4-18. Trends in Mandatory GHG Emission Disclosure in International Supply Chains

The mandatory disclosure of greenhouse gas (GHG) emissions is accelerating globally, with a strong push for companies to track emissions across their entire supply chains. While the focus used to be on Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased energy), the current international trend is towards mandating the disclosure of Scope 3 emissions, which includes the supply chain. Key markets like Europe, the United States, and Japan are advancing with new laws and disclosure standards. Failure to comply could lead to legal risks and a decline in market trust.

1. Mandatory Disclosure Trends in Europe

The EU has introduced the Corporate Sustainability Reporting Directive (CSRD), which requires not only listed companies but also large unlisted companies to disclose their GHG emissions. This directive explicitly mandates the tracking of Scope 3 emissions across the entire supply chain, demanding transparency that extends to procurement policies and supplier management systems. The CSRD is also linked to the EU Taxonomy Regulation, making emissions disclosure essential for a company to be classified as an environmentally sustainable investment.

2. The Push for Disclosure in the United States

The U.S. Securities and Exchange Commission (SEC) has proposed a Climate-Related Disclosure Rule that would require public companies to disclose their GHG emissions. While Scope 1 and Scope 2 disclosures would be mandatory, Scope 3 would only be required if "material." However, with strong pressure from investors, many companies are voluntarily disclosing their Scope 3 emissions. Additionally, stricter state laws, such as those in California, are emerging and are seen as a precursor to nationwide mandatory disclosure.

3. Trends in Japan and Asia

In Japan, the Financial Services Agency is enhancing sustainability disclosures in corporate securities reports, and since fiscal year 2023, companies have been required to include climate-related information aligned with the Task Force on Climate-Related Financial Disclosures (TCFD). While Scope 3 tracking is not yet mandatory for all, many large companies are voluntarily expanding their disclosures to align with global market expectations. Similarly, countries across Asia are developing regional guidelines to help companies meet the disclosure requirements of their international trading partners and export destinations.

4. Challenges Companies Face

Tracking emissions across an entire supply chain presents a major challenge in terms of data collection, especially when dealing with a large number of suppliers. Many small and medium-sized enterprises (SMEs) and overseas suppliers often lack established GHG data management systems, making it difficult to ensure accuracy. Another key issue is the lack of internationally uniform emission factors and calculation standards, which complicates comparability between companies.

5. Key Points for Practical Action

• Strengthen data collection systems: It's crucial to standardize requests for emissions data and surveys for suppliers and establish a system for regular updates.

• Utilize international standards: Companies should aim for transparent disclosure by basing their calculations on the GHG Protocol and ISO 14064.

• Leverage digital technology: Adopting carbon accounting tools and blockchain for data management can enhance efficiency and reliability.

• Engage with stakeholders: Disclosure data should be integrated into IR strategies and sustainability reports to respond promptly to requests from investors and customers.

6. Conclusion

The mandatory disclosure of GHG emissions in international supply chains is expected to become even more widespread in the future. It is crucial for companies to view this not just as a regulatory obligation but as a strategic component for promoting decarbonization management. By deepening collaboration with suppliers through Scope 3 emissions disclosure, companies can secure a sustainable competitive advantage.