Almost two-thirds (60%) of UK companies are set to miss an upcoming Scope 3 emissions reporting deadline, according to a survey, putting them at risk of fines and losing customers.
Scope 3 emissions are those not produced by a company itself, or the result of its activities, but by companies it’s indirectly responsible for, up and down its value chain.
The research, undertaken by Censuswide, surveyed 800 businesses of 250 employees or more in sectors including retail, pharma, manufacturing, logistics and construction, as well as 2,000 consumers, to understand how prepared businesses are for new regulations around Scope 3 emissions, and what impact non-compliance might have on their customers.
It found that although nearly all businesses (96%) have heard of the European Corporate Sustainability Reporting Directive (CSRD) coming into force in 2024, there is uncertainty around measurement and reporting.
More than a quarter of leaders in the companies surveyed (27%) reported feeling worried, particularly if they have a turnover of under £1m where 49% of leaders are concerned.
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 CSRD requires companies to report on the impact of corporate activities on the environment and society, namely Scope 3 emissions, and requires the audit of reported information.
Qualifying large businesses will need to disclose a CSRD report according to a first set of sustainability reporting standards for their 2024 financial year. All EU Member States need to comply with the CSRD by 6 July 2024.
Organisations need to start putting in place ESG reporting capabilities and infrastructure in 2023 to prepare their CSRD reporting for the following year. But research by 7bridges, an AI-powered supply chain management platform, suggested businesses are ill-prepared.
However 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.
Yet 39% of companies surveyed cite monitoring and reducing environmental impact as a key strategic area for reducing costs this year.
This was placed ahead of developing new tech (34%), optimising supply chains (31%) and product development (27%).
Philip Ashton, co-founder and CEO of 7bridges, said the research reinforces the upwards trend he is seeing of businesses auditing and working to reduce their carbon emissions albeit often through manual and sometimes unreliable processes.
He said: “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.”
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,” said Ashton.
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%).