Most of the chat around corporate sustainability reporting focuses on the fact that Europe & the UK have mandatory legislation that forces larger firms to report their sustainability profile (environmental, social and governance).
In the USA, the Securities and Exchange Commission (SEC) has not yet managed to get mandatory sustainability reporting over the line – and if there is regime change in a few months time, that may take much longer to achieve.
Why is this important?
Because it’s completely clear from the European experience that this sustainability reporting makes board directors sensitive to its effect on their corporate reputation. No-one wants to look like an antediluvian laggard!
So first, pressure comes on to improve the large company’s own sustainability profile. Then attention turns to the supply chain, usually forcing suppliers to report their profile and meet recognised accreditations.
This attention is usually focused on Tier 1 suppliers – i.e those who can afford to get accredited, and whose products are key to the large companies operations. A good example is production machine suppliers to a manufacturer. I know of a few large manufacturers who will not deal with Tier 1 suppliers UNLESS they have clear and accurate sustainability reporting, plus accreditations.
On the other hand, if the large company were to try and force the issue with smaller (SME) suppliers, then this would probably be anti-competitive… plus, those smaller suppliers are usually not significant contributors to the large company’s footprint anyhow.
So what’s the big issue with China introducing mandatory sustainability reporting standards?
Frankly – the effect will be absolutely HUGE.
The Chinese economy has a GDP of around 18 trillion USD.
That’s about the same as the EU.
OK – US GDP is more like 28 trillion USD – so when the US comes on board with sustainability reporting, the tsunami is most definitely here.
In any case, US companies supplying into Europe are already voluntarily doing sustainability reporting… because if they don’t, they could lose market share.
So anyone who thinks that sustainability reporting and its effects are an EU-only phenomenon, think again, Especially now China’s on board.
