S03E11 - Profit/Planet - Cracking the Carbon Code: Navigating GHG Emission Regulations on global, regional and local levels.

Daniel (real): [00:00:00] Hello and welcome to the Supply Chain Dialogues. My name is Daniel Helmig and I'm joined by my AI co-host AImee.

AImee: Hi Everyone.

Daniel (real): Today we're tackling a topic that's giving many business leaders and professionals headaches and simultaneously back pains. It's about navigating the greenhouse gas regulations across global, regional, and local levels. We will argue that there is no need for massive staff buildup. If you understand how to prioritize the different levels, right. We will discuss Europe and later specifically French and German regulations as a case in point.

We do not need another podcast on U. S. and China, I think there are enough of that. But even for U. S. Companies, this episode is useful to understand your way through the newly created and ever expanding jungle of European and national legislations.

AImee: And it's quite the jungle out there! We've got everything from the Greenhouse Gas Protocol's Scope 1, 2, and 3 requirements to the EU's Corporate Sustainability Reporting Directive, as well as national regulations like Germany's Supply Chain Due Diligence Act or the French Energy Transition Law and its successor, the Climate and Resilience Law. For reference: Looking at all the rules and regulations regarding greenhouse gas emissions in the G 20 States, the nearest approximation is around 300 to 600, which is fascinating since all countries share one atmosphere on just one earth! And yes, there are overlaps, as we will see later, but just think of all the people in the respective governments who have to redo, change or just copy. It is an army!

Daniel (real): Exactly. But here's what's interesting. When you look closely, there's more overlap than many realize. Today, we break them down systematically to find patterns. At the [00:02:00] top, we have the global framework as the foundation. So let's start with the greenhouse gas protocol, the global carbon and counting standard.

What makes it so fundamental?

AImee: The beauty of the GHG Protocol is its comprehensive approach. When you're compliant with Scopes 1, 2, and 3 reporting under the Protocol, you already meet most of the requirements for more specific regulations at the regional or local levels. For example, the calculations and methodologies you use for Scope 3 emissions are accepted by most jurisdictions.

Daniel (real): That's a crucial point.

AImee: Absolutely! Let's make this practical. Think of the GHG Protocol as a Russian nesting doll of emissions - each scope adds another layer of responsibility. And what's great about understanding these scopes thoroughly is that once you've got this right, you're well-positioned for most other regulations.

Daniel (real): That's a clever way to think about it. While we also covered this in previous episodes, let's look at each doll again. Let's start with the Scope 1 doll, the direct emissions. And just so that we get the picture right, scope 1 is the smallest doll in this nesting doll system.

AImee: Scope 1 is your direct emissions - everything you own or control directly. Think of it as "if you can touch it, it's probably Scope 1." This includes: Your company vehicles , the Heating systems in your buildings, all Manufacturing processes and Any chemical reactions in your production. For example, if you're running a logistics company, your truck fleet's emissions are Scope 1. If you're a manufacturer using natural gas for your production processes, that's Scope 1 as well.

Daniel (real): And how do companies typically measure these emissions?

AImee: Scope 1 is relatively straightforward - you're basically looking at your fuel and energy consumption. Most companies start by Collecting fuel purchase records and Gathering utility bills. Then they are Checking refrigerant top-up logs and any Recordings of [00:04:00] process emissions. The GHG Protocol website has excellent calculation tools for this. They're free to download and come with detailed guidance.

Daniel (real): That's useful. We will put a link in our show notes on our website. Now, what about the Scope 2 DOLL? They are now both market based and location based methods.

AImee: Ah, Scope 2 - the purchased electricity story! Yes, there are two methods, and companies need to report both. Location-based reflects the average emissions intensity of the grids where you consume electricity. In contrast, market-based reflects emissions from electricity that you've purposefully chosen through contracts or instruments like Renewable Energy Certificates.

