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AdminAnd to which standard or framework? Is there an opportunity for you to help?
How did we go from Accountant and Auditors to working in Climate? 🧐
We're thinking a short 4 week program, with 1 hour video call commitment per week, where we'll share how our team started their careers, discovered our passions, and navigated our way here so far. And of course, we'd be happy to answer any questions and share any tips from our experiences!
Comment and react to let us know if you'd be keen!
The GHG Protocol published their Scope 3 Stakeholder Survey Responses recently.
Lindsay and I are starting a new series where we unpack those suggestions and look at what the pros and cons of each are 😊
First up in our series - we're chatting about the often criticised 💸 Spend-Based Calculation methods 💸
Catch the full interview here 🎦
What did you think about these suggestions? Are there any you agree or disagree with?
We're curious to hear what you think! Do let us know!
Stay tuned for Part 2 coming out soon, we'll be delving into what the feedback means for those magic numbers 🪄 Emission Factors 🪄
Following a successful passage through the Senate yesterday, on the 22nd of August, it’s all but guaranteed to pass - meaning Group A companies have 4 months until requirements kick in!
The bill now only awaits approval of the amendment in the House before its royal ascent.
The Australian Accounting Standards Board (AASB) is wrapping up the final touches on climate reporting standards this month as well, while the Australian Auditing and Assurance Board (AUASB) is working on assurance standards expected later this year too.
We've been saying it's coming for businesses in Australia... and it really is happening, soon!
With only 4 months left to go, what are you doing about it? How are you feeling about it?
We've got a few ideas on what might be good to do next week:
✅ Refresh on the context behind this legislation - blog here.
✅ Skim over the actual legislation (or get the highlighters out, go wild)
✅ Get across the jobs to be done for the GHG accounting requirements - start the introduction to carbon accounting course and the assurance course by signing in to the Academy.
[common advisor user question]
The European Commission has released a comprehensive FAQ document to help companies implement the new Corporate Sustainability Reporting Directive (CSRD), effective from 2024. This guidance clarifies rules and requirements, providing guidance for businesses to be well-prepared for their upcoming sustainability reporting under CSRD following the European Sustainability Reporting Standards (ESRS). Access the FAQs here.
Use the flow chart and timeline to understand when your business, clients, or customers may fall within the scope of reporting under CSRD. If any fall within these groups to report under CSRD, they will need to report on their Scope 1, 2, and 3 GHG emissions.
If you’re a supplier to a customer required to report, they will beasking their suppliers (that’s you) for emissions data in order to comply.
It's best to start on your GHG accounting journey now.
The CSRD applies to large public-interest entities in the EU, as well as non-EU companies with securities listed on EU regulated markets or significant EU-based subsidiaries or branches. Approximately 50,000 companies are expected to fall within the scope of CSRD's requirements.
To help with the decision-making process for determining which entities or undertakings fall within the scope, the FAQ provides a detailed flow chart on page 12 for guidance. Page 13 also offers a handy table summarising the expected reporting timeline for each group of undertakings.
The timing of reporting is outlined in para 39 of FAQ, where undertakings are required to publish within 12 months of the financial year end date, and for undertakings that are listed companies it’s within 4 months of the financial year end date.
Source: Page 12 of CSRD FAQ
Source: Page 13 of CSRD FAQ
The European Sustainability Reporting Standards (ESRS) comprises of 12 standards, containing 2 general (ESRS 1 & 2), 5 environmental (ESRS E1–E5), 4 social (ESRS S1–S4) and 1 governance (ESRS G1) topics.
GHG figures are specifically reported under ESRS E1-6, where companies are required to disclose their Scope 1, 2, and 3 emissions, total GHG emissions, as well as emission intensities.
In recognition of the challenges with measuring Scope 3 emissions and collecting data from suppliers or businesses within the value chain, ESRS 1 (General Requirements) provides provisions to address this, para 69 states:
“There are circumstances where the undertaking cannot collect the information about its upstream and downstream value chain as required by paragraph 63 after making reasonable efforts to do so. In these circumstances, the undertaking shall estimate the information to be reported about its upstream and downstream value chain, by using all reasonable and supportable information, such as sector-average data and other proxies.”
We turn to para 29 of the FAQ for guidance as to what constitutes “reasonable effort”?
The FAQ acknowledges there's no clear-cut definition of "reasonable effort," as it's likely to vary between undertakings. What constitutes reasonable effort should be determined by considering the specific circumstances of the undertaking and its external operating environment. To guide this assessment, the FAQ document provides several criteria to consider:
The size and resources of the reporting undertaking in relation the scale and complexity of its value chain
The technical readiness of the reporting undertaking to collect value chain information.
The availability of tools to access and share value-chain information.
The size and resources of the actor in the value chain.
The technical readiness of the actor in the value chain.
Level of influence and buying power.
Connected to the level of influence, the ‘proximity’ of the actor in the value chain.
A common theme across these criteria is the expectation of low readiness levels for sharing value-chain information in the first few years, both for the reporting undertaking and its actor in the value chain (i.e. suppliers or portfolio companies). During this transitional period, which is defined as the first 3 years from mandatory reporting (Para 31 of FAQ), it’s expected reporting undertakings are likely to rely more heavily on the use of estimates and proxy data. However, as the ability of undertakings and their value chain actors to share sustainability information improves overtime, the use of proxy data is expected to decrease. In all cases, the reporting undertaking should be considering the data quality of proxy data used and it’s impact on the quality of the reported information.
Para 30 of FAQ clarifies “SMEs should expect undertakings that fall under the scope of CSRD to apply “reasonable effort” to collect from actors in their value chains the information they need in order to comply with ESRS.”
There are considerations regarding the readiness and maturity a SMEs, referencing the criteria listed above, it is expected SMEs that are 1st tier suppliers or customers of undertakings that are required to report under CSRD are more exposed to higher expectations to be asked to share sustainability information, as compared to smaller SMEs that that aren’t.
Two sustainability reporting standards for SMEs are currently in development as well - a mandatory one for listed SMEs (LSME ESRS) and a voluntary one for non-listed SMEs (VSME). The VSME standard is being designed as a reference point for all businesses, to ensure that the reporting effort of CSRD and non-CSRD undertakings is proportionate.
