On November 18, 2021, the Keep Food Containers Safe from PFAS Act (“Act”) was introduced in the Senate and House, which proposes a PFAS ban for food packaging in the United States. The bill, while incredibly brief, would accelerate efforts already underway by the food packaging industry to develop feasible substitutes for PFAS in its products. Food packaging companies, though, should not assume that a ban on PFAS in food packaging or a voluntary phase out of PFAS will result in protection from future lawsuits.
The U.S. Department of Energy (DOE) and the REMADE Institute announced more than $16 million in research and development funding for 23 projects that will reduce energy use and carbon emissions associated with industrial-scale materials production, processing, and recycling. These projects will advance the technology needed to increase the reuse, remanufacturing, recovery, and recycling of industrial materials.
“The transition to a net-zero greenhouse gas economy will require an unprecedented reduction in the embodied energy and carbon emissions associated with foundational industrial materials in every critical sector—from healthcare, to agriculture, to transportation. By investing in technologies that improve our ability to re-use, recycle and remanufacture these materials, DOE is moving America toward a circular economy and reducing carbon emission across the manufacturing sector.”
Kelly Speakes-Backman, Principal Deputy Assistant Secretary for Energy Efficiency and Renewable Energy
Selected projects focus on reducing the consumption of raw materials, designing and using products more efficiently, and preserving and extending the lifecycle of products. Projects were selected in the following areas:
Industry-led, transformational project that will develop and demonstrate technology solutions with the potential to revolutionize the recycling industries.
Traditional R&D projects that will increase material reuse, remanufacturing, recovering, and recycling and identify strategic opportunities to reduce the energy use and emissions associated with materials production, processing, and recycling.
Education and workforce development projects fostering the next generation of clean energy manufacturers through curriculum focused material reuse, remanufacturing, recovering, and recycling.
Founded in 2017, the REMADE Institute is the fifth clean energy manufacturing institute funded by DOE’s Office of Energy Efficiency and Renewable Energy’s Advanced Manufacturing Office.
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If you own stocks, chances are good you have heard the term ESG. It stands for environmental, social and governance, and it’s a way to laud corporate leaders who take sustainability – including climate change – and social responsibility seriously, and punish those who do not.
These investments have gained momentum in part because they cater to investors’ growing desire to have a positive impact on society. By quantifying a company’s actions and outcomes on environmental, social and governance issues, ESG measures offer investors a way to make informed trading decisions.
Nearly every company’s operations are backed by a global supply chain that consists of workers, information and resources. To accurately measure a company’s ESG risks, its end-to-end supply chain operations must be considered.
Our recent examination of ESG measures shows that most ESG rating agencies do not measure companies’ ESG performance from the lens of the global supply chains supporting their operations.
For example, Bloomberg’s ESG measure lists “supply chain” as an item under the “S” (social) pillar. By this measure, supply chains are treated separately from other items, such as carbon emissions, climate change effects, pollutants, and human rights. This means all those items, if not captured in the ambiguous “supply chain” metric, reflect each company’s own actions but not their supply chain partners’.
Even when companies collect their suppliers’ performance, “selective reporting” can arise because there is no unified reporting standard. One recent study found that companies tend to report environmentally responsible suppliers and conceal “bad” suppliers, effectively “greenwashing” their supply chain.
Carbon emissions are another example. Many companies, such as Timberland, have claimed great successes in reducing emissions from their own operations. Yet the emissions from their supply chain partners and customers, known as “Scope 3 emissions,” may remain high. ESG rating agencies have not been able to adequately include Scope 3 emissions because of a lack of data: Only 19% of companies in the manufacturing industry and 22% in the service industry disclose this data.
More broadly, without accounting for a company’s entire supply chain, ESG measures fail to reflect global supply chain networks that today’s big and small companies alike depend on for their day-to-day operations.
Amazon and the third-party-supplier problem
Amazon, for example, is among ESG funds’ largest and favorite holdings. As a company bigger than Walmart in terms of annual sales, Amazon has reported emissions from shipping that are only one-seventh of Walmart’s. But when researchers for two advocacy groups reviewed public data on imports, they found only about 15% of Amazon’s ocean shipments could be tracked.
In addition, Amazon’s figure does not reflect emissions generated by its many third-party sellers and their suppliers who operate outside the U.S. This difference matters: Whereas Walmart’s supply chain relies on a centralized procurement strategy, Amazon’s supply chain is highly decentralized – a large percentage of its revenue comes from third-party suppliers, about 40% of which sell directly from China, which further complicates emissions tracking and reporting.
Retailers are skilled at tracking supply chain goods once they arrive, but the impact those goods may already have had on the climate and workers in other countries is often overlooked. Kmatta via Getty Images
Another important ESG metric concerns consumer protection. Amazon prides itself as “Earth’s most customer-centric company.” However, when its customers have been injured by products sold by third-party sellers on its platform, Amazon has argued that it should not be held liable for the damage, because it functions as an “online marketplace” matching buyers and sellers. Amazon’s foreign third-party sellers are often not subject to U.S. jurisdiction so can’t be held accountable.
Yet major ESG rating agencies do not appear to reflect the supply chain implication on customer protection when measuring Amazon supply chain performance.
These gaps are also concerns for ratings of companies such as 3M, ExxonMobil and Tesla.
Other countries are adding pressure
Currently there is no unified reporting standard, so different companies may cherry-pick certain ESG performance measures to report to boost their sustainability and social ratings.
To improve consistency, the next step would be for ESG rating agencies to redesign their methodology to take into account what may be environmentally harmful and unethical operations across the entire global supply chain. ESG rating agencies could, for example, create incentives for companies to collect and disclose their supply chain partners’ activities, such as Scope 3 emissions.
In June 2021, the German Parliament passed the Supply Chain Due Diligence Act, which will become effective in 2023. Under this new law, large companies based in Germany will be responsible for social and environmental issues arising from their global supply chain networks.
This includes prohibitions on child labor and forced labor, and attention to occupational health and safety throughout the entire supply chain. Those who violate the law face a fine of up to 2% of their annual revenues.
The European Union’s new Sustainable Finance Disclosure Regulation, which went into effect in March 2021, adds pressure in a different way. It requires funds to report details on how they integrate ESG characteristics into their investment decisions. That has led some money managers to drop the phrase “ESG integrated” from some of their assets, Bloomberg reported.
Without similar laws in the U.S., we believe ESG rating agencies could fill an important gap. To be sure, surveying a company’s entire supply chain’s ESG performance is far more complex. Yet by tying all the ESG dimensions to a company’s supply chain end-to-end operations, rating agencies can nudge corporate leaders to be responsible for actions across their supply chains that would otherwise be kept in the dark.
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