Let me give you another example. Say you're running a data centre in Germany. Under the location-based method, you'd use Germany's average grid emission factor. But if you've purchased renewable energy certificates to cover your consumption, you might report much lower or even zero emissions for that electricity use under the market-based method.

Daniel (real): I've noticed some companies only report one method.

Is that actually compliant?

AImee: No, and this is a common mistake! The GHG Protocol requires dual reporting. It's pretty elegant because it shows your contribution to grid emissions and your contractual arrangements. Companies can find the detailed guidance document called Scope 2 Guidance on the GHG Protocol website - it's over 100 pages long but worth reading, especially chapters 4 and 6.

Daniel (real): Now, let's tackle the big doll, Scope 3. As we have discussed in other episodes, many companies struggle with this.

AImee: Absolutely! Scope 3 is like opening Pandora's box - it covers 15 sub-categories of indirect emissions, both upstream and downstream. But here's the thing - companies can report only some of the 15 categories. The key is conducting a thorough materiality assessment.

Daniel (real): Can you give us an example of [00:06:00] these categories and how to approach them?

AImee: Let's take a manufacturing company as an example. Their material Scope 3 categories might include Purchased goods and services - this could be their raw materials, then Upstream transportation - getting those materials to their factories. Next is the Use of sold products - if they manufacture appliances, for instance and last, but not least the End-of-life treatment of products.The trick with Scope 3 is to start with a screening approach. You don't need perfect data right away. The GHG Protocol provides emission factors and calculation tools that help you estimate the emissions you have.

Daniel (real): We talked a lot about how to get the data from suppliers in prior episodes. Now let's assume companies do not know better and shamefully do not listen to this podcast. What if they can't get the data from the suppliers?

How do they handle that?

AImee: This is where primary and secondary data comes in. While primary supplier data is ideal, you can start with industry averages or spend-based calculations. The key resources here are The GHG Protocol's Technical Guidance for Calculating Scope 3 Emissions, The CDP Supply Chain Program, which has great templates for supplier engagement, and The Scope 3 Evaluator tool, which helps with initial estimates. Many companies start with rough estimates and gradually improve data quality over time. It's better to have an estimate than no data at all.

Daniel (real): As we have done before, we mentioned the company CarbMe here. C A R B M E E. They have a comprehensive overview of all major categories and can also help a company to go from industry to company with detailed information.

Whatever company you finally choose, just do not try to do this by yourself. It tends to be too complex. Just as an example, look at the 480 line questionnaire you have to fill out in an Excel sheet. Yes, [00:08:00] Excel sheet, if you would like to sell to the government in the UK. They have an institution there called Crown Commercial Services, which just recently created a nightmare for suppliers to do this.

There are many more examples where bureaucrats, ignoramuses, and do gooders are unleashed on the unwilling supply base. Can you share any particular success stories about companies managing this well?

AImee: One approach we've seen work well is the "20-80 rule"—focus on the 20% of your suppliers or products that likely account for 80% of your emissions. Take a company like Unilever, for example. They identified that their agricultural raw materials and consumer use of products were their biggest Scope 3 impacts, so they focused their detailed data collection efforts there first.

Daniel (real): Any final tips for our listener just starting their greenhouse gas protocol journey?

AImee: Yes, three critical pieces of advice: First: Start with a gap analysis - understand what data you already have versus what you need. Second: Use the free resources on the GHG Protocol website - especially their guidance documents and calculation tools. Third: Join industry collaborations - many sectors have working groups sharing best practices. And remember, it's okay to start simple and improve over time. The GHG Protocol actually encourages this approach of continuous improvement.

Daniel (real): Thank you. Now, let's move one geographic level down. And since we record in Europe, why don't we look at the European regulations about greenhouse gas emissions.

AImee: The EU's approach, particularly with the C S R D and the Corporate Sustainability Due Diligence Directive, essentially builds upon the GHG Protocol's framework. They add specific requirements around detailed reporting timelines, Third-party verification, Impact assessments, and Transition planning.