💡So what does this all mean?
These provisions are here to strike the balance between comprehensive reporting and practical data availability and collection considerations, hence the 3 year transition periods, but it is clear the directive expects undertakings to engage with their value chain to share sustainability information.
With approximately 50,000 companies falling within the scope of CSRD set to begin reporting from 2025 - and the final group starting in 2029 - the cascading effect on other businesses is imminent.
The CSRD mandates limited assurance from the first year of application, starting in 2025 for companies reporting on the 2024 financial year. The assurance opinion will be based on a limited assurance engagement regarding the sustainability statement's compliance with the following requirements as clarified under para 70:
the sustainability reporting requirements provided for in the Accounting Directive (including the compliance of the sustainability reporting with the ESRS adopted pursuant to Articles 29b/29c of the Accounting Directive, the process carried out by the undertaking to identify the information reported pursuant to those ESRS - i.e., the double materiality assessment process, and the compliance with the requirement to mark-up sustainability reporting in accordance with Article 29d of the Accounting Directive); and*
the reporting requirements provided for in Article 8 of the Taxonomy Regulation.
The CSRD has required the EU Commission to adopt sustainability assurance standards for limited assurance by October 2026 and for reasonable assurance by October 2028, following an assessment to determine if reasonable assurance is feasible for auditors and for undertakings. In the meantime, para 75 clarifies assurance providers can apply national auditing standards, procedures or requirements as long as the Commission has not adopted an international auditing standard covering the same subject matter.
Section V of FAQ outlines the eligibility criteria and approval requirements for assurance providers conducting sustainability assurance. Statutory auditors, Independent Assurance Services Providers (IASPs), and accredited independent third parties are eligible to apply for approval to conduct sustainability reporting assurance.
💡So what does this all mean?
As GHG emission figures are reported under ESRS E1, therefore, limited assurance will be required over these figures, and there is an expectation to work towards reasonable assurance in the near future.
It’s also clear the CSRD recognises financial assurance professionals as one of the key players in the implementation and verification of sustainability reporting.
If you’re a business that supplies to undertakings in scope of CSRD get ready to be asked for your emissions data as part of their value chain information collection. Start upskilling your teams to understand what is required for report on your business’ GHG emissions
If you’re a business that needs to make a reasonable effort to collect value chain information, check out our Scope 3 engagement best practice guide.
With an estimated 50,000 businesses caught under CSRD, you are not alone on your sustainability journey! The phased implementation is really designed to make the transition more manageable, so don’t wait until the last minute to get started! If you're not sure where to start, just reach out, we'd be happy to help.
The Australian Securities and Investments Commission (ASIC) just wrapped up a landmark case against Mercer Group, the superannuation fund, for greenwashing. Mercer misled the public with false and misleading claims about their sustainable investment options and was ordered to pay a whopping $11.3 million penalty. They also have to acknowledge this wrongdoing on the sustainable investments page of their website. This case is significant enough that your board will definitely be talking about it.
The decision highlights the critical importance of making accurate and substantiated environmental, social, and governance (ESG) claims. And the key takeaway is quite straightforward: Tell the truth.
If you plan to use the word "sustainability" (or any similar terms) in external marketing, especially when appealing to environmentally-conscious customers, consult with your legal team first.
Here’s a breakdown of the case, what Mercer admitted, and key takeaways for your teams (whether you're in finance or not). If you want the full scoop, here’s the judgment (brag to legal if you actually read this).
ASIC's case against Mercer centred on misleading sustainability claims regarding its "Sustainable Plus" investment options. These options were marketed as excluding investments in carbon-intensive fossil fuels, alcohol, and gambling. However, ASIC found that this wasn’t the case and Mercer acknowledged this. For context, an article was released by Market Forces back in 2022 that stated:
“Super fund Mercer, for example, claims its ‘Sustainable Plus’ options exclude thermal coal companies, yet the ‘Sustainable Plus Growth’ option is invested in Whitehaven Coal and New Hope Corporation, among several other companies expanding the scale of the climate wrecking thermal coal industry. In fact, 7.45% of Mercer Sustainable Plus Growth’s listed equities investments are in companies that appear on the Climate Wreckers Index due to their fossil fuel expansion plans. This is higher than the average of default options Market Forces recently analysed (6.26%).”
Mercer marketed its "Sustainable Plus" options as suitable for investors committed to sustainability. Mercer suggested that these products allowed investors to align their financial goals with personal ethical standards by avoiding specific sectors. They said things like this on the website:
“We invest your money sustainably to help maximise your returns, make a positive impact and be part of a brighter, more sustainable future.”
“We take a holistic, sustainable approach to your investments.”
“Although all our investment options are invested sustainably, we offer Sustainable Plus investment options, which go beyond the standard approach to sustainable investing.”
“These options have a higher proportion of sustainability-themed assets and exclude companies involved in alcohol production, carbon intensive fossil fuels, gambling and pornography.”
“Mercer admits that, during the relevant period, it did not ensure that all asset classes in which the Sustainable Plus Options were permitted to invest were excluded from investing in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels.”
This is from the judgment and if your first reaction is “omg this could be us” - then you probably join 90% of corporate teams thinking the same thing.
“Mercer admits that its decision-making process in relation to the making of the Five Online Statements was inadequate. Among other things, Mercer’s delegations and approvals policy did not prescribe a process for approving website communications other than updates to Mercer’s PDS, and Mercer had no formal process to mandate or monitor the use of its “Marketing Checklist” (which set out a list of questions to ensure that information was accurate and complete and that there were “reasonable grounds” for making all representations) or its “Legal & Compliance Checklist” (which comprised a table to be completed and sent to the legal and compliance teams when seeking approval for marketing communications). In particular, Mercer has not located any Marketing Checklist or Legal & Compliance Checklist prepared in respect of any of the Five Online Statements
When you make claims about sustainability or ESG - follow the process
Whether you're working on a website, packaging, customer emails or a Times Square Billboard...consider this stuff, properly. This probably happened because the team who came up with that copy on the website was not diving into the weeds on the investment policy, the current portfolio, the risks, the expectations - BUT SOMEONE NEEDS TO.
