Board Series: Industrials companies disclose product lifecycle emissions – questions for the boardroom

Knowledge is power, Industrial companies place bets on disclosing lifecycle emissions

A number of industrial companies have taken more aggressive approaches to product-related emissions reporting:

• Volvo CE demonstrates sector leadership in disclosing an extensive catalogue of Product Carbon Footprint (PCF) reports, which helps customers take active steps to reduce their environmental impact. The reports confirm that electric machines are a more sustainable choice compared to conventional diesel machines when looking at greenhouse gas emissions across their entire lifecycle
• Tesla has evaluated and reported on the lifecycle emissions of its full supply chain for the first time in 2023, which is the most polluting part of its business. The battery supply chain accounts for 25-30% of Tesla’s supply chains GHG emissions
• Similarly, Boeing has released several disclosures about the emissions of their aircraft, which include the lifetime emissions of each of their commercial jets would emit the equivalent of one million tons of carbon dioxide over their 20-year lifespan
• Also in 2023, U.S. Steel announced Environmental Product Declarations (EPDs) across three offerings including Hot-Rolled, Cold-Rolled, and Corrosion-Resistant flat-rolled products

Carbon labelling grows outside of Industrials

Businesses across a wide range of industries have embraced carbon accounting tools to gain broader and deeper insights into sustainability initiatives. While companies have worked to lower emissions by improving sourcing, streamlining supply chains, and reducing energy consumption, many consumer-facing companies have not informed consumers with data about their habits, actions, and behaviors.

• Financial firms such as American Express and MasterCard have introduced emissions trackers that allow customers to view their carbon footprint based on purchases
• Similarly, travel providers such as Google Flights and Uber have rolled out tools that show emissions data to customers
• For leisure and hospitality, Hilton was one of the first to expand its carbon-labeled menus and lower-impact menus
• In high tech, a coalition of Google, AWS, Meta, and Digital Realty contend that Environmental Product Declarations (EPDs) will help the data center industry improve its collective sustainability profile. These standardized and third-party verified reports help provide quantitative information about a product’s environmental impact, from its raw materials to its end of life, similar to nutrition labels for food products.
• In the food sector, some have suggested that “carbon is the new calorie” and that carbon emissions are much easier for consumers to comprehend than what was previously thought. As an example, Oatly debuted its labeling last year on U.S. products

Competing on ESG for customer share of wallet

Companies are learning that their future success with a rapidly changing customer profile will take competing on ESG, biodiversity, and environmental commitment. This is especially true for younger generations. McKinsey & Company found that 66% of all respondents and 75% of millennials consider sustainability issues when making a purchase. MasterCard reports that 85% of consumers are willing to take some type of personal action to combat environmental and sustainability issues.

Where carbon labeling regulation is going, a focus on certification schemes

Key forces are driving the adoption of carbon labeling include government regulations and industry initiatives:

• First pioneered by European Union policymakers, these mandates lead the charge by requiring carbon labeling on all food and beverage products
• Simultaneously, industry groups and organizations like The Science Based Targets Initiative (SBTi) have proactively developed voluntary “clean product” standards and certifications, allowing companies to go beyond compliance and demonstrate their commitment to sustainability to consumers, investors, and downstream customers like retailers, distributors
• Independent certification bodies will grow even more essential in the Sustainability space to create commonly agreed upon standards and clear comparability.
• The lack of universal standards or regulations for sustainability claims make it difficult for consumers to differentiate genuine efforts from misleading ones. Thus, with the rise of greenwashing accusations around low-emissions or climate neutral product claims, these terms that rely on offsetting will be banned from the EU by 2026 as part of a crackdown on environmental claims. Under this new directive, only sustainability labels using approved certification schemes will be allowed by the block
• The EPA has issued its Implementation Approach for the U.S. EPA Label Program for Identifying Low Embodied Carbon Construction Materials to define what constitutes “clean” construction materials to support the federal Buy Clean Initiative. This initiative leverages the U.S. government’s power as the world’s largest purchaser to catalyze demand for clean construction materials used in federal buildings, highways, and infrastructure projects. This labeling program has prioritized steel, glass, asphalt, and concrete.

Actions boards can take:

• If not yet taken, board directors should call for a competitive and regulatory benchmark to determine where they have carbon labeling opportunities and risks within their sector and outside
• Call for lifecycle analyses for all core products and ensure conformity to globally recognized standards
• Since these efforts tie to broader corporate decarbonization and net-zero activities, ensure that product labeling and consumer marketing have grounds in the organization’s broader net-zero strategy and how it engages with its upstream and downstream partners
• Evaluate potential IRA and Infrastructure Bill incentives to procure “clean materials”
• Identify growth opportunities through carbon and other ESG labeling activities, see where embracing these efforts can create more industry-wide pressure to compete on sustainability metrics

Questions for the boardroom:

• Where do we have the best opportunities to advance product competitiveness through enhanced carbon and ESG labeling? Where do we have the greatest risks?
• Where, beyond Europe, do we expect regulation to place greater scrutiny and non-voluntary standards around how and what is reported on consumer products?
• What can we learn from other industries – financial services and travel – in how they have successfully shared carbon emissions data with consumers to improve brand value, reputation, customer loyalty, and more?
• Does our government affairs team expect the funding for the U.S. Buy Clean initiative to continue under Trump’s second term?