Building a Business Case for Sustainability

Making the news of late has been the enormous cutbacks behind the United States around climate action. With the removal of almost US$20 billion from governmental climate action grants, commitments around climate action are flagging in one of the world's largest markets. Introduction of tariffs and additional trade barriers have also started to pinch companies' bottom line, and companies around the world are asking themselves - how do I keep building a strong case for climate action?

To your benefit, other geographies aren't slowing in their climate action. A large majority of countries around the world continue to be accountable to the Paris Agreement, and a recent factoid showed that companies continue to have their targets, rather than rescind them outright. There is even hope within those in the United States as even at the state-level, New York, and California both have laws which extend disclosure and accountability to operations in the United States. 

A key point has been around Scope 3 emissions, of which management has never been more urgent. Scope 3 emissions—indirect emissions occurring across an organization’s value chain—often comprise most of a company's overall carbon footprint, sometimes as much as 90% of emissions. Effectively measuring and managing these emissions can yield significant strategic advantages, mitigate risks, and enhance stakeholder trust.

What's driving this urgency?

Climate change

Particularly for companies in Food & Ag, climate change, poses significant risks to their operations and sustainability. Rising temperatures, more frequent extreme weather events, and water scarcity threaten crop yields and livestock health, leading to supply chain disruptions and increased costs.

According to Hamish Reid, Managing Director, Pollination, who featured recently in one of our webinars, in recent conversations with the world's largest potato producers, "...they were saying that every year, somewhere in the world, they have a climate related shock to their yield performance in the order of 30%." That's a staggering number that they're having to deal with, and the incidence of those shocks are coming more and more frequently." 

This exposure necessitates proactive adaptation strategies, including diversifying suppliers and adopting resilient farming practices. Moreover, the industry's environmental footprint extends beyond direct farming activities, as Scope 3 emissions—encompassing the entire supply chain from production to consumption—play a crucial role in overall carbon impact. Measuring and managing these indirect emissions are essential for reducing the sector's environmental impact and meeting growing regulatory and consumer demands for sustainability. 

They were saying that every year, somewhere in the world, they have a climate related shock to their yield performance in the order of 30%. That's a staggering number that they're having to deal with, and the incidence of those shocks are coming more and more frequently. - Hamish Reid, Managing Director, Pollination

Regulatory environments

One major trend driving the urgency around Scope 3 emissions measurement is the evolving regulatory landscape. Globally, regulatory frameworks have evolved rapidly to mandate more comprehensive climate disclosures. For instance, the European Union's Corporate Sustainability Reporting Directive (CSRD) now requires approximately 50,000 companies to disclose their Scope 3 emissions. Similarly, the International Sustainability Standards Board (ISSB) standards include mandatory Scope 3 reporting requirements. While regulatory compliance should not be the sole motivator for measuring Scope 3 emissions, it undeniably serves as a powerful catalyst for companies to initiate or enhance their emissions tracking efforts.

Investor scrutiny

Another significant factor influencing the business case for Scope 3 measurement is investor scrutiny. Investors increasingly view unmanaged Scope 3 emissions as a financial risk. Jurisdictions across the world have associated sustainability directly with material financial risks, like Australia, which has done so as part of the ASRS. Institutional investors have explicitly integrated climate risk assessment—including Scope 3 considerations—into their investment strategies, meaning companies that measure and manage these emissions can attract and retain investment capital.

Unlocking competitive advantage

Beyond regulatory compliance and investor expectations, businesses that proactively address Scope 3 emissions can unlock competitive advantages through improved operational efficiency and innovation opportunities. By identifying emission hotspots within their supply chains, companies often uncover inefficiencies and wasteful practices that can be rectified to achieve cost savings. Additionally, transparent sharing of emission data fosters stronger partnerships with suppliers through mutual accountability and trust-building. Companies can also differentiate themselves by innovating products with lower lifecycle emissions, appealing to environmentally conscious consumers and gaining market share.

What can we do?

 So what we're seeing, I think the really leading companies doing is taking a step back from perhaps all of the individual dislocated initiatives, pilots, approaches, attempts to generate financing opportunities for transition into a more thoughtful, stepped back, high level view of what it takes to move a whole system towards a better position. - Hamish Reid, Managing Director, Pollination

Several practical steps can facilitate effective action, when it comes to building a compelling business case around Scope 3 measurement:

Firstly, initiating a materiality assessment is crucial.

This preliminary step helps identify the most significant emission sources within the organization's value chain before embarking on detailed analyses. By pinpointing high-impact areas early on, sustainability teams can allocate resources more effectively and prioritize actions that yield substantial reductions.

Secondly, data quality improvement should be approached incrementally.

Organizations can begin by utilizing industry-average data to establish baseline measurements and then progressively incorporate more precise supplier-specific data over time. This allows businesses to start immediately while continuously refining their data accuracy and insights.

Thirdly, setting ambitious yet achievable targets with clear interim milestones is another critical component of building a robust business case for Scope 3 measurement.

Clearly defined targets provide direction and accountability within an organization, ensuring sustained momentum toward long-term sustainability goals.

Fourthly, collaboration with suppliers is also vital for enhancing data collection capabilities across the supply chain.

By fostering open communication channels and incentivizing accurate reporting from suppliers, companies can improve the granularity and comprehensiveness of their Scope 3 data sets.

Finally, sustainability professionals must ensure that insights derived from Scope 3 measurements translate into actionable strategies across procurement processes, product development initiatives, and broader corporate strategy formulation.

Technologies capable of tracking emissions at granular levels—such as by country, business unit, factory location, or specific processes—can empower decision-makers with actionable intelligence to drive meaningful decarbonization.

Conclusion

In conclusion, those looking to build a compelling business case around Scope 3 emissions measurement should leverage emerging regulatory frameworks as catalysts for action; recognize investor expectations as incentives for transparency; uncover operational efficiencies through hotspot analysis; adopt iterative approaches for improving data quality; set clear targets; integrate insights into strategic decision-making; and foster collaborative relationships with suppliers to enhance data accuracy. By embracing these practices proactively, businesses can lead in an increasingly climate-conscious market landscape.