That someone is likely your legal team who have a process for this (or they're creating one right now, nothing like a federal court case to freshen everything up).
You can help by making sure your teams follow it.
What might seem impressive when you're making sustainability claims can lose its charm pretty fast when you have to publicly admit you've been found guilty of greenwashing by a Federal Court.
Value Customer Trust and Confidence in Your Company
Just, respect the customer. Especially when they're trying to make values based decisions.
“As the parties accept, greenwashing practices have the potential to reduce consumer confidence in environmental, social and corporate governance (ESG) claims, which undermines the efforts of businesses that are pursuing ESG goals accurately and fairly. In addition to harming consumers by depriving them of information relevant to making choices in accordance with environmental, social and ethical values or objectives, false or misleading ESG claims may confer unfair competitive advantages on companies in marketing their financial products and services.”
“As discussed above, it is vital that consumers in the financial services industry can have confidence in ESG claims made by providers of financial products and services. As is the case in many other industries, consumers may place great importance on ESG considerations when making investment decisions. Any misrepresentations in relation to ESG policies or practices associated with financial products or services, whether as an aspect of “greenwashing” practices or otherwise, undermines that confidence to the detriment of consumers and the industry generally.”
No need for this to become fight club.
What’s the first rule of fight club? You do not talk about fight club. That’s not the intention of regulators when it comes to sustainability. There is no problem talking about your sustainability efforts and progress but it is essential that those comms are true, accurate and do not mislead your customers.
If you're making sustainability claims in terms of carbon emissions, carbon neutrality, net zero, or carbon positive and you don’t have a carbon baseline prepared in line with the standards, that’s a red flag. Sumday helps companies upskill their teams, complete audit-ready accounting, and engage with customers and suppliers to understand their emissions. It’s crucial to know where your company and your value chain stand, which informs the kind of claims you are comfortable making in this space.
The UK Advertising Standards Agency (ASA) has taken a decisive step by banning Virgin Atlantic's radio advertisement promoting its landmark sustainable aviation fuel (SAF) powered flight. The ad, which stated:
“Virgin Atlantic's Flight 100 will take to the skies on our unique flight mission from London Heathrow to JFK to become the world's first commercial airline to fly transatlantic on 100% sustainable aviation fuel,”
It was deemed misleading as a significant proportion of consumers would likely interpret this claim of "100% sustainable aviation fuel" to mean the fuel used was 100% sustainable, which isn't the case.
Virgin Atlantic admitted to the ASA that while the SAF used for the flight produces lower carbon emissions during its production, the emissions during the flight itself are comparable to traditional jet fuel. This discrepancy led the ASA to conclude that the advertisement gave a false impression of the environmental benefits of the flight.
Miles Lockwood, ASA’s Director of Complaints and Investigations said:
“Claiming that a product or service is sustainable creates an impression that it is not causing harm to the environment and for that reason we expect to see robust evidence that this is the case,”
“It's important that claims for sustainable aviation fuel spell out what the reality is so consumers aren't misled into thinking that the flight they are taking is greener than it really is.”
Moving forward, the ASA has mandated that any future Virgin Atlantic advertisements referencing SAF must clearly explain the actual environmental impact of the fuel.
The advertising watchdog has cautioned companies when promoting their climate mitigation or eco-friendly initiatives, emphasising that all claims must be substantiated.
A Virgin Atlantic spokesperson said: "We're committed to achieving net zero by 2050 and key to this will be using sustainable aviation fuel (SAF), which is one of the most immediate levers to decarbonising long haul aviation.”
Imagine your friend is trying to be as environmentally conscious as possible when booking flights. Would your sustainability claims lead them to choose your airline over others, thinking it's the greener option? If so, are these claims fully transparent, or are you withholding details that might change their decision?
This scenario underscores the importance of honest communication. If your claims suggest a product is more sustainable than it actually is, you risk not only misleading consumers but also damaging your brand's credibility. Always ensure that the environmental benefits of your products or services are clearly and accurately represented. This approach builds trust with consumers and upholds the integrity of your sustainability efforts.
Also consider what your claim means in relation to the customer's obvious expectations - SAF may be a key part of your net zero strategy, but would a customer expect their flight is 100% emissions free? Consider drawing the connection to the impact that has, whether that’s on emission reduction or otherwise.
Sustainable Aviation Fuel (SAF) is a common industry term used and considered as a critical component in the aviation industry's efforts to reduce its carbon footprint. SAF is produced from renewable resources such as waste fats, oils, greases and synthetic aromatic kerosene (SAK), derived from plant sugars. Although in-flight CO₂ emissions combusted from using SAF is similar to those of burning conventional jet fuel, the overall environmental impact is lower when considering the lifecycle of SAF’s emissions as there are lower emissions emitted during the production of SAF as compared to fossil fuel.
The industry does face challenges in scaling up SAF use due to technological constraints and its high costs, but it is one available solution that can help reduce the environmental impact of air travel currently.
🇬🇧 UK to Implement 2% Sustainable Aviation Fuel Mandate in 2025
In a pioneering move, the UK government has announced a mandate requiring airlines to use at least 2% SAF starting from January 1, 2025. The mandate aims to increase this percentage to 10% by 2030 and 22% by 2040, subject to Parliamentary approval. This initiative is a significant part of the UK’s strategy to decarbonise air travel and foster economic growth, positioning Britain as a leader in clean energy.
The production of sustainable aviation fuel is expected to inject over £1.8 billion into the UK economy and create more than 10,000 jobs nationwide. This dual focus on environmental sustainability and economic growth underscores the UK's commitment to becoming a clean energy superpower.
As the aviation industry continues to grapple with the challenge of reducing emissions, these developments reflect a broader trend of regulatory bodies and governments pushing for more transparency and accountability in environmental claims and strategies.
✈️ Air New Zealand drops 2030 Emissions Reduction Targets
Just last week Air New Zealand announced their decision to drop their 2030 emissions reduction target, citing challenges in achieving it amidst current technological and operational constraints with fuel efficient aircrafts and high green fuel prices.
