British companies not ready for EU’s Scope 3 emissions reporting mandate

Should they fail to disclose their indirect (Scope 3) emissions in line with the requirements of the new European Corporate Sustainability Reporting Directive (CSRD), they will face potential fines and other penalties.

In November 2022, the European Commission officially adopted the CSRD, a new corporate sustainability reporting directive that aims to provide a more comprehensive picture of companies’ sustainability performance.

The directive widens the net on which companies are mandated to report, with almost a fivefold increase in the number of businesses affected, to 50,000+. It sets stricter requirements on the range of issues and quality of data which companies must disclose. A key focus here is Scope 3 emissions, which typically account for the majority of climate impact for a large business.

Supply chain management firm 7bridges polled 801 UK-based businesses to assess their readiness for enhanced Scope 3 disclosures under the CSRD. All of them are in scope for the mandate in terms of their size and the international markets they operate in.

While 96% had heard of the CSRD and 71% had measured their carbon footprint across all scopes, one-quarter said they are concerned that they will not be able to meet the deadline. Concern was most pronounced among the smaller companies impacted.

7Bridges’ conclusion was that just 40% of the businesses will certainly be ready to comply.

A key challenge, the survey revealed, was choosing where responsibility for collecting and reporting emissions data should sit. There is also the matter of properly financing and resourcing the team responsible for this.

One-third of the companies polled are delegating responsibility to the chief sustainability officer. A further third say the task will be down to the chief executive. Almost all companies polled said they are either hiring a specialist or enlisting an external auditor to assist with the process. Almost one-half (47%) said they are investing in new digital solutions for emissions measurement and analysis.

“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,” said 7bridges’ co-founder and chief executive Philip Ashton.

“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.”

Approaching capacity

In related news, Workiva has published its annual reporting barometer, revealing how more than 500 decision-makers in the finance sector are preparing for CSRD.

Awareness was found to be strong – 94% of those subject to the Directive are aware of it and preparing to comply by the 2024 deadline. Moreover, 77% say ESG issues now either moderately or majorly impact their plans for annual reporting.

Yet Workiva warned that many companies are likely underestimating what it will take to turn intent into action. Almost four in ten respondents said they felt overwhelmed during the last reporting period, signalling that many firms will need to either hire or enlist a third-party to comply with CSRD. 35% admitted that embedding ESG in the annual reporting process would be a squeeze with current lead timelines and staff levels.

Workiva’s Erik Sato said: ““Many reporting teams are at or near capacity and will be challenged by the workload pressure of additional CSRD reporting requirements—including additional disclosure, auditor assurance, and XBRL tagging—which will drive many to leverage new technology solutions.”

Related blog: Why it’s time to get real about sustainability reporting

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