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THE NEW EUROPEAN AGE OF CORPORATE EMISSIONS REGULATIONS By Berit Anderson Why Read: While the US fights over word choice and pushes Europe further away, the EU's new omnibus proposal - and others like it around the world - are still putting pressure on corporate emissions, even toned down. ______ Do words matter? Yes. In the US, those working to respond to the climate emergency are having a rough quarter:
There are sacrifices made by ceding language that will weaken citizen awareness of the climate emergency, slow corporate innovation, and diminish the appearance of the threat across academic studies. "No papers on climate change in the last three years? It must not be a real problem." "Oh no, your house burned down? You should've hired the private firefighting brigade in advance, with all this dry weather we've been having. I was so glad I bought the fireproof Maserati instead of those Tesla things. Basically tinder." Still, it is more important to focus on impact than to fight battles over word choice. The climate emergency will proceed apace no matter what we call it. And I expect this Orwellian approach to stifling science will have significant consequences, unintended by its architects, in solidifying the mettle of the global scientific community. Time - not oil or steel or aluminum - is our scarcest resource. The good news (for those who enjoy living on Earth) is that the US, much as it would like to think so, is not the only nation that matters or can effect change. In the corporate world, access to international markets is one of the strongest levers to drive real change in corporate behavior. And regulators across those markets are set to roll out a bouquet of Scope 3 carbon-emissions reporting in the next five years. Scope 3 emissions are those generated by a company outside its corporate operations. For example, let's say Amazon pays a company to produce Amazon-branded sweatshirts and then ships those sweatshirts to customers. Traditional emissions reporting wouldn't include the greenhouse gases released by creating that sweatshirt or by shipping it, even though that's where the majority of that product's impact lies. Storing it in a warehouse doesn't produce much extra CO2. Scope 3 emissions fall into one of two key categories: upstream (emissions generated in the production of corporate goods and services) or downstream (emissions generated by the purchase and delivery of corporate goods and services). Source: Aligned Incentives
According to their own reporting, the Fortune 500 were estimated to be responsible for 7.56 of the total 49.8 gigatons of global greenhouse-gas emissions. And that's a number that vastly underestimates their total impact, according to a 2021 report from Recapture. That's because three-quarters of all reported emissions are Scope 3 - linked to supply chains and distribution, not central corporate operations. But only some companies currently report their Scope 3 emissions. Including estimations of Scope 3 emissions nearly doubles the emissions impact of the Fortune 500. Source: Recapture Total global emissions in 2019 were estimated at 49.8 billion tons, or gigatons. In other words, the Fortune 500 alone were responsible for 26.4% of global emissions. This is true across industries, from financial services (100% of emissions estimated to be Scope 3) to cement (19% of emissions estimated to be Scope 3), according to a 2022 analysis by the World Resources Institute. Reporting of those emissions brings more visibility to their true impact. As SNS member Cynthia Figge wrote to me this week: Scope 3 reporting matters - it matters because it has an out-sized impact on global sustainability and decarbonization. MSCI found in April 2024 42% of public companies globally are reporting on at least some of their Scope 3 emissions, compared with 25% two years ago. However, only 29% of public companies in the U.S. are reporting on Scope 3 (while Deloitte estimates 15%). In other words, what gets measured gets acted on. Cynthia is the CEO and co-founder of CSRHub, the global leader of consensus ESG ratings and information covering 58,000 companies worldwide to track sustainability performance and supply-chain risk. (CSR was also a 2011 FiReStarter company.) We're also lucky enough to have her as an advisor to Future in Review. (Full disclosure: CSRHub also gave me one of my first real jobs.) More from Cynthia: Leadership in reporting Scope 3 is based on corporate self-interest for increased brand reputation, talent attraction, operational efficiencies, and reduced risk. Companies will increase their pressure on suppliers to report Scope 1, 2, and 3, although small and medium size suppliers are the laggards because of the challenges for good data, measurement, and mindshare. I've been doing sustainability work for 30 years and this is a long work in progress. However, as Martin Luther King Jr. said, "The arc of the moral universe is long, but it bends toward justice," and we are trending in the right direction as the pressure for Scope 3 disclosure increases.
