstream activities. According to the GHG revised protocol, Scope 1 encompasses direct GHG emissions that occur from sources owned or controlled by the company. These include emissions from vehicles, furnaces, boilers, etc., owned or controlled by the reporting company.
Scope 2 emissions account for electricity, steam, heating, and cooling purchased and consumed by the reporting company. These emissions physically occur at the facility where the electricity is generated.
Scope 3 covers all other indirect emissions, both up and downstream. These emissions occur from sources not owned or controlled by the reporting company. However, they are a direct result of the reporting company. Examples of scope 3 emissions include employee commuting, processing of sold products, leased assets, and transportation & distribution.
Within the United States, effective March 6, 2024, the SEC adopted the final rules to require registrants to disclose Scope 1 and/or Scope 2 information in registration statements and annual reports. These requirements will come in a phased-in basis by certain larger registrants when their emissions are material.
California has passed two Acts that will have much further reach outside of Businesses with headquarters in California. California’s first Act, the Climate Corporate Data Accountability Act (SB 253), requires US companies with annual revenues exceeding $1 billion and doing business in California to disclose their Scope 1 and 2 greenhouse gas (GHG) emissions data starting in 2026 and their Scope 3 GHG emissions data by 2027 (and annually after that). Businesses engaging in even limited activity in California are likely to be deemed to be “doing business in California,” SB 253 will have substantial reach, covering companies with a limited tie with California
Climate-Related Financial Risk Act (SB 261) requires any US-based company with total annual revenues exceeding $500 million, and that is “doing business” in California to prepare and submit climate-related financial risk reports. Reports must be submitted by January 1, 2026, and biennially after that. The reports must be published on the company’s website, and the company’s climate-related financial risks and any measures implemented to mitigate those risks must be disclosed.
As Kira Bilecky said in her “Best Practices Making Your Supply Chain Sustainable” blog, “Being consistent is most important considering many of the fundamentals are shared. And, remember, “Don’t let perfect be the enemy of good”. Stay focused and leverage external resources to help when you need it.” These new reporting requirements may feel overwhelming for your business at first. Still, there are many tools and resources to assist in inventorying your GHG emissions. Once you have refined the methodology, the next step is to understand where you can make improvements within your value chain to reduce your GHG emissions.
References:
The Greenhouse Gas Protocol. Greenhouse Gas Protocol. (2004, March). https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf
33-11275-fact-sheet.PDF. U.S. Securities And Exchange Commission. (2024, March). https://www.sec.gov/files/33-11275-fact-sheet.pdf
The Greenhouse Gas Protocol. Greenhouse Gas Protocol. (2004, March). https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf
Senate Bill No. 253 CHAPTER 382. Bill Text – SB-253 Climate Corporate Data Accountability Act. (2023, October 7). https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB253
SB-261 Greenhouse gases: climate-related financial risk. Bill Text – SB-261 Greenhouse gases: climate-related financial risk. (2023, October 7). https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB261
—Matt Harned, St. Onge Company