Daniel (real): I've noticed that many [00:10:00] companies struggle with understanding where these requirements differ from what they're already doing under the protocol. Let's make this concrete with an example? Say we're looking at a company like Siemens Energy. How would they approach this?

AImee: Interesting choice! Siemens Energy actually provides a good example because they deal with Global operations and supply chains, EU-wide compliance requirements, Specific German regulations, and Complex Scope 3 emissions from their product use. Let’s not forget that every country they ship to outside of the E.U. could also have specific regulation that is different from the Global standards.

Daniel (real): So, what's the smart way to approach this? How can companies avoid duplicating efforts?

AImee: Based on best practices from companies like Siemens and research from the Science Based Targets initiative, there's a clear hierarchy: Start with GHG Protocol compliance as your foundation. Then, Build your data collection and verification processes to meet the strictest requirements (usually EU-level). Finally, Add specific local reporting elements only.

Daniel (real): Let's talk about where companies typically struggle and how to avoid these issues.

AImee: From our analysis and research, the main challenges are: Double-counting emissions across different reporting frameworks, Inconsistent methodologies between jurisdictions, Varying time boundaries for reporting and Different materiality thresholds. It's best to approach this chaos using companies like carbmee to guide you through this jungle.

Daniel (real): Okay, and now let's focus on the next geographical level, nation states.

Since we started with Europe, let's take two of the largest countries in Europe, France and Germany. Let's look at Germany first. They have been quite ambitious with their regulations, right? Some say even to the potential detriment of their economy.

AImee: Germany's positioning itself as a frontrunner in climate protection. The interesting thing is that they've created a framework [00:12:00] beyond just emissions reporting - they've woven climate protection into both environmental and supply chain legislation.

Daniel (real): Okay, let's break this down. What are the key pieces of legislation they need to know about?

AImee: There are three main pillars to focus on: First is The Climate Change Act

Daniel (real): Das Bundesklimaschutzgesetz,

AImee: Right. Next, The Supply Chain Due Diligence Act

Daniel (real): In German another mouthful, das Lieferkettensorgfaltspflichtengesetz, or LKSG,

AImee: Third, we will touch on the CSR Directive Implementation Act, which we will touch on again in France.

Daniel (real): Let's start with the Climate Change Act. What does it mean for companies?

AImee: The Climate Change Act is Germany's framework for achieving climate neutrality by 2045. What's unique about it is that it sets specific reduction targets for different sectors. For example, the industry sector needs to reduce emissions by 58% compared to 1990 levels by 2030.

Daniel (real): So how does this translate into actual requirements for companies?

AImee: Companies need to Set science-based reduction targets aligned with the sector goals, Report their emissions annually, Develop concrete climate action plans and Have their data independently verified. Or, even if the government probably does not like to hear it, move their production to a country with more average standards. If you follow the German press, you find a lot of this happening already today, just look at the announcements of B A S F and Ford Motor Company. Both just the tip of the iceberg in terms of trend.

Interestingly, while the regulation in Germany aligns well with the GHG Protocol, there are some German-specific quirks. For instance, the baseline year is fixed to 1990, while under the GHG Protocol, companies can choose their baseline year.

Daniel (real): That's a typical difference for Germany. In the end it comes down to the old notion of the [00:14:00] Napoleonic common law code versus the more Anglo American case law, where everything is, to some extent, debatable.

This is one of the many reasons that in their industry, as well as in general public, there is a sense of going too fast too soon, driving unintended consequences of this political agenda. Economic figures actually point to a sliding decrease in industrialization.

But before we discuss this further, let's focus on legislation. Tell me about the Supply Chain Act. It has caused quite a stir.

AImee: The L k S G is fascinating because it takes a different approach. While it's not exclusively about emissions, it includes environmental risks and impacts as part of due diligence requirements. Since January 2024, it has been applied to companies with at least 1,000 employees in Germany.

