Net zero is increasingly in the news and rising up the agenda for companies. However, tackling Scope 3 emissions[1] is proving to be a challenge for companies, with the level of required action falling alarmingly short. For example, CDP’s recent report “Big Challenge, Simple Remedies” highlights that only 15% of corporates disclosing through CDP have set upstream Scope 3 targets. Responsibility for Scope 3 can no longer be siloed in sustainability and supply chain teams. There needs to be collective prioritisation and action from every member of the C-Suite to address the complexities of reducing Scope 3 emissions across the value chain.
To a large extent increasing regulatory climate disclosures will force Scope 3 up the agenda for more functions. Companies are collecting, measuring, managing, and reporting on value chain GHG emissions so that they can comply with expanded disclosure requirements. These include the EU Corporate Sustainability Reporting Directive (CSRD), Task Force on Climate-Related Financial Disclosures (TCFD), and California’s Climate Disclosure Laws. This focus on climate transparency and accountability from companies across their full value chains is not only a regulatory necessity but a strategic imperative that will only grow.
The role of the Chief Executive Officer (CEO)
CEOs have said that the impact of climate change is high up on their agenda. PWC’s most recent Global CEO Survey found 30% of CEOs see climate change as driving a large or very large extent of company value in the next three years. Yet many remain unclear on how they are going to address the complexity of issues, including team capabilities, to get there. PWC’s survey found 30% of CEOs don’t even plan to initiate climate upskilling programs for employees. Unfortunately, for CEOs, this lack of knowledge and capability can no longer be an excuse for in-action, especially when their fiduciary duties are expanding in relation to ESG matters. The Board need to be kept up to date on the short, medium and long-term opportunities, risks and viability of the business. This includes how Scope 3 and other ESG commitments can be met while maintaining and growing the business. CEOs need to urgently align their business with net-zero targets. Beyond being potentially liable if they don’t, the CEOs who champion net zero will more likely lead a business that can capitalise on the significant opportunities.
The role of the Chief Financial Officer (CFO)
While the CEO has a responsibility to drive the overall change towards net zero, the Chief Financial Officer (CFO) has a key role in delivering meaningful impact. This includes supporting the business case for Scope 3 management, exploring innovative finance mechanisms to further incentivise decarbonisation e.g. internal carbon pricing or Green Bonds, and leveraging investment opportunities identified in the Double Materiality assessment. Involving CFOs and finance teams in emissions reduction planning across functions is likely to accelerate progress, including through data management and integration of reduction plans into existing business systems and processes.
Research from ACCA, IFAC, and PWC highlights the important role of the CFO and finance function in the climate transition, particularly their importance in shaping business decisions by leveraging current skills in producing information with integrity that can be used to drive insight and decision-making. CFOs also need to put upskilling and equipping their finance teams to support all the net zero initiatives for all functions higher up their priority list to ensure full value as business partners.
The role of the Chief Human Resources Officer (CHRO)
The upskilling of finance and all other functions is where the Chief Human Resources Officer (CHRO) needs to play an integral part. The CHRO can work with the rest of the C-Suite to ensure they have the capabilities needed to lead the transition, as well as support the wider organisational transformation. Actively investing in new types of human capital to anticipate and succeed in the short and longer term is going to be crucial, as well as ensuring there is a culture and incentivisation to innovate.
The key challenges in addressing Scope 3 are complex supply chains and engaging a large number of suppliers. This is where the CHRO, CFO and Chief Operating Officer (COO) can support the Chief Supply Chain Officer (CSCO) and the sustainability team in unlocking actions across the value chain. This includes fully mapping the supply chains, setting up systems and collecting the relevant data, building internal capabilities, leading collaboration and training, and ensuring supply chain teams can reward and penalise suppliers through financial and non-financial incentives to measure and reduce GHG emissions.
The role of the Chief Marketing Officer (CMO), communications and R&D teams
Communications and marketing functions can also share their vast knowledge and experience in engaging audiences. They can help create supplier engagement programmes that meet suppliers needs and wants and encourage participation through inspiring communications along the journey. Marketing and communications teams also have a pivotal role to play with consumers through education and campaigns which promote of conscious consumption and everyday actions. This should emphasise the customer benefits as well as wider societal and environmental benefits.
By utilising consumer insights and other relevant data, marketing teams can collaborate with R&D teams to develop products and services which can help a company meet Scope 3 emissions commitments. This could include using more innovative materials that have lower carbon footprints, creating products that consumer less energy during their lifecycle thereby reducing emissions associated with their use, incorporating lifecycle assessments in product development and adopting circular economy principles.
Beyond the supply chain, the rise in green claim legislation and greenwashing scrutiny will require the CMO and legal teams to ensure claims are accurate and transparent. If the company shares a net zero ambition, they should ensure the approach to scope 3 is addressed in order to be aligned to best practice.
Breaking down the C-ilos
Navigating the interconnected challenges and opportunities around Scope 3 requires different skills and perspectives. Mandating cross-functional teams to ensure organisational-wide consensus around the Just Transition is vital in bringing these different skills together that will lead to better decision-making and faster progress. We know from our experience with clients who are at different stages of their Scope 3 journey, that collaborating with stakeholders across the value chain is critical in accelerating decarbonisation and delivering their Net Zero commitments. It’s time to break down the C-Suite silos so they can do the same.
[1] The GHG Protocol Corporate Standard classifies a company’s GHG emissions into three ‘scopes. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.