Why? It wasn’t going to realistically happen. It’s not a decision Air New Zealand would have taken lightly or quickly, but acknowledging it was not realistically achievable and a revision is needed is honest and transparent. Air New Zealand has made it clear they are still committed to an industry-wide target of net zero emissions by 2050 and is working on a new near-term goal.
If a company has emission reduction targets that includes Scope 3 and they haven’t asked their suppliers for their primary emissions data or their plans to measure and reduce, it’s a red flag.
Air New Zealand is the first airline to revise their targets and this move marks a notable moment of transparency in the aviation sector. We should expect companies will need to revise their targets and adapt as we navigate through the Net Zero Supply Chain Challenge.
Learn more with our “Big Challenges, Simple Remedies” - Engage for Action
Decarbonising the aviation industry is challenging, but ongoing transparency and robust evidence will be key in achieving meaningful progress towards net zero emissions. Part of that journey will require engaging with suppliers and that’s where Sumday can help. Sumday supports companies to upskill their teams, complete audit-ready GHG accounting, and engage with customers and suppliers to understand their emissions in a way that’s actually valuable to them. It’s crucial to know where your company and your value chain stand, which informs the kind of claims you are comfortable making in this space.
Amazon has released its 2023 Sustainability Report. It provides a detailed look at the company's ongoing efforts to reduce emissions and work towards their Net Zero by 2040 target.
In this blog, we'll be exploring two important questions:
What can we learn from Amazon’s emission reduction efforts and their approach to the Scope 3 challenge?
What insights can we gain from a deep dive into Amazon’s Carbon Accounting Methodology?
In a nutshell:
Amazon can’t reduce their scope 3 emissions without their suppliers doing the same, this is true for any company. They will be asking their suppliers for their emissions data and decarbonisation plans this year. Supplier engagement is the only path forward to meet any scope 3 target.
Amazon’s carbon accounting isn’t perfect, but the transparency in their disclosures provides some understanding of the boundary, data quality and methods adopted. This transparency is crucial for building trust and accountability, while acknowledging there’s certainly work to be done here.
The Numbers - A Breakdown of Amazon’s Carbon Footprint
Key Stats
Amazon's overall emissions were 68.82mmt (million metric tonnes) for 2023, which represents about 43 million round-trip flights from New York to London.
Amazon’s carbon emissions intensity for 2023 was 80.8 grams of CO2e per $ of gross merchandise sales (GMS). That is, for every dollar of GMS* 80.8 grams of carbon emissions are emitted. To put that into perspective, if a $100 book was sold on Amazon.com, there would be 80.8 * $100 = 8,080 grams = 8.08 kg of CO2e emitted associated with the book being sold via Amazon.com (this doesn’t include the emissions emitted from the production of the book).
*GMS represents the total dollar amount sold via their ecommerce platform i.e. the sales activity on ecommerce rather than Amazon’s revenue from their fees.
Source: Amazon 2023 Sustainability Report, page 11
Reductions Achieved so far
A 3% absolute carbon emissions reduction year on year (YoY) between 2023 and 2022
A 11% reduction in Scope 2 emissions YoY
A 5% reduction in Scope 3 emissions YoY
A 13% reduction in CO2e per dollar of gross merchandise sales YoY
Amazon’s carbon emissions intensity figure has dropped from 93.0g CO2e per $ to 80.8g CO2e per $ year on year, and dropped from 122.8g CO2e per $ from their baseline year. This signals some progress in decoupling emissions growth from business growth (net sales grew 12% in FY23).
Despite these improvements, it's important to note that Amazon's overall emissions have increased by 34% since the company committed to net-zero emissions in 2019, from 51.17mmt of CO2e to 68.82mmt. This growth presents a significant challenge as Amazon pursues its ambitious goal of achieving Net Zero by 2040.
How did they do it?
Scope 2: 11% Reduction
One of the key achievements this year, significantly contributing to the 11% reduction in Scope 2 emissions, was Amazon's progress on their carbon-free energy sources goal. In 2019, Amazon had set a goal to match 100% of the electricity used with renewable energy by 2030. This goal covers all data centres, logistics facilities, physical stores, corporate offices, on-site charging points, and financially integrated subsidiaries.
Amazon reported that they have achieved this goal in 2023, seven years early, where 100% of the electricity consumed by Amazon is matched with renewable energy sources.
💡What does “matched” mean?
It doesn’t actually mean all of Amazon’s operations are now using 100% renewable energy.
When we delve into the fine print of their Carbon Methodology’s Renewable Energy Methodology as well as EY’s Independent Accountants’ Review Report over the specific subject matter, being “100% of Electricity consumed by Amazon’s global operations matched by renewable energy sources”, we find the word ‘matched’ is referring to the 500+ renewable energy projects they have purchased renewable energy certificates from renewable energy projects they have invested in, plus, any renewable energy they have purchased from the grid.
Basically this means Amazon is purchasing and generating an equivalent amount of renewable electricity to the total amount of electricity they consume in their operations. It’s also important to note that the renewable electricity generated or purchased by Amazon isn’t necessarily in the same location or at the same time as Amazon’s consumption.
Source: EY’s Independent Accountants’ Review Report, page 2
Their renewable energy projects include solar, wind, nuclear, geothermal, and battery storage initiatives across 27 countries, representing more than 28 gigawatts (GW) of carbon-free energy capacity. Once they are all operational, these projects are expected to generate more than 77,000 gigawatt-hours (GWh) of renewable energy each year - enough energy to power 7.3 million homes for a year and an increase of 35% from 57,000 GWh in 2022.
As the world's largest corporate investor and purchaser of renewable energy, Amazon's investments are positive as it not only benefits its own emission reduction efforts - particularly in planning for the energy needs of its data centres - but also promises to create jobs and improve renewable energy accessibility for communities in the coming years.
You can explore where Amazon has invested carbon-free energy projects using the map on https://sustainability.aboutamazon.com/climate-solutions/carbon-free-energy?energyType=true
That 5% reduction in their Scope 3 emissions - how did they do it?
