A climate rule from the Securities and Exchange Commission announced earlier this month could enable food and beverage manufacturers to move closer to their environmental goals despite initial concerns, according to a spokesperson at a sustainability research firm.
The rule exempted companies from reporting indirect “Scope 3” emissions — those that are not produced by the company itself, such as consumers disposing of food products – in their regulatory filings. These account for up to 87% of the food and beverage industry’s carbon footprint.
Environmental groups are concerned the SEC’s rule has left gaps that could result in food companies overlooking Scope 3 emissions. Sustainability investor group FAIRR, which represents $70 trillion in assets, said in a statement the SEC disclosure ruling leaves the industry vulnerable to climate risks, particularly in livestock.
“This also diverges from key markets looking to enforce Scope 3 disclosure — such as the European Union, California and Singapore — with regulatory fragmentation posing an additional business risk,” said Lucrezia Tincani, the acting policy director of FAIRR.
The future of the rule could be in doubt.
A U.S. appeals court in New Orleans temporarily paused the rule late Friday. It came following a lawsuit filed by two oil companies that claimed the rule would cost them a collective $4 billion in compliance costs. The SEC argued last week the measure won’t harm companies because it contains extensions on compliance through March 2026.
In order to track how they are accruing emissions throughout their supply chain, some food and beverage companies choose to use third-party auditors. In 2022, sustainability research company HowGood launched a measurement platform for companies to track their Scope 3 emissions. This allowed businesses to more accurately evaluate the amount of carbon used in their supply chains by analyzing more than 33,000 ingredients.
Eva Clark, director of communications at HowGood, said the new ruling won’t prevent companies from moving closer to their Scope 3 goals. She said many firms with sustainability targets are leaning heavily into reporting their emissions and won’t halt their progress.
“Leaders across the industry are looking for more accurate data and looking for more automated ways to bring that data to scale so that they can design their reduction initiatives in the most efficient ways possible,” Clark said.
She added that companies HowGood works with, including dairy giant Danone, are interested in getting granular, accurate data about the emissions from their supply chain. She also pointed to big box retailer Walmart and e-commerce giant Amazon which require full carbon footprint reports from the food and beverage companies they work with. In addition, California also requires Scope 3 reporting for companies that do business in the state.
SEC Chair Gary Gensler attends a meeting of the Financial Stability Oversight Council at the U.S. Department of Treasury on December 14, 2023 in Washington, DC.
Drew Angerer via Getty Images
The Scope 3 shakeup
Several major food and beverage companies have set goals to lower their Scope 3 emissions. CPG giant Unilever, which owns brands like Ben & Jerry’s and Knorr, announced last week a goal to reduce its Scope 3 emissions from energy and industrial operations by 42% and agriculture by 30.3% before 2030.
PepsiCo also has set a target to reduce its Scope 3 emissions by 40% by 2030. In its most recent ESG report released last summer, the beverages and snacks maker reported its Scope 3 emissions had increased by 7% in 2022. PepsiCo attributed the jump to sales growth for its products.
The SEC chose to scrape Scope 3 reporting from its final rule because of concerns about the cost of compliance and the reliability of data. One issue with tracking Scope 3 emissions raised by experts is that it is often hard to track. This is an issue third-party groups like HowGood aim to solve.
Clark pointed to HowGood’s work with Ingredion, which it partnered with in 2022, as an example of how the tech company helps CPGs assess their downstream emissions using its platform.
“What Ingredion has done with us is using our database, which is not going to be totally specific farm-level data, but consists of crop and location-based emission factors, so a far more accurate estimate of the actual impact of an ingredient,” Clark said.