Daniel (real): Can you give us some practical examples of what companies must do to comply?

AImee: Of course! Let's take a typical manufacturing company in Germany. Under the LkSG, they need to Conduct regular risk analyses of their entire supply chain, Set up a risk management system that includes climate impacts, Establish a grievance mechanism and finally Document and report all their due diligence activities

The interesting part is how this intersects with GHG emissions. Companies must assess whether their suppliers' activities lead to significant GHG emissions or other environmental damages.

Daniel (real): This creates a documentation burden and it adds to the package of greenhouse gas emission reduction which are already unique, making the pill even more complicated to swallow.

How are companies actually handling this in practice?

AImee: Many companies are integrating greenhouse gas reporting with L k S G compliance. For example, when collecting Scope 3 data from suppliers, they're now including questions about Environmental risk management systems, Climate targets and initiatives, Environmental certificates and standards and Specific [00:16:00] emission reduction measures.

The Federal Office for Economic Affairs and Export Control, B A F A, has published some good guidance documents about it.

Daniel (real): What about penalties? I've heard Germany takes this quite seriously.

AImee: They certainly do! Non-compliance with the L k S G can result in fines of up to 2% of global annual turnover for companies making more than 400 million euros annually. But here's what's interesting - companies can also be excluded from public contracts for up to three years.

Daniel (real): That's significant. By the way, I believe the CDU CSU, the current opposition in Germany, has asked the parliament to repeal the Supply Chain Due Diligence Act in June this year.

It was voted down based on the majority of Social Democrats, Liberals, and the Green Parties. This might be picked up if the Green and Socialist government in Germany is voted out of the office in February 2025. Let's keep this on our radar screens. Now, how does the CSR Directive Implementation Act fit into this at all?

AImee: This is where everything comes together. The Act implements the EU's Corporate Sustainability Reporting Directive into German law but with additional requirements. Companies need to report on Environmental matters, including detailed GHG emissions, Climate-related risks and opportunities, Their environmental due diligence processes and the Progress against climate targets overall. The reporting must be included in the management report and verified by an independent auditor.

Daniel (real): So if a company is already compliant with the Greenhouse Gas Protocol, what extra steps must they take for German compliance?

AImee: Great question! Here's a practical checklist:

Verify your baseline year aligns with German requirements (1990, where possible). Next: Expand your risk management system to cover climate-related risks in your supply chain explicitly. Then, Set up a grievance mechanism that includes [00:18:00] environmental concerns, which is mainly a website link, an email, and a person defined in your communication, legal, sustainability, or supply chain organisation who is trained and able to execute in accordance with regulations. Ensure your documentation meets German requirements. Remember, bureaucracy is one of the biggest grievances the public currently has there. German authorities love detailed documentation! Finally: Have your reports verified by a German-approved auditor.

Daniel (real): Any tips for our international listeners who might be supplying to German companies?

AImee: Yes! If you're supplying to German companies, you should:

One - Proactively collect and verify your emissions data

Two - Document your environmental risk management processes

Three - Be prepared for detailed questionnaires about your climate impact

Four - Consider getting well-recognised certifications in Germany, like E M A S or ISO 14 0 64.

Daniel (real): Finally, where can our listeners find more information about these requirements?

AImee: The B A F A website is an excellent resource with detailed guidelines in German and English. The German Environment Agency, U B A, provides excellent guidance documents. For companies just starting out, the German Chambers of Commerce offers advisory services specifically on these regulations. And, as Daniel mentioned several times, companies like carbmee can also help you here.

Daniel (real): Thank you. Let's look a bit west to Germany's, neighboring country, France, , not even considering the Wild West in other regions.

AImee: Absolutely! France has been a pioneer in this space. They were the first country to introduce mandatory climate reporting for institutional investors with Article 173 six of their Energy Transition Law back in 2015. And they've continued to be innovative with regulations like the Duty of Vigilance Law and their recent Climate and Resilience Law.

