60% of UK companies risk fines over Scope 3 reporting deadline
As pressure mounts on TotalEnergies to take a more aggressive approach to Scope 3 targets, new data reveals that 60% of UK businesses may not be ready to report on new Scope 3 emissions by the January 2024 deadline, according to research from AI-powered supply chain management platform, 7bridges. Alongside this, customer loyalty looks to be tested as nearly a half (49%) of consumers will look to buy from other brands if those they shop with are fined for non-compliance and 17% will never buy from them again.
The research, undertaken by Censuswide, surveyed 800 businesses of 250 employees or more in sectors including retail, pharma, manufacturing, logistics and construction, and 2,000 consumers to understand how prepared businesses are for the new regulations, and what impact non-compliance might have on their customers.
The data reveals that although nearly all businesses (96%) have heard of the European Corporate Sustainability Reporting Directive (CSRD) coming into force, there is uncertainty around measurement and reporting. Over a quarter (27%) report feeling worried, particularly if they have a turnover of under £1m where 49% of leaders are concerned.
The data paints a bright picture that 84% of businesses have offsetting carbon emissions as part of their strategy right now, and 71% say auditing has helped to reduce their carbon footprint so far. But the incoming Scope 3 regulations are much stricter, and the sample of 800 large (250+ employees) businesses are unsure if they will be ready by the deadline. Despite this, 39% of companies surveyed cite monitoring and reducing environmental impact as a key strategic area for reducing costs this year, placed ahead of developing new tech (34%), optimising supply chains (31%) and product development (27%).
Philip Ashton, co-founder and CEO of 7bridges, discusses the impact of the new Scope 3 regulations: ‘Our research reinforces the upwards trend we are seeing of businesses auditing and working to reduce their carbon emissions albeit often through manual and sometimes unreliable processes. We are now aware that leaders are feeling uneasy about their new responsibility for reporting not only their own emissions but those of partner businesses such as in manufacturing and transport. In fact, CEOs were least likely to have heard of the directive coming into force. Critically, businesses need to not only proactively use the reporting, but also take steps to make reductions and improvements.
‘The penalties are substantial; UK firms are set to be charged up to £40 per tonne of CO2 emissions misreported under the new regulations and consumers can be unforgiving which puts their reputations at risk. This is a huge challenge for companies such as retail and pharma, and many will be looking to their supply chains – which account for up to 80% of Scope 3 emissions – first.’
Responsibility for correctly recording and reporting Scope 3 emissions will vary in businesses with a third (33%) falling on chief sustainability officers and a further third (31%) on the CEO. While many businesses (45%) plan to rely on internal expertise and resources to report Scope 3, the majority will look outside for support by investing in a SaaS/tech solution (47%), hiring a specialist to join the team (45%), engaging a Big Four accountancy (41%) or a different external auditor (40%).
Philip explains how businesses can ensure they meet the deadline: ‘The new Scope 3 emissions regulations are an opportunity for businesses to gain real visibility regarding the extent of environmental damage caused by their supply chains. Scope 3 emissions should become something the businesses are always aware of, and are always basing decisions with regards to external supply chains partners around. While it’s positive to see that leaders are aware of the upcoming reporting requirements, greater support and guidance is needed to ensure that they aren’t hit with fines which could cost them twice, as customers then boycott the brand.
‘We are seeing a huge appetite for external support, most often technological, to assist in these increasingly complex areas which is paving the way for creating smarter supply chains that provide data-driven visibility in real-time. Our own Green Ratio offering focuses on helping organisations to meet their ideal business outcomes, especially around reducing cost and carbon. In leveraging AI, organisations can firstly review and analyse current operations, before then critically gaining a full overview of the supply chain to identify where improvements can be made. It provides the ability to make decisions quickly to stay ahead of their ESG target, enabling them to meet mandates to improve and reduce their Scope 3 while also driving value.’