Amazon's Scope 3 emissions, which accounts for 75% of their total reported emissions, saw an overall reduction of 5% YoY. This decrease was primarily due to lower emissions from building construction (note the -13% movement for Capital Goods) and a strategic shift towards using Amazon's own logistics providers instead of third-party ones. This shift contributed to a 7% increase in Amazon’s Scope 1 emissions (as mentioned by Amazon on page 11) and also corresponded to a reduction in reported Scope 3. Amazon reported that 29 of their building projects in 2023 used lower-carbon concrete and steel materials, reducing embodied carbon by 79,500 metric tons of CO2e - equivalent to taking 17,200 cars off the road.
Although this is a step in the right direction Amazon still has a long way to go.
Acknowledging Scope 3 emissions lie beyond their direct operational control and the crucial role suppliers play in achieving their 2040 net-zero ambition, Amazon communicated very clearly in this year’s report what their expectations are from their suppliers.
"We will prioritize our business toward those who provide their plans and results on their path to net-zero carbon emissions.”
Source: Amazon 2023 Sustainability Report, page 13
Amazon’s Supplier Engagement Approach
In 2023, Amazon announced they will require all suppliers to report their greenhouse gas emissions and in this year’s report, on page 13, they have stated they expect their highest-emitting suppliers - those accounting for 50% of its supply chain emissions globally - to provide a plan for how they will decarbonise their operations and demonstrate real progress over time.
💡What support are they providing suppliers?
Amazon announced in July 2024 their new “Amazon Sustainability Exchange” platform, a free, publicly available website that democratises Amazon’s guidelines, playbooks, science models, and other resources to help other companies make meaningful progress toward net-zero carbon emissions.
It includes resources that may help suppliers get started with carbon accounting:
Playbook for Carbon Measurement and Reporting
This essentially sets out requirements for GHG accounting under the GHG Protocol as a guide.
Note the focus on audit readiness which is further support for the fact that most suppliers will need this finance teams or accountants involved:
“Maintaining transparency and traceability throughout the data management process is crucial in ensuring the long-term auditability of the organization's emissions inventory. This involves clearly documenting the data sources, calculation methodologies, assumptions, and any adjustments or estimates made, creating a comprehensive audit trail that can be scrutinized and validated by internal and external stakeholders. By prioritizing data quality, verification, and assurance, organizations can demonstrate their commitment to transparent and responsible emissions reporting. This, in turn, enhances the organization's credibility, strengthens stakeholder trust, and helps to position the company as a leader in the transition to a lower-carbon future.”
Case Studies: For example - How Amazon’s Transportation Services (ATS) developed a carbon emissions measurement and reduction program for its inter-facility transportation and logistics business (“middle mile”)
Let’s dive into the Amazon Carbon Methodology Paper to understand how a complex beast like Amazon approached calculating their GHG numbers.
Emissions Boundary
Amazon.com, Inc. owns 100+ subsidiaries. This is the section that provides clarity as to which operations have been included in the emissions assessment and calculated as part of Amazon’s carbon footprint.
The listed dot points appear to focus on Amazon’s key operations, covering their logistics, fulfilment centres, their branded products, AWS (AWS extract summary here), physical stores, corporate office, and not necessarily everything under the sun, most notably their investments arm.
Source: Amazon Carbon Methodology, page 1
Transparency over potential restatements
Amazon has acknowledged and transparently communicated to their stakeholders that reported numbers may change as measurement techniques evolve and data quality improves.
Source: Amazon Carbon Methodology, page 3
This is going to be common across most GHG inventories as businesses start measuring their Scope 3 emissions and strive to enhance data quality, transitioning from spend data to activity or supplier specific data. These changes should be encouraged; the ultimate benefit of higher quality emissions data is to reduce noise and provide a clearer understanding of the impact of business activities, enabling strategic decisions that move the organisation towards its net zero goals.
Reliance on Spend
The majority of Amazon's Scope 3 emissions calculations still rely on financial data aka the spend method, particularly for Purchased Goods and Services, Capital Goods, and even Transportation emissions where fuel and distance information isn't available.
Spend-based calculations often serve as a useful starting point but it is not possible to credibly track progress to net zero without spending less using this method (that’s not exactly Amazon’s corporate strategy). The use of activity data is often the first step in improving data quality before transitioning to supplier-specific emissions data.
A key takeaway here is “we don’t have emissions data from suppliers” or “we don’t have activity data organised” should not mean your company isn’t carbon accounting - start with spend data if you need to, nearly every organisation in the world is, including Amazon. Improve on it over time.
Amazon Carbon Methodology, page 3 & 4
Amazon's current reporting lacks clarity as to what extent they have incorporated supplier-specific emissions data or primary data in calculating their emissions.
It would be informative to see the ratio of spend vs activity vs primary data, as well as what portion of their supply chain they have engaged so far. Disclosing such information would give users an understanding of the limitations and uncertainties associated with the estimated emissions calculated.
Amazon has indicated that their supplier engagement is still a work in progress. With the expectation that their top 50% highest-emitting suppliers will need to report to Amazon, it will be interesting to see the progress in next year's report.
“We have identified a list of the highest-emitting suppliers directly supporting our operations, and expect those suppliers, who collectively contribute more than 50% of emissions globally to Amazon’s Scope 3 footprint, to provide a plan for how they will decarbonize their operations and demonstrate real progress over time. We will prioritize our business toward those who provide their plans and results on their path to net-zero carbon emissions.”
Source: Amazon 2023 Sustainability Report, page 21
Employee Commute
Amazon's method for calculating emissions from employee commutes involves extrapolating data from a ‘representative sample’ rather than surveying all employees. This approach, while practical, may not fully reflect the commuting habits of the entire workforce, potentially impacting the accuracy of their emissions data. Although it is support for “start somewhere” though for most organisations.
Again, it would have been helpful to disclose the uncertainty associated with this extrapolated estimated employee commute emissions. In contrast, Microsoft’s disclosure has provided an understanding as to the limitations and uncertainties associated with the calculation - the representative sample is 38% of global headcount, details have been provided for assumptions around fuel usage and WFH habits. An extract is below.
