All eyes have been on the recent SEC regulation around climate-related risk disclosure and its potential impact on corporate reporting. 

But while the SEC’s rule remains tangled up in legal challenges, major corporations are moving forward with voluntary climate reporting through their supply chains, as requests for information on carbon emissions, supplier diversity, fair labor practices, and other key sustainability metrics increase.   

Forward-thinking companies recognize the need to broaden their sustainability tracking across the supply chain to satisfy consumer concerns, assess risk across the full scope of their operations, and meet net-zero emissions commitments. Climate impact has become a key supply chain issue, particularly for the world’s biggest companies, and represents a growing area of investment for procurement teams. 

Supply chain transparency offers the opportunity for businesses to keep sustainability in focus, even while regulators have put larger climate-reporting efforts on pause.

Demanding a Greener Supply Chain

While customers don’t have a seat in the boardroom or behind regulators’ desks, they do have an impact on economic buying power. 

Whether it’s a B2B or B2C company, customers are increasingly focused on buying from companies that are invested in sustainability. This may come in the form of a supplier questionnaire from larger buyers, or a petition from a climate-conscious customer base for a product-driven brand. 

In both scenarios, there’s real reputational risk to your brand, and the potential loss of large contracts, if this pressure is ignored by key supply chain participants.   

While no sustainability plan is ever perfect, companies can get started by engaging with these stakeholders directly. By requesting sustainability strategies, emission sources, and other key pieces of data, customers are pulling businesses towards more effective climate reporting, beyond what regulators are asking for today.

Corporate net-zero climate commitments (aligned with the Science Based Target initiative’s (SBTi’s) Corporate Net-Zero Standard) are becoming increasingly popular, in response to demand from investors, customers, employees and regulators. By setting these types of targets, companies can stay competitive with peers and can also help bolster performance in sustainability rankings and ratings. 

Net-zero commitments involve reducing emissions across Scope 1 and 2 (direct) emissions and Scope 3 (indirect) emissions, which is only possible by taking the full supply chain into account. 

To set a net-zero climate target through SBTi, almost all businesses would need to include Scope 3 emissions in their reporting, either by including their supply chain’s direct emissions or through an engagement target, which would require a percentage of the supply chain to have its own net-zero commitments in place. This work includes training and engaging suppliers on how to calculate greenhouse gas emissions and collect relevant data, and monitoring progress through regular communication. For the biggest global buyers, this also includes creating supplier questionnaires to not only request this information, but also provide resources for how to partner on transition plans and tackle sustainable initiatives together.

In 2024, 3,278 companies globally had net-zero commitments on record, and over 47,000 companies received requests for supply chain sustainability data from the Carbon Disclosure Project (CDP). For the growing landscape of companies seeking net-zero commitments, their underlying supplier networks will also need to become familiar with climate reporting and target setting in the near future.

Impact on Financial Communications

As SEC Commissioner Gary Gensler cited in the March, 2024 Climate Disclosure Rule, 90% of the S&P 500 index disclosed matters related to climate change or emissions in their most recent annual report. 

Companies are increasingly being compelled to disclose the risks to their business model, including those related to climate change, in their financial communications. There is a strong feedback loop from the chief financial officer’s office to the sustainability (and procurement) side of the business — the more positive impact that gets captured across the business, the more it will be communicated within ongoing financial reporting, and will be welcomed by investors and ratings agencies. 

Incorporating climate reporting into the supply chain is another positive metric to put into financial communications, including the annual report, sustainability report and specialized measurement tools.

If making your supply chain more sustainable for strategic purposes isn’t enough of a hook, consider the importance of compliance. The EU’s CSRD requires all companies over a certain size to disclose their Scope 3 emissions within a phased time period. This includes some of the country’s biggest technology companies, including Apple, Meta and Google, and the thousands of suppliers within their supply chains. 

California’s SB-261 and SB-253 are also on track to require mandatory Scope 3 emissions reporting. Under both laws, public and private entities doing business in the state and meeting certain annual revenue thresholds will need to report Scope 1, 2, and 3 GHG emissions and climate-related financial risks by January 1, 2026 and biennially thereafter. 

To comply with these regulations, more than just the reporting company will be affected; the thousands of companies within the supply chain will need to consider their carbon footprint as well, and be prepared to answer future questionnaires. 

While the SEC’s climate reporting may be at a standstill for financial and compliance professionals, supply chain and procurement efforts continue to move the ball forward on corporate reporting, and are offering a look at a more sustainable future. 

Effective supplier engagement represents a powerful and transformational tool for driving sustainability, as well as innovation and financial value. All companies would do well to consider how a greener supply chain would affect their business operations today and in the future. 

Chad Spitler is founder and chief executive officer of Third Economy.