The Business of Sustainable Supply Chains for Manufacturers

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2022 WithumSmith+Brown, PC
The Business of Sustainable Supply
Chains for Manufacturers
June 22nd, 2022
Withum Presents

withum.com
Today’s Speakers
Moderator
Jim Hannan
Partner, Practice
Leader, MD&L
Presenter
Joe Holman
Principal, Practice
Leader, ESG Services
Presenter
Sofia Assab
ESG Analyst

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What to
Expect From
Today’s
Webinar
• ESG considerations for manufactures
• Elements of a Supplier Code of Conduct
• How companies are reporting sustainability
information to customers & owners
• Implementing a zero-waste program
• SEC Climate change reporting requirements

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ESG
Considerations
For
Manufactures
Upstream
Supply Chain Considerations
• Labor Conditions
• Reputational Risks
• Environmental Issues
• Raw Material Sourcing
Plant
• Chemicals Safety
• Waste Management
• Human Capital
• Carbon Emissions
• Governance
Downstream
• Product Packaging
• Product Safety & Quality
• End of Life disposition

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Regional Nature of ESG
Diversity Equity Inclusion (DEI)
Climate Change
• Emissions reporting
• Emissions targets
• Verification
Texas
European Focus
Lena G. Combs
US Focus
California
DEI + Environmental Stewardship
Don’t discuss Oil or Guns

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Elements of a Supplier Code of Conduct
Abide by the Ten Principles of the UN Global Compact
Subject to verification including outside audit
Non-compliance penalties
Sustainability Score Card

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Human Rights
Principle 1: Support and respect the protection of internationally human rights
Principle 2: Make sure that they are not complicit in human rights abuses
Labor
Principle 3: Uphold freedom of association and the right to collective bargaining;
Principle 4: Elimination of all forms of forced and compulsory labor
Principle 5: The effective abolition of child labor
Principle 6: The elimination of discrimination in respect of employment and occupation
Environment
Principle 7: Support a precautionary approach to environmental challenges
Principle 8: Undertake initiatives to promote greater environmental responsibility
Principle 9: Encourage the development and of environmentally friendly technologies
Anti-Corruption
Principle 10: Work against corruption in all its forms, including extortion and bribery
Ten Principles of the UN Global Compact

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As the largest companies worldwide commit to net-zero emissions
and go “green,” they expect their vendors to do the same.
Fortune 500 companies are leaning on suppliers to help them
fulfill their greenhouse gas commitments.
Suppliers represent a significant source of a company’s upstream
emissions and are an easy target for major customers. This makes
measuring greenhouse gas emissions and other ESG data
paramount to your continuing business relationship.
Over 200 organizations with $5.5 trillion in annual procurement
spending, requested their suppliers to report current GHG
emissions and targets to CDP.
Are your customers asking about:
• Greenhouse gas emissions data?
• Environmental impact of operations?
• Or anything else ESG?
CDP Overview

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 The CDP (f/k/a Climate Disclosure Project), is
a platform for companies to disclosure environmental
data that highlight risks and opportunities related to
climate change, forests, and water security.
 CDP’s supply chain members are able to request CDP
disclosure from their suppliers.
 In 2021, suppliers disclosed emission reductions of
1.8 billion metric tons of emissions and saving
suppliers over $29 billion.
CDP Supply Chain Reporting

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Many large companies are setting
carbon reduction targets
 As much as 90% of emissions are
generated by upstream activities
 Emissions reduction targets, are
dependent on suppliers
Who is making ESG reporting request?

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ESG Data Request Example: CDP Questionnaires
Climate change Water Security
Forests

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ESG Data Request Example: GHG Emissions

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ESG Data Convergence Project
Create a critical mass of meaningful, performance-based ESG
data from private companies by converging on a standardized
set of ESG metrics for private markets.
Objective
Current ESG challenges
Despite the proliferation of ESG frameworks and rating
providers, there remains a lack of standardized, meaningful,
and performance-based data from private companies.
As of March 2022, over 130 GPs and LPs have committed to the project,
representing over ~$10T in AUM.
Participants
GPs will track and report underlying portfolio company metrics. The
data will be shared directly with invested LPs/ Investment Managers
and aggregated into anonymized benchmarks.
Solution

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2022 WithumSmith+Brown, PC 14
GHG Emissions
Diversity of board
members
Work-related injuries Net new hires
• Scope 1
• Scope 2
• % Renewable
• % women • Injuries
• Fatalities
• Days lost due
to injury
• Organic New hires
• Total New Hires
• Attrition
• Employee survey (Y/N)
Optional Metrics
• Scope 3 emissions
• % under-represented groups (US only)
• % LGBTQ+
• Employee survey results/responses
Metrics
ESG Data Convergence Project

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Liner production methods that prize profit over sustainable
production are everywhere—from the ubiquity of single-use
plastics in packaging to the multi-trillion-dollar fast fashion
industry.
Zero-Waste Supply Chains Overview
Zero waste in manufacturing is the movement to implement
more sustainable practices across the entire production
and supply chain.
This does not mean only removing waste at the point of
production but…
• Assessing the entire lifecycle of a product
• Examining how waste is created in the acquisition of raw
materials
• Tracking what happens to a product and its packaging once
it’s “consumed” and disposed of by the customer

