In today’s evolving business landscape, sustainability reporting has emerged as a critical factor for companies around the world. Increasingly, large corporations and publicly listed companies are requiring their suppliers, including small- and medium-sized enterprises (SMEs), to provide detailed sustainability reports. This trend is driven by an ethical commitment to sustainability and regulatory mandates, such as the Streamlined Energy and Carbon Reporting (SECR) in the UK and the Corporate Sustainability Reporting Directive (CSRD) in the European Union.
The SECR and CSRD frameworks have set a new standard for environmental transparency and accountability. Both regulations demand detailed disclosures from companies, pushing them to account for their carbon footprint and overall environmental impact.
SECR (Streamlined Energy and Carbon Reporting): In the UK, SECR requires large companies to report on energy use, greenhouse gas (GHG) emissions, and energy efficiency measures. While SECR is directed at larger companies, it indirectly impacts SMEs by establishing a precedent for reporting similar data in the supply chain.
CSRD (Corporate Sustainability Reporting Directive): The EU’s CSRD is a pioneering directive that will require many more companies to disclose extensive sustainability data starting from 2024. This directive goes beyond GHG emissions to include water usage, waste management, and social impacts. Crucially, it also considers the carbon footprints of these companies’ supply chains, which extends environmental accountability to vendors.
With the introduction of these frameworks, large corporations are held accountable not only for emissions from their own operations but also for those within their supply chain—often referred to as “Scope 3” emissions under the GHG Protocol. To meet these obligations, companies are increasingly requiring vendors to report on their sustainability practices.
Publicly traded companies, particularly those bound by SECR and CSRD, are now implementing sustainability criteria when selecting suppliers to ensure compliance with their environmental targets. This change is placing pressure on SMEs to adopt sustainability reporting, as failure to do so could impact their eligibility to work with larger companies. By enforcing accountability across their supply chains, public companies aim to enhance transparency, reduce their carbon footprint, and meet regulatory requirements.
While sustainability reporting may once have seemed exclusive to larger corporations, SECR and CSRD have shifted this paradigm, making it relevant to SMEs. Here are some of the reasons why carbon reporting is now essential for SMEs:
Access to Larger Markets: As larger corporations enforce sustainable practices across their supply chains, SMEs without carbon reporting may find themselves at a disadvantage. By adopting transparent carbon reporting, SMEs can align with their larger partners' sustainability goals, enhancing their competitive edge.
Building Resilience and Future-Readiness: With regulations like CSRD expanding, it’s likely that sustainability reporting will become a broader requirement. By proactively adopting carbon reporting now, SMEs can position themselves ahead of regulatory changes, minimising future compliance costs.
Aligning with Consumer Expectations: Sustainability reporting isn’t only about compliance; it’s also about meeting consumer demand for environmentally responsible products. SMEs that embrace carbon reporting can build stronger brands by demonstrating their commitment to sustainable practices, appealing to eco-conscious consumers and stakeholders alike.
Preparing for Scope 3 Emission Reporting: Public companies are under pressure to report on Scope 3 emissions—those that come from the supply chain and upstream operations. By accurately reporting their emissions, SMEs make it easier for their larger clients to meet these requirements, increasing their attractiveness as partners.
For many SMEs, carbon reporting may initially seem complex and resource-intensive. However, tools like Emerald Power are designed to streamline the process, making it easier for companies of all sizes to understand and report their emissions. These platforms offer accessible solutions for tracking and managing carbon footprints in alignment with established frameworks, such as the GHG Protocol, ensuring that SMEs can meet their clients’ sustainability expectations.
SMEs can begin by measuring their emissions, focusing initially on direct emissions (Scope 1) and those from purchased electricity (Scope 2). Over time, with the aid of carbon reporting software, they can expand to cover more intricate elements like Scope 3 emissions, aligning more closely with the rigorous requirements of frameworks like SECR and CSRD.
As sustainability reporting becomes a requirement rather than an option for suppliers, SMEs are presented with both a challenge and an opportunity. By adapting to the new expectations of SECR, CSRD, and other sustainability standards, SMEs can enhance their resilience, appeal to environmentally conscious partners, and ensure their continued growth in an eco-conscious market. Embracing carbon reporting benefits the environment and positions SMEs as valuable players in the green economy, unlocking new avenues for partnership, growth, and innovation.
In a world that increasingly prioritises sustainability, SMEs that take proactive steps today will be well-prepared for tomorrow’s economy, equipped to meet both regulatory requirements and client expectations with confidence.