Daniel (real): Again, could you break that down into the key regulations [00:20:00] our listeners need to know?

AImee: Sure! The main pillars of French climate legislation are:

The Energy Transition Law and its successor, the Climate and Resilience Law, then the Corporate Duty of Vigilance Law (Devoir de Vigilance). We have as well The PACT E Law which is the abbreviation for: Action Plan for Business Growth and Transformation. Finally the French implementation of the EU CRD, similar to what we talked about in Germany.

Daniel (real): Okay, let's start at the top with the climate and resilience law. What makes it unique?

AImee: What's fascinating about France's approach is how comprehensive it is. The Climate and Resilience Law, enacted in 2021, sets concrete requirements for companies in areas like Mandatory carbon footprint disclosure, Climate change adaptation strategies, Environmental labelling of products and even Specific sectoral emission reduction targets

Daniel (real): Comprehensive is a positive definition here. Again, just saying. The Napoleonic common law approach again. How does this translate into practical requirements for companies?

AImee: Let me give you a concrete example. Under French law, companies with more than 500 employees must publish a "Bilan Carbone" - a comprehensive carbon assessment. This goes beyond just reporting numbers. Companies need to Calculate their direct and indirect emissions, Develop an action plan to reduce emissions, Report on progress annually and Include their carbon footprint in their non-financial performance declaration

Daniel (real): That sounds similar to the greenhouse gas protocol. Are there any significant differences?

AImee: Yes. The French system has some unique requirements:

The methodology must follow specific French standards, which is the Bilan Carbone® or GHG Protocol adapted to French requirements. Next, the Companies must include emissions from both upstream and downstream transportation. Then, There's a specific focus on local territorial emissions. And finally, Companies need to report on [00:22:00] avoided emissions through their products or services.

Daniel (real): Avoided emissions through their products and services? Jeez. It sounds like reporting for reporting's sake.

How on earth, and I mean this earth, should this be tallied up in any shape or form? I know the answer. Not at all. Just a bunch of data, which cannot be reconciled or verified. In my former role as head of operations, we would have killed such requirements on a typical Monday morning at 9am.

But so be it. Now, what is this duty of vigilance law? How does this relate to emission reporting?

AImee: The Duty of Vigilance Law is quite groundbreaking. Large French companies must assess and prevent environmental and human rights impacts in their entire value chain. For emissions, this means: Mapping their entire supply chain's climate impacts, Identifying and assessing climate-related risks, Taking appropriate action to mitigate these risks, Setting up alert mechanisms and Monitoring the effectiveness of measures implemented.

What's particularly interesting is that this law has teeth - companies can be legally liable if they fail to meet these obligations.

Daniel (real): That's significant and sounds much like the, and I love it, Lieferkettensorgfaltsgesetz in Germany. How are companies managing this in practice?

AImee: Many French companies have integrated their GHG Protocol reporting with their vigilance plans. Take Schneider Electric, a brilliant company when it comes to sustainability compliance, as an example. They've Created detailed supplier assessment programs, Integrated carbon pricing into their business decisions, Developed specific tools for measuring and monitoring supplier emissions and Set up training programs for suppliers on emissions reduction

Daniel (real): Yep, Schneider Electric was clearly at the forefront here. By the way, all thanks to a clear direction by the former CEO. It [00:24:00] will be interesting to see how this will develop now. Okay, now, what about the PACT E law? How does that fit into the emission picture?

AImee: The PACT E Law was quite innovative. It introduced the concept of raison detreh or corporate purpose into French law. Companies can include environmental commitments in their bylaws, making them legally binding. Many French companies have used this to embed climate commitments into their governance structures.

Daniel (real): How has France implemented the EU's CSRD?