Source: Microsoft 2024 Environmental Data Pack, page 13
Amazon Devices and Packaging
Amazon's devices and packaging seem to be where the majority of their Scope 3 effort is concentrated. Even a giant like Amazon can’t do it all, they have to prioritise efforts for where they can make the most impact. It would be helpful to understand how Amazon has assessed the materiality of their emissions sources.
Amazon also shared - "Our research team creates emissions factors for each device by aggregating the carbon emissions from the manufacturing, transportation, and device end-of-life phases." Given that customers who purchase these devices may need to account for the emissions in their own scope 3 accounting, it would be beneficial if Amazon provided these primary emission factors, without them, every customer is using spend data too.
Their Devices Product Carbon Footprint Methodology outlines the parameters of what's included - a cradle-to-grave calculation covering materials and manufacturing, transportation, use, and end-of-life phases for each device.
What does market-based method for Scope 3 mean?
Source: Amazon 2023 Sustainability Report, page 11
Currently, the GHG Protocol provides no standard guidance on using a market-based approach to calculate Scope 3 emissions, despite requests for clarification in the GHG Protocol's Scope 3 Survey Feedback. Amazon's approach incorporates emissions data from suppliers who are using renewable energy (where they can account for their Scope 2 emissions under the market-based method) into their Scope 3 calculations where applicable. This method may have contributed to the reported reduction in emissions.
To implement a market-based method, assumptions must be made about what the suppliers Scope 3 emissions entail. This can lead to two scenarios: either Amazon has made educated estimates about their suppliers' scope 3 emissions, or their scope 3 emissions have been excluded and they are using their scope 1 and 2 only.
Given the impact this method has, it should be clear what has occurred here.
Getting on with it
Even though Amazon has not made progress on reducing their baseline emissions from 2019, what we can learn from their climate leadership is that they’re getting on with it and they know they need emissions data from their suppliers in order to move forward. It is great to see Amazon use their stage to draw the world's attention to Scope 3 emissions and the need for businesses in the supply chain to measure their emissions.
“Climate change also has the potential to disrupt global supply chains and change the ways businesses operate today. We have an opportunity—and responsibility—to use our size, scale, and resources to do our part to solve global challenges.”
Source: Amazon 2023 Sustainability Report, page 9
We’ve only touched on a few from our short analysis, but even from this small excursion into the fine print, you can see how important it is that calculation methodologies and assumptions are disclosed. It provides companies with a more realistic picture of what the numbers mean. You can expect this focus on methodology, accuracy and detailed disclosures to continue - not because the world is getting wrapped up in reporting over action but because the quality of data is so low that credibly tracking progress is impossible. Being able to account for reduction that flows from these initiatives is also key in continuing to build the business case, demonstrating carbon ROI is part of the real world for most companies, rightly or wrongly.
We’re curious to hear your thoughts on this story!
For all related sustainability reports, visit https://sustainability.aboutamazon.com/reporting
Air New Zealand has announced this week they are dropping their 2030 emissions reduction target, citing delivery delays of fuel-efficient aircraft and high green fuel prices. They are the first airline to revise their emission targets. source
Vote with your emojis:
👍 I support the decision. Realistic and achievable goals are more important.
😢 I disagree with the decision. Companies should strive to meet their original commitments.
👏 This is a show of leadership.
😯 I have mixed feelings. It's understandable but still disappointing.
🙏 I need more information to form an opinion.
⭐ Companies should focus more on innovative solutions to meet their targets.
Please share your thoughts in the comments too!
We've released improvements to the way you enter Market-Based Electricity in Sumday, allowing you to use the specific emissions associated with any power purchase agreements you have in place.
You can now toggle between a location-based or market-based preference setting to pick which method feeds into your dashboards and reports by default, making it easy for you to show the impact of your green energy decisions!
There's now additional information provided about the emission factors available when categorising transactions in the Carbon Ledger.
This allows you to make even more informed decisions about the emissions sources you're applying at that time. You can plan ahead for how you might improve the quality of your assessment with Primary or Activity Data in the next steps of your assessment too. You can also click into the source link to understand more about that database.
If suppliers aren't able to meet a deadline set for a supplier engagement campaign, they now have the ability to propose a new target date for them to be able to provide the data.
This will encourage prompt responses and active discussion where suppliers aren't yet in a position to provide you all the data you require but are willing to work on it during the 60 days of free access to Sumday they have been given.
The home screen your suppliers see when they land in Sumday has a number of quality of life improvements, helping them easily invite more users to their account and navigating to the free tools and resources.
In our journeys towards net-zero, companies are increasingly recognising the importance of addressing Scope 3 emissions - those indirect emissions that occur in a company's value chain. A recent report by the Carbon Disclosure Project (CDP) and Boston Consulting Group (BCG) found 3 statistically significant factors that mattered in managing Scope 3 and for climate action:
Climate-responsible board
Supplier engagement
Internal carbon price.
The report found these 3 key factors (out of 20+ others), when working together, had the biggest chances of success for Scope 3 target setting and action. They create a dynamic process - an action flow, a feedback loop, a domino effect that will mobilise change.
In this blog, we’ll be taking a look at the Supplier Engagement piece and how your company can start engaging with suppliers.
Source: Page 13 of Scope 3 Upstream: Big Challenges, Simple Remedies June 2024
“Supply chain emissions are 26 times higher than operational emissions”
“Supplier engagement is critical to Scope 3 action”
“Supplier engagement = realistic target setting”
Source: Pg 8, 17, 19 respectively
In 2023, CDP found companies reported their upstream Scope 3 emissions from suppliers were, on average, 26 times higher than their emissions from direct operations (Scopes 1+2 emissions).
Source: Page 8 of Scope 3 Upstream: Big Challenges, Simple Remedies June 2024
Despite the awareness of this disproportionate scale, they found progress on Scope 3 was still falling short as corporates were:
2x more likely to measure Scope 1 and 2
2.4x more likely to set reduction targets for Scope 1 and 2 than compared to Scope 3
only 15% of corporates reporting through CDP have set a scope 3 target (out of ~23,000 corporates)
“The first step to action is to create transparency on supplier emissions data.”
