SEC regulation proposal: how to see it as a commercial value

This article is sponsored by Makersite.

The United States Securities and Exchange Commission (SEC) has encouraged companies to disclose their climate-related risks since 2010. However, the publication of this data has been voluntary, which makes it easier companies avoid them or mitigate their data and many have done so especially when setting ambitious net zero targets. With its recently proposed regulation, the SEC takes a big step toward greater accountability and transparency in the marketplace.

Why is the SEC taking this step now?

Sustainability experts have claimed that regulations are inevitable and imminent for the past two decades, but they have always been “beyond the horizon.” Now that this horizon is finally here, it is clear that where regulations have not yet been established, they will soon arrive. Most likely, they are based on the sustainability standards that Europe and the United States are putting in place right now. This is in the context of the majority of countries signing the Paris Climate Agreement and a growing number of countries setting net zero targets by 2050.

What does this development mean to you?

While many companies must comply with the new regulations, it will be more difficult for international ones. The good thing is that many leading companies have had sustainability initiatives for decades; others have already adapted their business or are in the process of adapting it to a net zero future.

The past has shown that using climate change as a force to innovate is an unprecedented opportunity. There is a great deal of attention from customers and investors for companies that drive innovation. Which means regulations and general awareness can bring business value to your company. But whether or not you see the business value: Upcoming regulations will force companies to report and mitigate their environmental damage.

What should you be doing now?

What you need to do depends significantly on where you are as an organization.

If you’re an early adopter, you probably already have a program in place and are probably enjoying the spotlight right now. Enjoy it! It is beyond the initial phase of estimating, pain point analysis, and averaging data that drives reporting and management in the business.

What you should be looking for is to do two things.

  1. Find gaps in your current process to allow you to scale what you’re doing.
  2. Use what you have learned so far to enable meaningful change within the company by integrating into the core drivers of the business, namely purchasing and engineering. You’re also probably looking for a technology shift that will allow you to take the next step, focusing on capabilities that will enable engineers and buyers to make sustainable decisions with ease. In this way, it would go from a purely sustainable vision to the multi-criteria vision of the real world on which decisions are based.

If you are just beginning your sustainability program, you belong to the average majority. There’s a lot to catch up on, but luckily, you’re not trying to reinvent the wheel. As a manufacturer, the most crucial factors in deciding your approach are the product and supply chain data available within the business: Who do you trust for this data: purchasing or product engineering? The greater the maturity of BOM information within the company, the more it will lean toward a lifecycle-based approach. This is preferred, as opposed to a procurement data-driven spend-based approach (find out more about the advantages of these approaches here). Your procurement and product teams are your critical stakeholders for data and reduction initiatives. Determine what they need and how they would like to receive that information. Talking with sales about priorities will help you develop your roadmap of early successes and get commitments on budgets.

How do you take on the challenge?

Up to 90 percent of environmental impacts are hidden in deep supply chains for most manufacturing companies. In the worst case, you would need to investigate emissions from 21 levels of your supply chain to cover 90 percent of your emissions. Why? It is an empirical calculation. If each supplier only knows about 10 percent of their emissions (Scope 1+2) and 90 percent of each company/supplier’s emissions come from the supply chain, you would have to drill down 21 levels into your supply chain to find out. cover 90 percent. of its emissions in the worst case. Even in the most optimistic scenario, you need to drill down to at least four levels of the supply chain. While that may not seem like much at first, this is a Herculean task for even the most advanced supply chain teams, as more than 65 percent have no idea what is going on in their Tier 2 supply chain.

Therefore, quantifying your impacts on the environment and providing the ability to make significant changes through existing processes and equipment within your organization is impossible without help. The tools are invaluable in saving time, increasing the credibility of auditors, and most importantly, critical in enabling change within the organization.

Solution providers fall into three groups. Consultancies report manually with internal tools, primarily using a lifecycle-based approach, while software solutions report automatically. Most software on the market takes an expense-based calculation approach. That means they are estimating emissions by collecting data on the economic value of purchased goods and services and multiplying it by industry average emission factors. Makersite is currently the only solution that enables a hybrid approach: a fully automated solution that uses a lifecycle approach where BOM data is available, and an expense-based approach where it isn’t. The more granular your data is, the more useful the insights will be. In this way, Makersite automatically reports on all 15 Scope 3 categories while also identifying reduction levers, forecasting goal achievement, and equipping business stakeholders like purchasing to take action.

Why is this important? The emissions report is the easy part. Meaningful changes can only be made once you gain actionable insights into your product data and supply chains. Enabling real change means more than showing possibilities to be more sustainable. It also means that you must be able to assess these possibilities on other levels, such as cost and risk.

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