Up until this point, measuring Scope 3 emissions has been almost entirely voluntary. However, even with the US abandonment of SEC emissions regulations, markets around the world are poised to adopt an avalanche of Scope 3 emissions reporting standards starting this year. Brazil, China, Hong Kong, Nigeria, Singapore, Switzerland, and the UK all have Scope 3 emissions reporting requirements in place, with phased-in reporting over the next one to three years. Source: Aligned Incentives In California, private and public companies with more than $1B in revenue are scheduled to start phasing-in reporting in 2026. It's a planned rollout we can expect to see face an uphill battle. Trump and Elon have shown disdain for almost everything about California - its politicians, its people, even its farmers - and I would be stunned if they allow that regulation to continue as planned without some kind of federal intervention. It will very likely become the focus of federal attacks and a protracted legal battle that gives US companies more time to prepare. Most stringent - and most likely to affect the Fortune 500 - are those in the EU, which is currently working to trim down the thicket of overlapping regulatory and reporting standards entwined in both its Corporate Sustainability Reporting Directive (CSRD) and its Corporate Sustainability Due Diligence Directive (CSDDD). (Can you tell this is an industry with an acronym problem?) Reporting for EU companies will phase-in later this year. However, facing the possibility of US tariffs, and with China continuing to undermine parts of its economic base, the EU is increasingly calling for economic competitiveness above all else. Amid a tenor of austerity, the European Commission released its omnibus proposal last week, pushing back deadlines and removing some teeth from the two regulatory structures. This created a lot of environmental handwringing, but the main aspects of what they've proposed are not actually terrible for emissions, given what we've discussed above about the small number of global companies producing the lion's share of emissions. Let's dive in. The new proposal:
Yes, that's right. Thousands of companies. To revisit our earlier statement about the Fortune 500: even imposing Scope 3 reporting standards on just 500 of the largest publicly traded firms could have enormous effect and be a huge boon to the carbon-credits market. My biggest criticism here is the time factor. The year 2029 makes sense from a legislative-process standpoint, but not from a realism standpoint. Responding to the climate emergency is not a "due process" situation. It must be treated as the emergent global disaster that it is. With the Trump White House disavowing any and all climate science and funding, Europe has become the de facto standard setter for climate emergency response. It will take it a minute to square this with the current political climate and its effect on the EU economy, but this is a key opportunity for the EU to channel its recent investments in innovation to again lead the world in climate response.
The Road Ahead for Large Multinationals Of course, reporting standards are just that - reporting. They don't mandate any kind of behavior change. There are two key options for reducing emissions: carbon removal and deployment of renewable energy. As the Recapture report noted: The volume of carbon credits currently available in the voluntary carbon market comes nowhere near meeting current or future demand. In fact, the less than 10 million tonnes CO2e of new carbon removal credits issued in 2020 wouldn't be enough to remove the emissions from even one company on the Fortune 500. That brings us back to SNS's favorite climate topic: the global energy transition. It's still about time for global renewables . . . now.
Your comments are always welcome.
Sincerely, Berit Anderson
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Subject: Re: February Spark salon Hi guys, What a very interesting Spark forum today! It was a breath of fresh air to hear the German perspective on the world. It amused me that when Berit asked about media bias, they answered that Germans think the greatest threat today is disinformation from the US. Watching the chaotic and inept destruction of agencies in Washington against the backdrop of Republican silence and the usual Fox News distraction tactics has been extraordinary. You'd think that threatening to cut $880 million from Medicaid might finally break through the wall, though. My best to you all, John Payne Ecologist | Data Scientist
Sharon (Anderson Morris), Been tracking China - Throughout the entire Biden administration, 30 to 40,000 military members stationed over there in China Sea. Remember that each aircraft carrier has 5,000 stationed on it. And we have subs as well! This has been going on for a long time. There's a lot of information on the web you can find about the United States military. Big corporations sold their soul to China - again, no strategic plan. Another indication of what was also communicated about China going to war or preparing for war is that Japan offered a company which I will not disclose billions of dollars specifically to help with logistics. Linda D. Rocco
* On June 8-11, Mark will be speaking on a variety of subjects, and hoping to see many of our SNS members in person, at the FiRe 2025 conference.
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