Why is My Supplier Engagement Rate SO LOW?

Why is My Supplier Engagement Rate SO LOW?

If you’re running a supplier engagement program, do any of these sound familiar:

1. Your supplier engagement rate is <30%
2. A big emissions outlier was actually a typo
3. A supplier told you they flat out will not share data because you might misuse it
4. A supplier told you you’re too focused on emissions and should be focused on XYZ
5. You found that a supplier’s spend based emissions calculation is as bad as your own spend based estimate for them
6. You suspect a supplier is gaming the system but you’re not sure how
7. You requested supplier data by email and now you can’t find the email response
8. A supplier asked if sharing data would help get them better commercial terms with you and you had to say no (and still ask for the data)
9. You know that FLAG makes your old supply chain data redundant but you don’t know how or why
10. Your supplier told you they already filled out a survey sent by a different team in your company asking for the same thing (bonus if it was a different format)

If the answer to one or more of the above is “yes”, read this guide for on our approach to maximising the value of your supplier engagement program.

By Saif Hameed, CEO of Altruistiq

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Upcoming SoS Events

• Webinar: How to Scale a Successful Supplier Engagement Program, 9th April, 2 - 2.45 pm BST, Online. Register here.

• In person: State of Sustainability North America, focusing on agri-value sustainability data challenges, April 17th Chicago. Register interest.

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Industry Insight: Will Finance Buy Your Carbon Pricing Logic?

Carbon pricing is a bit like magic - rooted in folk lore, and with the potential to turn base metals into gold. But is your carbon price on the money or up in the air? Will Finance buy your logic or sell you out to the Board? Here is a basic 101 for those trying to get a handle on carbon pricing:

• A carbon price is, at its heart, a number for financial modelling. This means it is directional, rather than precise. Whether your number is $50 or $500 is material, whether it is $50 but should be $40 is not relevant right now.
• A carbon price is most defensible when it references real cash that the business must spend. Good examples are: 1) A carbon tax that the company is already paying or expecting to pay soon; 2) cash the company recognises it must spend to meet publicly committed targets.
• The first example creates an easy to establish carbon price. However, most carbon taxes are partial in application (certain activities and/or geographies) and therefore not representative of the cost of change across the business.
• The second example is more accurate but harder to compute. A simple way is to create a grid of activities vs geographies, and a rough cost to decarbonise each cell in the grid. You can then create an average weighted by the emissions of each cell. I’m simplifying, but not much.

These numbers will change month by month as your GHG inventory moves around and the cost of solutions evolve (in both directions). So it’s best to:

1. Revisit your carbon pricing logic frequently, e.g., at least annually;
2. Take a capex mindset rather than an opex mindset. What I mean is - look at decarbonisation of an activity as a multi year project plan and compare the cost of that project plan to alternatives. Rather than seeing the sum of your carbon price as an annual budget to deploy within the year.
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Policy Pulse: SEC Climate Rule. Reason for Optimism or Dismay?

The US Securities and Exchange Commission (SEC) finally adopted its rule on climate disclosures this month (March 2024). This comes after a long 2 years of deliberation since a draft rule was released.

The US has set a national requirement for climate reporting. This includes a focus on climate risk (echoing the TCFD framework) and some GHG emissions disclosures.

How does this impact businesses?

Covered companies (namely public companies with annual revenue greater than $100m) are required to publish climate disclosures in their annual reports and IPO statements, alongside their financial statements.

Specifically:

• GHG emissions - the Scope 1 and 2 emissions, with methodology report
• Governance - board and management oversight of climate risks
• Strategy - climate risks identified, material impacts of these on strategy and business model, and any activities to mitigate material risks (e.g. transition plan, scenario analysis, carbon price)
• Risk Management - process for identifying and managing climate risks
• Targets - climate goals that will materially affect the business, and the financial impact of meeting the goal

Who does this affect?

The timelines and scope of reporting then depend on company size:

• The largest companies with a public float valuation greater than $700m must report on climate risk from 2025, and GHGs from 2026
• Large public companies with a float greater than $70m file from 2026, with GHGs from 2028
• Smaller public companies do not need to report on GHG emissions and start reporting on climate risk from 2027

What else?

Companies are to submit their disclosures to the SEC, with future submissions to require:

• GHG emission assurance - GHG accounts will need a third party to assure to ISO standard (or equivalent) from 3rd reporting year, with the largest companies needing a reasonable assurance level from 7th reporting year
• XBRL tagging - electronic tagging of reports for readability from 2026

What to think about the SEC ruling:

The final rule is far weaker than the draft (due to political pressure), in particular, the following has been changed:

• GHG reporting - Scope 3 is no longer required, Scopes 1 and 2 only need to be reported if they are deemed material to investors
• Longer timelines - the largest covered companies have 2 years for most disclosures, 3 years for GHG accounts, and 6 years for assurance on the GHG accounts
• Removes opportunities - disclosures on strategy for climate-related opportunities are no longer mandatory

Yet there are some additional disclosures that will be new to those familiar with CSRD, particularly a couple of climate inclusions for financial statements:

• Severe weather impacts - total costs and losses from severe weather and natural impacts e.g. sea levels, hurricanes, tornadoes
• Carbon offsets and RECs - if these instruments are material to sustainability goals, companies must report the spend and capital costs

So what really will the SEC’s rule change?

California’s SB253 rule is still ploughing ahead, which requires mandatory Scope 3 disclosures for companies with over $1bn of revenue in California. Equally, many large US companies would also be captured by the EU’s CSRD with similar requirements.

So this is a disappointing step in reducing the ambition of the draft rule, but the silver linings are that:

• The focus on climate risk persists in this new version.
• Investor pressure may mean US filings ultimately continue with Scope 3 above these minimum requirements.
• Mandated assurance, should bring greater consistency and trust to accounts.

Learn more

• SEC - Full Rull Text
• SEC - Press Release
• Latham & Watkins - Briefing on SEC rule
• Guardian - US regulators approve significantly scaled back climate disclosure rule
  

Recommended Resources

• Managing Supply Chains Towards Net Zero with Mars, Interview

• The Supplier Engagement Formula Podcast

• The Upskilling Procurement Playbook, Podcast

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Other News

• The latest on the Cocoa Crisis: Cocoa prices rocketed above the price of copper as it tops $9000. As Easter approaches thick and fast, the price of easter eggs are expected to surge. The heatwave that took hold in Western Africa at the start of 2024 is said to have been made 10x more likely by climate change.

• EU nature restoration laws face collapse: A final vote by EU ministers on the nature restoration law (approved by the EU parliament in February) was shelved after growing pushback from governments in Sweden, Italy, Finland, Austria, Hungary, Poland, the Netherlands and Belgium. The law, which was two years in the making, was set to protect and reverse nature degradation. To compound this, farmer protests still continue in Brussels. The European environment commissioner warned that shelving the bill indefinitely would impact the EU’s global reputation, particularly given it had led the way at the COP15 biodiversity summit in Montreal in 2022.

• Farmers press DEFRA to boost budget for green schemes: The Land workers Alliance, which represents thousands of growers and farmers across the UK alleges that the UK spent £2.4bn of public funding on farming (compared to £4.7bn in 2019 when the UK was still in the EU’s Common Agricultural Policy). £2.4bn is less than half a percent of the UK’s annual public spending. The budget cut alongside price surges linked to Russia’s war with Ukraine and increasing environmental compliance has prompted protests. One of their demands is to have payment packages for farmers switching to organic production and higher payments under ELMS.

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