AImee: France has taken quite a thorough approach to CSRD implementation. They've Extended the scope to include more companies than required by the EU, Added specific requirements for biodiversity impact reporting, Integrated it with existing French reporting requirements and Required detailed impact assessments at the local level

Daniel (real): Listening to you and seeing that the two largest economies in the EU have augmented the EU legislation, one wonders whether their representatives sleep during the discussions in the EU legislative groups and instead find a raison d'etre for their governmental bureaucrats. To have something to do later. In any case, again, what should international companies do who deal with France?

AImee: The key things to remember are:

The documentation needs to be in French

You need to use French-approved methodologies for calculations

Local stakeholder engagement is crucial

There's a strong focus on territorial impacts

And The verification requirements are pretty strict

Daniel (real): Are there any particular resources you'd recommend?

AImee: Yes! The French Environment and Energy Management Agency website is excellent—it provides detailed guidance and tools, many even in English. The French Ministry of Ecological Transition also offers comprehensive guidelines. For the methodology, the Association Bilan Carbone provides detailed guidance on the French carbon assessment method.

Daniel (real): What about penalties for non compliance?

AImee: France takes this [00:26:00] very seriously, similar to Germany. Under the Duty of Vigilance Law, companies can face civil liability for damages. For carbon reporting requirements, there are financial penalties, and perhaps more importantly, there's a "name and shame" approach where non-compliant companies can be publicly listed.

Daniel (real): Any final tips for our listeners dealing with French regulations?

AImee: Yes, there are some critical key pieces of advice:

First: Start early with stakeholder engagement - the French approach really values local input

Second: Document everything thoroughly - in French!

Third: Consider getting certified under French standards, even if you already have international certifications

Remember, France, like Germany, often goes beyond EU requirements, so don't assume EU compliance is enough.

Daniel (real): As you probably know, if you have listened to our podcast before, we subscribe to the fact that greenhouse gas emission reductions and climate change are the most pressing issues humanity must mitigate.

Unfortunately, as we have seen, governments and their bureaucrats loading on top of this major issue additional requirements to placate other sustainability interest groups. Overloading this topic. As we see from the reporting and the noise from industry and concerned citizens, this makes the bag just too big to carry.

I would love to see national governments focus on the North Star, not the whole star system when it comes to future generations. You can also see this in the constant changes that both countries implement, moving the goalposts of companies even further.

AImee: It is exhausting how both countries are responding to recent EU developments while pushing ahead with their own initiatives. Let's break this down country by country.

Daniel (real): Let's start with Germany again. What are the key recent changes?

AImee: The German regulatory landscape has seen some significant shifts recently. The most important change came in January [00:28:00] 2024 with the expansion of the Supply Chain Due Diligence Act. The threshold for companies covered by the law dropped from 3,000 to 1,000 employees. But there's more happening.

Daniel (real): Okay, tell us.

AImee: In the Climate Change Act Amendments, which were Implemented 2023 we look at Increased sector-specific reduction targets, New requirement for emergency programs if sectors miss annual targets, Strengthened role of the Expert Council on Climate Change and last Mandatory climate impact assessments for all federal laws

Then we have the Carbon Border Adjustment Mechanism (C B A M) Implementation:

German customs authorities are now requiring additional documentation since October 2023. Plus the Full implementation of C-BAM reporting started already from 2024

Finally, Companies need to register with German authorities by Q2 2024. The whole thing is very aggressive and has received a lot of pushback from the industry.

Another example is the new Corporate Sustainability Due Diligence Requirements, which will be implemented in 2024 and 2025. These will add enhanced environmental risk assessment requirements, mandatory transition plans for larger companies, and new supply chain emissions monitoring requirements for the already full plates of German companies.

Daniel (real): Phew! What about enforcement? Has that changed too?

AImee: Yes, that's one of the most important recent developments. B A F A, the German regulator, has increased its enforcement staff by 20% in 2024, Started conducting random audits of companies' emissions reports, Introduced new penalties for incorrect reporting, and created a new online portal for compliance documentation.