Looking back to the action flow diagram, the engagement process starts with step 1. Data Collection. Companies need to get a picture of their supply chain emissions and need transparency over their supplier emissions data. This transparency will enable them to set realistic targets towards net zero, provide the right incentives and support for suppliers, and work with them in a way that aligns with their climate transition plans… and become a virtuous circle that is heading towards net zero emissions.
Exhibit 9 shows the impact on climate action by type of supplier engagement, from a transactional ‘Information Collection’, to ‘Incentivise’, to a partnership based approach where companies are collaborating with each other. The more collaborative and partnership based the approach, the higher the prevalence of 1.5°C aligned plan, and a much higher chance we’ll get to a world where we do limit global warming to 1.5°C.
Source: Page 18 of Scope 3 Upstream: Big Challenges, Simple Remedies June 2024
We are all starting somewhere, and that first step is to ask suppliers for their emissions data.
The report found these were the typical supplier engagement blockers (pg 20):
Buyers/Procurement office not engaging with suppliers on climate
Suppliers non-responsive to requests for climate data
Purchasing corporate has limited leverage to influence suppliers
Suppliers lack the capability to comply with climate requirements
Suppliers lacking access to capital to implement decarbonisation measures
Climate not considered in current sourcing/procurement policy
💡 What can you do and how can Sumday help?
Challenge #1 & #3: Upskill your procurement team with our 2 hour Carbon for Procurement Professionals course in Sumday Academy to get their buy in and engage with suppliers. Help your buyers and procurement managers realise the important role they play in motivating suppliers and teach them what they need to know when working with their supplier contacts.
Challenge #4: Support your suppliers with access to education, support, and tools to measure their emissions to an audit-ready standard so they have the capabilities to comply with climate requirements. This means working with their sustainability teams and bringing along their accountants and finance team to embed carbon accounting as part of their business as usual processes. Sumday is here to help you provide that education, support, and tools to your suppliers.
Challenge #2, 5, 6: If you don’t ask your suppliers, you won’t have the data to understand where your suppliers are at and what support they need. Supplier engagement isn’t just about collecting emissions data for your reporting. It’s about identifying what the roadblocks are, and what are the opportunities to incentivise the right behaviour, provide supply chain finance programs, or other solutions that invest in your supply chain.
Learn more with Scope 3 Engagement with Sumday or book a chat to learn more with us here.
Investors must demand transparency on Scope 3 so that an accurate and fair assessment of risk-reward can be determined. Doing so reinforce the actions driven by corporates (purchasers or supply chain authorities) to manage scope 3 upstream emissions and cascade down their supply chains across regions. - Pg 29
Investors, you play a crucial role in guiding your portfolio companies towards net zero. The process is the same as how companies would engage with their suppliers - Good engagement involves upskilling investment managers to have that conversation with portfolio companies and supporting portfolio companies to embed carbon accounting in their processes.
Carbon numbers, climate-related risks and impacts are becoming increasingly important factors to consider in investment strategies, and in some jurisdiction’s legislative requirements, funds are required to report on the emissions associated with their portfolio. Learn more on how this works with our Accounting for Financed Emissions course.
We’re excited to launch our Sumday Community, a space for carbon accountants, advisors, and all Sumday users to connect and share knowledge.
We see a world where accounting systems have transformed the global economy into a force for good.
So we're on a mission to empower every organisation to account for impact beyond dollars and cents, accelerating better outcomes for people and the planet.
And your contributions will play an important part for us to get there 💜
Connect with like-minded humans: Nerd out over technical non-financial reporting or carbon accounting chats!
Ask Questions: Whether it’s professional judgement question like “which emission source?” or tips to be more efficient in the data collection process - ask and get answers from fellow members and our support team.
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Telstra is dialling into a new phase of its climate strategy, evolving from offsetting carbon to directly reducing emissions. Here’s the lowdown on their latest steps:
Since 2020, Telstra has made significant strides in reducing emissions—30% reduction in scope 1+2 and 28% in scope 3. Now, with climate change pressing harder than ever, they’re setting the bar even higher.
Starting July, Telstra will:
Increase their scope 1+2 emissions reduction target from 50% to 70% by 2030 (from a FY19 baseline). The 50% reduction goal for scope 3 remains.
Move away from using carbon credits to offset the emissions from their operations. Instead, they’ll reinvest those funds into projects that directly reduce their carbon footprint.
Telstra’s Chief Sustainability Officer, Justine Rowe, explains their why:
As one of Australia’s largest electricity users, we believe we should prioritise activity to reduce our direct emissions from our network, which will in turn help contribute to Australia’s climate goals. We are aware of the increased public and industry interest in how corporates are using carbon credits in recent years, and that consumers are increasingly expecting organisations to take more direct and transparent climate action. That is why we believe redirecting our investments from purchasing carbon credits to taking more direct climate action here in Australia, will help consumers better understand how we are having more direct impact on climate change.
While carbon credits do play a role in sustainability, prioritising direct emission reductions through investments in renewable energy is often more impactful and beneficial in the long run. Carbon credits can help offset emissions by investing in projects that reduce carbon dioxide elsewhere, but they do not address the root cause of emissions within a company’s operations. By contrast, investing in renewable energy projects, such as solar or wind farms, directly reduces the carbon footprint of a company’s activities.
Additionally, renewable energy investments can lead to significant long-term cost savings. As the technology for renewable energy becomes more efficient and widespread, the cost of generating power from these sources will continue to decrease. This not only reduces operational costs for businesses but also provides a more stable and predictable energy pricing structure compared to fossil fuels, which are subject to market fluctuations. Companies that lead in adopting renewable energy can also benefit from enhanced corporate reputation, regulatory advantages, and increased appeal to environmentally conscious consumers and investors. By focusing on reducing emissions at the source, companies can achieve more sustainable and economically viable outcomes.
Tom Penny, Telstra's Head of Environment, shared in his interview with Capital Brief, that as a major electricity user that Telstra is, there’s a lot of costs that can be saved by becoming more energy efficient and shifting to 100% renewable energy.
Think about data centres and the servers and racks that are used within those. Think about the cooling equipment. Air conditioning units in our exchanges that have our telecommunications equipment or in the data centres are the big areas of opportunity.
