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While companies have set ambitious decarbonization goals, there is still work to be done to integrate decarbonization strategies across sourcing, assembly, production, transportation, and product marketing. Regulators and customers are pushing for greater transparency for both emissions disclosures and other ESG metrics (embodied carbon, recyclability, biodiversity, fair trade, human rights, etc.). This pressure has started in Europe and continues to grow in North America, Australia, Singapore, and beyond. Executives should understand key drivers around this trend and determine how their organizations should manage reputational and greenwashing risk with carbon labelling.
Key takeaways:
- With increasing pressure from customers and regulators for transparency around the carbon footprint of a product’s lifecycle, Industrial companies will be expected to provide verifiable data related to the product’s emissions profile
- As regulation is not currently uniform, companies should look to global voluntary standards and certifications to demonstrate their commitment to sustainability, ESG, and net-zero to customers
- Visibility on product emissions is one of many other ESG and Sustainability metrics that customers are looking for more reliable information from manufacturers on. Accordingly, management teams should conduct a full inventory of potential metrics, regulatory requirements, and potential penalties to then prioritize potential adoption on packaging and marketing
- While the Inflation Reduction Act (IRA) and Infrastructure Bill incentives are still in play before Trump’s second term, management teams should look to tap into potential incentives for “clean materials” while they are still available
Why are companies disclosing carbon emissions and other ESG data?
Giving consumers a visual scale to understand their product’s total carbon emissions (produced throughout the value chain) has shown to improve a brand’s overall trust and reputation. Research bears this out, as Carbon Trust found two-thirds of consumers are more likely to think positively about a brand that can demonstrate it lowered a product’s carbon footprint.
Providing customers with data about product-related emissions and their consumption patterns will be the next frontier for enterprise sustainability and ESG. Accordingly, in recent years, different types of carbon labels have been developed and launched on the market. For example, the Eco Label Index alone already lists 455 different eco labels, of which about 35 are carbon labels.
Accordingly, the Industrial industry is learning to navigate ESG implementation across their operations and supply chains, including third-party verification, lifecycle analyses, product labelling compliance, and more. Many companies struggle to understand what’s needed and how to validate reported data, which poses risks to brand, reputation, non-compliance, and greenwashing.
Knowledge is power, companies place bets on disclosing lifecycle emissions
Many companies have taken aggressive approaches to product-related emissions reporting:
- In transportation, Boeing has released several disclosures about the emissions of their aircraft, indicating 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. 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 chain GHG emissions
- As an automotive market leader, Volvo CE produces 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
- The trend has continued in heavy industrials, U.S. Steel announced Environmental Product Declarations (EPDs) across three offerings including Hot-Rolled, Cold-Rolled, and Corrosion-Resistant flat-rolled products
- 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 labelling 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 labelling regulation is going, a focus on certification schemes
Key forces are driving the adoption of carbon labelling including 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, and 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 bloc
- 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 labelling program has prioritized steel, glass, asphalt, and concrete.
Actions management teams can take:
- If not yet taken, executive leaders should call for a competitive and regulatory benchmark to determine where they have carbon labeling opportunities and risks within and outside their sector
- 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
Additional Telesto Resources:
- Takeaways for management teams – Apple’s playbook on how to beat China tariffs and export restrictions
- China’s intensifying response to Trump 2.0 tariffs and what it means for U.S. companies
- How CSOs can navigate the “Gray” in CSRD implementation
- Navigating corporate climate action under a second Trump administration – 7 focal points for business leaders
- ecoValiance, our digitally enabled data management solution, allows your organization to dynamically manage your sustainability data, improve data quality and fidelity, and create tailored reports instantly
- Faros, our climate risk assessment tool, helps your organization identify emerging climate threats as they become more common and disruptive and position your assets to protect operational continuity, hedge against rising insurance costs, meet regulatory disclosure requirements, and incorporate climate risk into asset acquisition and disposal.
