Coping Mechanisms for the Carbon Clampdown
Five focus areas to help mill products companies turn regulatory readiness into a competitive edge
A war in Ukraine may have diverted focus from the war on climate change for the moment. But the global regulatory push to curb carbon emissions continues unabated, with initiatives such as the U.S. Security and Exchange Commission’s newly proposed rules to require corporations to disclose a range of information about climate-related risks and greenhouse gas emissions.
Besides requiring companies to disclose how they manage climate-related risks and how those risks could impact their business, the SEC proposal unveiled in March also would require them to provide information about greenhouse gas (GHG) emissions — those produced directly from their own operations as well as indirect emissions from the energy they purchase, and from upstream and downstream activities along their value chains. The rules would phase-in over the 2023 to 2027 fiscal years.
Similar standards are set to take hold in Europe as part of the EU Taxonomy, a policy designed to establish uniform sustainability and GHG reporting standards across the European Union. The EU also is moving to implement a plan to tax imports of certain materials and goods based on the greenhouse gases emitted to manufacture them. Though the Carbon Border Adjustment Mechanism (CBAM) policy approved in March initially will apply to goods deemed at highest risk of carbon leakage, including steel, cement and aluminum (but not pulp or paper), policies like these put all carbon-intensive industries on alert that their regulatory responsibilities are likely to mount in coming years. In the U.S., various states have enacted or are actively exploring extended producer responsibility (EPR) policies that would shift responsibility for end-of-life management of products upstream to producers/manufacturers. EPR policies already are in place in five Canadian provinces and throughout Europe, according to the National Caucus of Environmental Legislators. While organizations like the American Forest & Paper Association aren’t big supporters of EPR mandates, some of the world’s largest corporations and brands are.
As customer preferences align with regulatory policy in pushing for a more sustainable, producer-centric approach to managing paper and packaging waste, the opportunity for paper and pulp companies to gain a competitive edge by taking a leadership position with respect to sustainability and carbon-reduction grows stronger. To capitalize on that opportunity, they’ll need to focus on five key areas:
- Factoring sustainability considerations, including greenhouse gas emission reduction, into decisions made across the business. Manufacturers have begun to make sustainability part of their organizational DNA, factoring carbon footprint and other sustainability-related KPIs into their end-to-end processes and decision-making, from sourcing to product design to manufacturing operations to transportation/logistics. Having the ability to centrally monitor, manage and optimize business/operational processes is critical to making this a reality, giving organizations a clear line of sight into the relationship between sustainability investments and business success. How does a simple adjustment in the type of ink used for a paper product impact that product’s recyclability? How will switching from virgin material to recycled material impact the performance and profitability of a product? Answering questions like these begins with responsible design of products.
- Strengthening supply chain visibility and control. To comply with the next wave of carbon-reduction policies, companies need integrated tools to collect, track and analyze the make-up (and prove the origin) of the materials and equipment they use, and the products they make. With the ability to periodically calculate product footprints at scale across the entire product lifecycle, they can optimize products and processes via a continuous feedback loop. Externally, meanwhile, this track-and-trace capability enables a company to evaluate its supply chain partners based on their sustainability performance. How does one wood or fibers supplier or pulp mill stack up versus another in terms of emissions, in addition to their price and quality? In a world where the poor sustainability performance of one link in the value chain can undermine a company’s own sustainability goals and initiatives, organizations must be capable of evaluating suppliers on factors beyond just price and reliability.
- Beefing up reporting/disclosure capabilities. Visibility and track-and-trace are just part of the compliance equation. With new reporting requirements like those from the SEC and the EU taking hold, companies also must have the ability to collect and standardize data from disparate, sometimes unstructured sources, both internally and from other entities in the value chain, then package that data in various formats to meet reporting requirements that may differ substantially from jurisdiction to jurisdiction. What they need, essentially, is a single reservoir from which to draw trusted data, with the ability to standardize and tailor that data to meet varying reporting requirements. With the help of a standard cloud platform supported by machine learning- and artificial intelligence-driven tools to detect patterns across locations and units, doing so becomes significantly less daunting. It also makes measuring progress toward internal sustainability goals that much simpler.
- Building and actively participating in business networks. Complying with EPR policies, and evaluating current and potential procurement and supply chain partners based on their sustainability performance, requires close communication, cooperation and alignment with other companies. Digitally connected business networks give companies the framework within which to share data to fulfill reporting responsibilities, work together to deliver more value to customers, and even collaboratively explore new business models, services and revenue streams with waste- and emission-reduction in mind. As part of a network, they’re aligned and sharing risk in working toward their sustainability goals.
- Keeping a close eye on regulatory/policy developments in all the countries and markets in which they are active. Staying abreast of new government policies, statutory requirements and rules isn’t getting any easier, particularly for companies that do business in multiple countries, regions and markets. Here’s another area where machine learning- and artificial intelligence-driven tools can help, by scanning a huge array of documents, websites and other relevant sources to identify — and alert organizations to — any legal, regulatory or policy developments that could impact the business. So if a new tariff requirement emerges in Asia, or a new EPR law is passed in New York, they’ll know about it.
In a pulp and paper business that, according to the European Commission, already “has an excellent track record in resource efficiency and innovation,” companies that excel in these five areas will be well-positioned to build on that legacy by delivering the sustainable products and lower-carbon performance that both customers and regulators are coming to expect.
For additional insight from a recent survey of 2000 global companies into what they are doing around sustainability check out this new Oxford Economics white paper.
First published in Paper360 May/June edition.