Frequently, when questioned over inaction on climate change, business leaders say they are waiting for clear, standard guidance from governments and regulators on how to tackle the issue. That guidance is now imminent, but it won’t come without costs for business.
This month the EU is expected to reveal the final set of European Sustainability Reporting Standards and, later this year, the U.S. Securities and Exchange Commission is due to implement its new regulations for climate disclosures, compelling U.S.-listed companies to declare Scope 3 emissions and prove they are making progress on environmental goals.
“That is a huge challenge for the community,” says Donavan Hornsby, chief market strategy officer at ESG digital solutions provider Benchmark Gensuite. “It’s one thing to try to understand the risk for your own operations, but now you’re trying to look at risk and emissions associated with your value chain, and that’s a whole different beast.”
The onerous challenge of documenting Scope 3 emissions—that is, emissions generated by a company’s upstream and downstream supply chains—is one of the reasons why some industry groups are lobbying against the SEC’s rules. Not only will reporting on Scope 3 emissions make certain industries look like extremely heavy polluters, but documenting those wider emissions also will draw capital and money away from a company’s primary operations.
“Compliance is always seen as a cost,” Hornsby says, noting there is always pushback from businesses when a new regulation requires companies to divert resources away from what they see as their core business. But, Hornsby adds, there is also economic opportunity in meeting climate compliance that companies would be smart to recognize.
For a large business, chasing down Scope 3 emissions will require the company to establish far keener oversight of its supply chains than most businesses have today. There’s a steep upfront cost in developing that map, but (as I’ve written before) doing so will help companies spot unknown inefficiencies in their operations.
Investors and socially conscious job seekers, Hornsby says, are likely to find companies that demonstrate control over their climate risk more attractive too, meaning climate-compliant companies are going to find it easier to attract capital and talent. And, benefits aside, the new regulations from the SEC and the EU also will establish “hefty” fines for companies that fail to comply, establishing a cost point for greenwashing.
“Suddenly you’re having to look at your sustainability efforts with the same level of rigor as you have your financial accounting, and that’s totally a game changer for a lot of folks,” Hornsby says.
Hopefully, that new rigor will bring the clarity business leaders say they need.
Eamon Barrett
eamon.barrett@fortune.com
IN OTHER NEWS
Crypto crackdown
The SEC is coming after two of the world’s largest crypto exchanges, Coinbase and Binance, accusing them both of violating laws. On Monday, the SEC accused Binance of mishandling customer funds and lying to regulators about its operations. A day later, the SEC sued Coinbase, alleging the exchange failed to register as a broker.
CNN’s wayward leadership
Days after an unflattering profile piece in The Atlantic, CNN CEO Chris Licht stepped down from his role as head of the news network, after just 13 months in the position. During his tenure, Licht oversaw the sudden shutdown of CNN+, axing thousands of employees recently hired to man the nascent unit, and also managed the network’s disastrous (for CNN) town hall with Donald Trump.
No trust in the economy
Veteran investor Stanley Druckenmiller fears a recession is on the way after more than a year of aggressive interest rate hikes from the Federal Reserve have failed to quash inflation, Fortune’s Will Daniel reports. Druckenmiller says the collapse of SVB is just the “tip of the iceberg” and that there are “more shoes to drop” in the economy.
In defense of DEI
“A diverse management team and workforce produce better results,” says Bill Novelli, professor emeritus at the McDonough School of Business at Georgetown University, in a Fortune op-ed against the pushback on DEI. The "culture wars," Novelli says, have made DEI issues a target, resulting in some companies pulling back on diversity and equity initiatives in order to avoid courting controversy among Republicans. But that, Novelli says, is a mistake.
TRUST EXERCISE
In just the latest scandal for FIFA, the Swiss Fairness Commission (SLK) advertising watchdog concluded that the football group had made false and misleading statements about the 2022 Qatar World Cup being “climate neutral.” The SLK launched its investigation after environmental groups from several countries complained about FIFA’s advertising. The SLK has advised FIFA to “refrain from making unsubstantiated claims in the future,” but it's not legally binding.
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