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EPR is a concept designed to create incentives by placing
financial and/or physical responsibility on producers.
Understanding Extended Producer
Responsibility (EPR)
EPR is increasing in popularity, making it more
important than ever for manufacturers to
clean up their supply chain.
• Invest in a zero-waste supply chain now to
avoid costs and penalties in the future
• Think about what materials go into making
a product and how to design it in order to
ensure that it can be easily reused and
recycled

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Good News…
Waste Reduction Strategies
Much of modern manufacturing is automated, and this offers the potential to
deliver significant waste reductions when implemented correctly.
A few ways manufacturers have been moving towards a zero-
waste supply chain…
• Implementing take-back and recycling programs for
products
• Setting up collection points and recycling pickups for
products
• Most importantly, designing new products that are easier to
reuse, repair, and recycle

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SEC Climate Change Proposal
Enhancement and Standardization of Climate-Related Disclosures for Investors
 Disclose financial consequences of climate-related risks
great than 1% of related line item
 Scopes 1 & 2 GHG emissions metrics in both absolute and
intensity terms
 Requires Scope 1 & 2 emissions data to be audited
 Scope 3 GHG emissions and intensity if material, or if the
registrant set a GHG emissions reduction target
 Implement TCFD framework on climate-related reporting

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The Task Force on Climate-related Financial
Disclosures (TCFD) helps drive consistent,
voluntary disclosures by companies that can
significantly enhance investor understanding of
climate-related business risks & opportunities.
Key definitions are:
• Physical risks: Risks of financial loss from the increased
frequency of extreme weather events, fire, flooding,
extended droughts etc.
• Transition risks: Changes in economic landscape resulting
from transition to a lower-carbon economy.
• Regulatory risks: Shifts in government policy including
implementation of carbon tax.
TCFD Overview

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Acute Risk: Event-Driven
 Cyclones
 Hurricanes
 Floods
 Fires/Smoke
TCFD: Physical Risks
Chronic Risk: Long-term Shifts in Climate Patterns
 Sustained higher temperatures
 Sea level rise
 Chronic heat waves
Physical risks from climate change can be event driven (acute) or longer-term shifts in climate
patterns (chronic).
Financial Implications:
 Direct Damage to assets
 Indirect impacts from supply chain disruption
 Changes in water availability, sourcing, and quality
 Extreme temperature changes affecting operations, supply chain, transport needs, and employee safety

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TCFD: Transitional Risks
Technology
The transition to a lower-carbon
economy requires the
development of renewable
energy, battery store, carbon
capture, and energy efficiency
technologies. As these new
systems replace old systems,
winners and losers will emerge in
this new economic landscape.
Market
The effects of climate change
on markets is yet to be
understood, but there will
undoubtedly be shifts in the
supply and demand of certain
commodities, products, and
services.
Reputation
Customer and community
perceptions are changing. An
organization’s contribution, or
lack there of, to the transition to
a lower- carbon economy will
influence consumer preferences.

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TCFD: Regulatory Risks
Policy risk and its financial impacts are
dependent on the nature and timing of the
policy changes.
 Carbon-pricing
 Lower emission energy source requirements
 Energy-efficiency solutions
 Water efficiency measures
 Sustainable land-use practices
Legal or litigation risks are on the rise and bring
serious financial consequences.
 Failure to mitigate impacts of climate change
 Failure to adapt to climate change
 Insufficiency of disclosure around material
financial risks
 False claims in sustainability-related
disclosures

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Emission Sources
 Stationary combustion in boilers, furnaces
 Natural Gas
 LPG
 Fuel Oil
 Mobile combustion in company vehicles
 Gasoline
 Diesel
 Fugitive Emissions
 Leaks from refrigeration or AC units
 Process Emissions
 Cement manufacturing
Scope 1 Emissions
Reduction Strategies
 Electrify boilers and furnaces
 Replace combustion engine vehicles with
electric vehicles
 Assess leaks in refrigerants
 Implement energy efficiency measures
 Implement insulation and weatherization
measures
Scope 1 emissions are direct greenhouse gas (GHG) emission that occur from sources that are controlled or
owned by an organization.

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Emission Sources
 Grid Electricity
 Purchased Steam (i.e. NYC)
Scope 2 Emissions
Reduction Strategies
 Implement energy efficiency measures
 Implement insulation and weatherization
measures
 Develop onsite renewable energy projects
 Buy renewable energy credits (RECs)
Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or
colling. They occur offsite, usually by a utility provider.

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Scope 3 Emissions
Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting
organization, but that the organization indirectly impacts in its value chain. This includes all sources not
within an organization's scope 1 and 2 boundary.
Emission Sources:
 Input materials
 Machinery and equipment
 Transportation
 Use of products

withum.com
THANK YOU! QUESTIONS?
Joe Holman - jholman@withum.com
Sofia Assab - sassab@withum.com

The Business of Sustainable Supply Chains for Manufacturers

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