Daniel (real): That's sobering. More bureaucrats. But, okay. Let's turn to France. What's new there?

AImee: France has been [00:30:00] equally busy with regulatory updates. The most significant recent change was the implementation of the Climate and Resilience Law, and more is on it's way.

Daniel (real): Okay, let us have it.

AImee: First: The Enhanced Climate and Resilience Law Implementation (2024): It adds New requirements for environmental labelling of products, Mandatory climate scores for large companies, Enhanced reporting requirements for scope 3 emissions, and New requirements for climate risk disclosure in financial statements

Then we have the Updated Duty of Vigilance Requirements which were implemented in late 2023:

We now have an Expanded scope to include climate transition plans, New requirements for supplier engagement, Enhanced stakeholder consultation requirements, and Stricter enforcement mechanisms.

Third, we have New Financial Climate Reporting Requirements which will hit French companies in 2024 and 2025:

These include Enhanced TCFD alignment requirements, New biodiversity impact reporting requirements, Mandatory climate transition plans and Enhanced requirements for investment portfolio emissions

Last, something positive: The Digital Sustainability Reporting, introduced in 2024: a new standardised digital reporting format, Enhanced data verification requirements and Real-time emissions monitoring for specific sectors

Daniel (real): These changes seem pretty comprehensive. How are companies adapting to them?

AImee: We're seeing different approaches. Let me share some examples:

For German companies, here are three:

SAP has developed new software tools for the expanded Supply Chain Act requirements. Volkswagen has created a supplier emissions monitoring platform and Siemens implemented new AI-driven emissions tracking.

Daniel (real): And on the French side.

AImee: The company Total has enhanced its climate risk assessment procedures

L’oreal has implemented new product environmental labelling systems, and Schneider Electric has developed [00:32:00] enhanced supplier engagement programs.

Daniel (real): And looking into the future. What should companies prepare for in the next 12 to 18 months?

AImee: For Germany:

Enhanced C-BAM compliance systems by Q3 2024; New digital reporting requirements starting 2025; an Expanded supply chain monitoring which is ongoing through 2024 followed by New verification requirements for emissions data (starting 2025)

And For France we have Digital sustainability reporting implementation, which is in the roll out. Then we have New biodiversity impact assessments which will come online in 2025, and - drumroll - Enhanced climate transition planning requirements in rollout in 2024 and 25.

Daniel (real): Any advice for companies trying to keep up with all these changes?

AImee: Ensure you have good documentation systems; go with digital systems.

And validate that your systems can handle both current and upcoming requirements and definitively Build in flexibility for future changes.

On the Resource Planning side, ensure that you have the necessary Budget for new compliance tools and systems, plan for additional staff training, and strongly consider external expertise needs. Just make sure that you go with companies that can give you at least three references. Interestingly, many companies in this space are quite expensive and are by far not the best.

Finally, see the whole topic as Strategic: Look for synergies between different requirements, build scalable compliance systems and Focus on data quality and verification.

Daniel (real): Final thoughts on what to watch out for

AImee: Hope for harmonisation between European nation approaches, be mindful of the New enforcement actions, the Technology requirements for compliance and any further Changes in verification and audit requirements

Most importantly, remember that unfortunately most countries in Europe tend to go beyond EU requirements, so staying [00:34:00] current with national regulations is crucial.

Daniel (real): Thank you. And let's tackle the big question. Can companies comply with all these requirements through a single comprehensive approach?

AImee: After analysing all these frameworks, I can say that while you can't completely eliminate duplicate work, you can significantly reduce it through strategic planning. Let me explain how: The key is to identify the most comprehensive framework and build from there. From our analysis, the EU C S R D currently has the most extensive requirements, even more thorough than individual country regulations. When you comply with C S R D, you're covering about 80-90% of what's needed.

Daniel (real): Can you give us a practical hierarchy of requirements?