Per their FY23 Sustainability Report, 97% of their FY23 Scope 1+2 GHG emissions were from electricity consumption from Telstra’s network, data centres, offices, retail and other buildings, of which a significant 91% is attributable to network sites and data centres.
Source: Telstra FY23 Sustainability Report, page 63
In their FY23 report, Telstra notes they have doubled their investment from $21.1m in FY22 to $49m in FY23 for energy reduction projects, largely focused on energy efficiency and decommissioning. These resulted in annualised savings of 23,485 tCO2e and 30,177MWh electricity from energy efficiency projects, and 79,406 tCO2e and 100,566MWh through decommissioning network equipment.
Source: Telstra FY23 Sustainability Report, page 63
Today’s announcement is all about how we can take direct action. It’s about how we can actually invest everything that we can to quickly reduce our own impact as part of our value chain emissions.” - Tom Penny, Telstra's Head of Environment
Telstra’s updated climate strategy isn’t just about meeting targets—it’s about pioneering a more responsible and impactful approach to business sustainability. As they continue to lead by example, it’s a reminder that the path to net zero is paved with direct, meaningful action.
For more details on Telstra’s evolving climate commitments, read here for their full announcement.
Australia's Treasury department has launched its Sustainable Finance Roadmap, setting out a strategic plan to reshape financial markets and mobilise the private capital necessary for transitioning to a net-zero economy.
Climate Reporting Standards: The Australian Accounting Standards Board (AASB) is set to finalise climate reporting standards by August 2024. The Australian Auditing and Assurance Board (AUASB) is drafting assurance standards for these disclosures, with implementation expected in late 2024. The inaugural reporting phase for the first group of companies under the new standards will commence on January 1, 2025. Learn more with this summary article.
Corporate Transition Plans: Guidance on the disclosure of corporate transition plans is expected to be published by the end of 2025, outlining best practices to ensure transparency and accountability. The Australian Treasury will be taking the Transition Plan Taskforce (TPT) Disclosure Framework into consideration for developing its best practice guidance. IFRS’s ISSB announced at their one year anniversary they are assuming responsibility over the TPT. What’s the TPT? Learn more with this The TPT Recommendations one pager.
Sustainable Finance Taxonomy: The Australian Sustainable Finance Institute (ASFI) aims to complete the initial development of a sustainable finance taxonomy by the end of 2024. This taxonomy will establish criteria for assessing the sustainability contributions and alignment of economic activities, similar to the EU Taxonomy, a classification system that identifies environmentally sustainable economic activities to guide investment decisions and support the EU's climate and environmental objectives.
Sustainable Investment Labelling: Detailed work on developing a sustainable investment labelling regime is scheduled to begin in early 2025. Legislation to enact this system will be introduced in 2026, with the regime expected to become operational in 2027. Label regimes as such aim to standardise and clarify the criteria for sustainability focused investments and mitigate greenwashing risks.
The roadmap forward aims to enhance the integrity and trust in disclosed sustainability information, steering decision-making towards achieving Australia’s net zero economy.
It’s time to start understanding your emissions and working towards an aligned net zero goal. The first step? Start carbon accounting.
In their latest sustainability push, LEGO Group is urging its suppliers to set and achieve emissions reduction targets. This effort is part of LEGO's ambitious plan to reach net-zero emissions by 2050, with interim goals of a 37% reduction by 2032.
The LEGO Group has launched a new Supplier Sustainability Programme to enhance its climate collaboration with suppliers. This new program acknowledges the vital role of suppliers in reaching sustainability targets.
Annette Stube, Chief Sustainability Officer, at the LEGO Group said:
To put it simply, a net-zero world is simply not possible unless we find solutions that are greater than our own operations. We will not be able to meet our sustainability targets alone – we have to work in partnership with our suppliers. We want children to inherit a healthy planet and there’s no time to waste.
The Supplier Sustainability Programme builds on the Engage-to-Reduce programme the LEGO Group launched in 2014 to help suppliers report environmental data and lower their carbon, water and forest impacts. The key requirements to suppliers in the new programme include:
Reporting on carbon data annually, starting in 2024.
Report on emission reduction targets for 2026 and 2028.
Collaborate to identify and develop the actions suppliers need to work towards the reduction goals set by LEGO Group, such as improving efficiency to use less resources, switching to renewable energy, and finding less carbon-intensive ways to transport materials.
Source: 2022 The LEGO Group GHG report
LEGO Group shared in their GHG emissions report 99% of their emissions come from outside the company’s operations, these are largely from suppliers that provide and deliver raw materials, machines, products, and services related to LEGO® products.
These emissions are known as Scope 3 emissions, and are challenging to mitigate without collaboration. To drive down emissions in LEGO’s supply chain, meet their reduction target, and work towards building greener LEGO blocks, they can’t achieve it without their suppliers (the alternative to drive down emissions is to not purchase anything, which wouldn’t be a viable plan!)
The program marks a cornerstone of LEGO Group’s climate action plan and their commitment to net zero emissions by 2050 and reducing emissions by 37% by 2032.
Source: 2022 The LEGO Group GHG Report
Not only did the company announce a series of climate-related commitments last year, including a pledge to achieve net zero emissions by 2050 and reducing emissions by 37% by 2032, they have also introduced a policy linking employee bonuses to emission reduction targets to help them track their progress towards their targets this year. This initiative is part of LEGO's comprehensive strategy to integrate sustainability into its core operations and corporate culture, reflecting the company's dedication to reducing its carbon footprint and promoting environmental responsibility at all levels.
Carsten Rasmussen, Chief Operations Officer, highlighted the importance of collaboration, saying:
Sustainability is a license to operate and a requirement of how we do business, including how we select our suppliers. We have ideas and we have a pathway, but we cannot do it alone. We need all our great partners to help us achieve our sustainability targets. The Supplier Sustainability Programme is founded on collaboration and we cannot underestimate the power of working together to create real, lasting change and a more sustainable future.
Read more from LEGO’s announcement here
Visit LEGO’s GHG Footprint for their report and methodology.
You can start engaging with your suppliers and support them on their carbon accounting journey too. Check out our Scope 3 Engagement guide on how to get started, or reach out for a chat.