Lego world the biggest toy manufacturernot only has he built a status durability of its bricksintended last for a long time, but additionally due to significant investments in sustainable development. The company has pledged $1.4 billion reducing greenhouse gas emissions by 2025, despite offsetting annual profits of just over $2 billion in 2022
This commitment is not only for show. Lego sees its foremost customers as children and their parents sustainable development is essentially about ensuring that future generations inherit a planet as hospitable because the one we enjoy today.
So the report by the Financial Times got here as a surprise. September 25, 2023which Lego withdrew from its widely publicized “Brick bottles” initiative.
This ambitious project aimed to replace traditional Lego plastic with a recent material created from recycled plastic bottles. However, when Lego assessed the environmental impact of the project throughout its supply chain, it found that producing bricks from recycled plastic require additional materials and energy to be durable enough. Because the conversion process would involve higher carbon emissions, the corporate decided to stick to current fossil fuel-based materials continuing the search more sustainable alternatives.
How experts IN global supply chains AND sustainable developmentwe imagine that Lego’s pivot is the start of a broader trend towards developing sustainable solutions for entire supply chains in a circular economy. New recipes within the European Union – I expect in California – we’re going to speed things up.
Investigating all emissions, from cradle to grave
Business leaders have gotten an increasing number of quite a few integrating environmental, social and governance aspects, commonly referred to as ESG, into its operational and strategic framework. However, pursuing sustainability requires attention to the complete product life cycle, from materials and production processes to its use and final disposal.
As Lego discovered, the outcomes can lead to counterintuitive results.
Understanding a company’s overall carbon footprint requires it three forms of emissions: Scope 1 emissions arise directly from a company’s internal operations. Scope 2 emissions result from the production of electricity, steam, heat or cooling consumed by the enterprise. AND range 3 emissions are generated throughout a company’s supply chain, from upstream suppliers to downstream distributors and end customers.
Chester Hawkins/Center for American Progress
Currently, lower than 30% corporations report significant Scope 3 emissions, partly because these emissions are difficult to track. However, Scope 3 corporate emissions are average 11.4 times greater than theirs range 1 emissions, corporate disclosure data reported to the nonprofit CDP program.
Lego is a case study on this unequal distribution and the importance of tracking Scope 3 emissions. Astonishing 98% of Lego’s carbon emissions are classified as scope 3.
The company’s total emissions increased by 30% between 2020 and 2021 due to rising demand for Lego sets during COVID-19 lockdowns – despite the fact that the corporate’s Scope 2 emissions from purchased energy, reminiscent of electricity, dropped by 40% . The increase concerned almost exclusively Scope 3 emissions.
As more corporations follow Lego’s lead and start reporting Scope 3 emissions, they are going to likely find themselves in the identical position, realizing that efforts to reduce greenhouse gas emissions often come down to emissions within the supply chain and by consumers. And the outcomes may force them to make difficult decisions.
Politics and disclosure: the subsequent frontier
New regulations within the European Union and in California aim to increase transparency of corporate emissions by taking into consideration emissions within the supply chain.
In June 2023, the EU adopted the primary set of European sustainability reporting standards, which can require EU-listed corporations to disclose your Scope 3 emissionsstarting with its FY 2024 reports.
California Legislature passed similar regulations requiring corporations with greater than $1 billion in revenue to disclose Scope 3 emissions. The Governor of California has until October 14, 2023 to consider the bill and he is expected to sign it.
At the federal level, the U.S. Securities and Exchange Commission released a proposal in March 2022 that, if finalized, would require all public corporations to report data on climate-related risks and emissions, including Scope 3 emissions receiving significant oppositionThe SEC has begun to reconsider the Scope 3 reporting rule. However, SEC Chairman Gary Gensler suggested during a congressional hearing in late September 2023 that California’s move could influence the choice of federal regulators.
An increased emphasis on disclosure of Scope 3 emissions will undoubtedly increase pressure on corporations.
Because Scope 3 emissions are significant but often not measured or reported, consumers are rightly concerned corporations claiming that they emit little gases perhaps it’s greenwashing by failing to take motion to reduce emissions of their supply chains to combat climate change.
At the identical time, we suspect that as more investors support sustainable investing, they could prefer to put money into corporations that transparently disclose all areas of emissions. We imagine that ultimately consumers, investors and governments will demand more from corporations than empty platitudes. Instead, they are going to expect corporations to take concrete steps to reduce probably the most significant a part of a company’s carbon footprint – Scope 3 emissions.
A journey, not a destination
The Lego example serves as a cautionary tale within the complex ESG landscape for which most corporations will not be well prepared. As more corporations come under scrutiny for their entire carbon footprint, we might even see an increasing number of cases where well-intentioned sustainability efforts lead to uncomfortable truths.
This requires a differentiated understanding of sustainability not as a checklist of excellent deeds, but as a complex, ongoing process that requires vigilance, transparency and, above all, commitment to future generations.