AImee: Sure, here's how I'd structure it:

First: Establish a Foundation Layer with the greenhouse gas Protocol:

Then go to EU C S R D. It Adds detailed reporting requirements, includes forward-looking assessments and Covers the sustainability context beyond just emissions. It as well has the strictest verification requirements

Only then move to National Specific Requirements: We took Germany and France as examples. So for Germany, add the additional supply chain due diligence. For France, look out for Local territorial impact assessments

In both cases, remember the Country-specific formatting and language requirements.

Daniel (real): So you're saying companies should build their system around CSRD compliance.

AImee: Exactly! Think of it like building a house. The GHG Protocol is your foundation, CSRD is your main structure, and national requirements are like the finishing touches that make it comply with local building codes.

Daniel (real): Again, can you give us a practical example of how this works?

AImee: Let me share a real-world example. Let’s take again a global company like L'oreal. They've built their emissions reporting system around C S R D requirements.

They then add only the specific elements needed for each country.

Daniel (real): And what about data collection process?

AImee: This is [00:36:00] where technology becomes your friend. Companies should Set up data collection systems that capture the most granular level required by any framework, Use automated tools that can generate different report formats, Implement strong data verification processes that meet the strictest requirements, and finally maintain clear audit trails for all jurisdictions

Daniel (real): Are there any requirements that absolutely must be handled separately?

AImee: Yes, unfortunately some elements can't be consolidated: Country-specific risk assessments; Local stakeholder engagement requirements; Jurisdiction-specific governance structures and National-level verification and certification processes

But these are relatively minor compared to the core reporting requirements.

Daniel (real): What's your advice for companies just starting on this journey?

AImee: I'd recommend this step-by-step approach:

Start by mapping all applicable requirements: Global standards, EU regulations, National laws, and as well, let’s not forget the Industry-specific requirements. Use some experts, all of this is already done before.

Then, Identify the most comprehensive framework we believe to be C S R D.

Start Building your data collection and reporting systems to meet the highest standards first. Now, Create a gap analysis to identify any jurisdiction-specific requirements not covered, and finally Develop supplementary processes only for those specific gaps.

Daniel (real): Any final thoughts for our listeners?

AImee: Yes, three key takeaways:

One: Don't treat each framework as a separate project - look for overlaps and build a comprehensive system. Two: Invest in good data collection and management systems - they'll save you time and resources in the long run. Three: Stay current with regulatory changes - requirements are still evolving, and you want your system to be flexible enough to adapt. Most importantly, remember that while perfect consolidation isn't possible, smart consolidation is absolutely achievable. Focus on building a strong core [00:38:00] system based on the most comprehensive requirements, and then add only what's specifically needed for each jurisdiction.

Daniel (real): Thank you. And thank you for all our listeners for joining us for this deep dive into greenhouse gas regulations, which are not the most riveting subject to go through. But since we need to comply, it's better to understand what can be done and get some hacks in terms of making it easier.

Remember to check out our show notes for links to the resources and tools that we've mentioned. If you'd like to re read some aspects that are relevant to you, You can go to our website's podcast area, click on this episode. The transcript button is on the lower part of the screen and you will find a cleaned up version of what was discussed.

I hope that you enjoyed this. painful episode of the supply chain dialogues. If you did, please subscribe to Apple, Spotify, YouTube, or any other central podcast platform and help us spread the word by telling a friend, a colleague, or maybe someone in charge of getting your company or your area compliant with legislation like your CEO or any board member or senior manager with influence.

Feel free to send it as well to your government officials. While we criticize, we as well recognize the work that is done by thousands of earnest government employees to work on the solution. We just believe that markets can do this better than government. They should only provide the main swim lanes that everyone should follow, and that's it, full stop.

 With that, stay safe, be bold, and see you in two weeks. These are the Supply Chain Dialogues produced and copyrighted by Helmig Advisory in [00:40:00] 2024.