The world’s largest toy producer has constructed a repute not just for the sturdiness of its bricks but additionally for its investments in sustainability.
Picture: Pixabay/Andrew-Artwork
Lego, the world’s largest toy producer, has constructed a repute not just for the sturdiness of its bricks, designed to final for many years, but additionally for its substantial funding in sustainability. The corporate has pledged US$1.4 billion to cut back carbon emissions by 2025, regardless of netting annual earnings of simply over $2 billion in 2022.
This dedication isn’t only for present. Lego sees its core prospects as kids and their mother and father, and sustainability is essentially about making certain that future generations inherit a planet as hospitable because the one we take pleasure in at the moment.
So it was shocking when the Monetary Instances reported on Sept. 25, 2023, that Lego had pulled out of its extensively publicized “Bottles to Bricks” initiative.
This bold challenge aimed to switch conventional Lego plastic with a brand new materials created from recycled plastic bottles. Nonetheless, when Lego assessed the challenge’s environmental influence all through its provide chain, it discovered that producing bricks with the recycled plastic would require additional supplies and vitality to make them sturdy sufficient. As a result of this conversion course of would lead to greater carbon emissions, the corporate determined to stay with its present fossil fuel-based supplies whereas persevering with to look for extra sustainable options.
As consultants in world provide chains and sustainability, we imagine Lego’s pivot is the start of a bigger development towards growing sustainable options for whole provide chains in a round economic system. New rules within the European Union – and anticipated in California – are about to hurry issues up.
Inspecting all of the emissions, cradle to grave
Enterprise leaders are more and more integrating environmental, social and governance components, generally often known as ESG, into their operational and strategic frameworks. However the pursuit of sustainability requires consideration to the complete life cycle of a product, from its supplies and manufacturing processes to its use and supreme disposal.
The outcomes can result in counterintuitive outcomes, as Lego found.
Understanding an organization’s whole carbon footprint requires taking a look at three forms of emissions: Scope 1 emissions are generated instantly by an organization’s inner operations. Scope 2 emissions are attributable to producing the electrical energy, steam, warmth or cooling an organization consumes. And scope 3 emissions are generated by an organization’s provide chain, from upstream suppliers to downstream distributors and finish prospects.
At the moment, fewer than 30% of corporations report significant scope 3 emissions, partly as a result of these emissions are troublesome to trace. But, corporations’ scope 3 emissions are on common 11.4 occasions larger than their scope 1 emissions, knowledge from company disclosures reported to the nonprofit CDP present.
Lego is a case research of this lopsided distribution and the significance of monitoring scope 3 emissions. A staggering 98% of Lego’s carbon emissions are categorized as scope 3.
From 2020 to 2021, the corporate’s whole emissions elevated by 30%, amid surging demand for Lego units through the COVID-19 lockdowns – regardless that the corporate’s scope 2 emissions associated to bought vitality similar to electrical energy decreased by 40%. The rise was virtually solely in its scope 3 emissions.
As extra corporations comply with in Lego’s footsteps and start reporting scope 3 emissions, they may seemingly discover themselves in the identical place, realizing that efforts to cut back carbon emissions usually boil down to produce chain and consumer-use emissions. And the outcomes could pressure them to make some powerful decisions.
Coverage and disclosure: The subsequent frontier
New rules within the European Union and pending in California are designed to extend company emissions transparency by together with provide chain emissions.
The EU in June 2023 adopted the primary set of European Sustainability Reporting Requirements, which would require publicly traded corporations within the EU to disclose their scope 3 emissions, beginning of their experiences for fiscal yr 2024.
California’s legislature handed related laws requiring corporations with revenues of greater than $1 billion to reveal their scope 3 emissions. California’s governor has till Oct. 14, 2023, to contemplate the invoice and is anticipated to signal it.
On the federal stage, the U.S. Securities and Alternate Fee launched a proposal in March 2022 that, if finalized, would require all public corporations to report climate-related danger and emissions knowledge, together with scope 3 emissions. After receiving vital pushback, the SEC started reconsidering the scope 3 reporting rule. However SEC Chairman Gary Gensler recommended throughout a congressional listening to in late September 2023 that California’s transfer might affect federal regulators’ resolution.
This elevated concentrate on disclosure of scope 3 emissions will undoubtedly improve stress on corporations.
As a result of scope 3 emissions are vital, but usually not measured or reported, shoppers are rightly involved that corporations that declare to have low emissions could also be greenwashing with out taking motion to cut back emissions of their provide chains to fight local weather change.
On the identical time, we suspect that as extra traders help sustainable investing, they might want to spend money on corporations which are clear in disclosing all areas of emissions. Finally, we imagine shoppers, traders and governments will demand greater than lip service from corporations. As a substitute, they’ll anticipate corporations to take actionable steps to cut back essentially the most vital a part of an organization’s carbon footprint – scope 3 emissions.
A journey, not a vacation spot
The Lego instance serves as a cautionary story within the complicated ESG panorama for which most corporations are usually not nicely ready. As extra corporations come underneath scrutiny for his or her whole carbon footprint, we might even see extra cases the place well-intentioned sustainability efforts run into uncomfortable truths.
This requires a nuanced understanding of sustainability, not as a guidelines of excellent deeds, however as a posh, ongoing course of that requires vigilance, transparency and, above all, a dedication to the good thing about future generations.
This text was written by , a professor of Operations Administration and Enterprise Analytics on the Carey Enterprise Faculty of Johns Hopkins College; , a professor of Provide Chain Administration on the College of California, Los Angeles; and a professor of Operations, Data and Know-how at Stanford College. It’s republished from The Dialog underneath a Inventive Commons license. Learn the authentic article.
