Frameworks, Regulations, and Reporting for Electronics Supply Chains
The acronym ESG stands for environmental, social, and governance. It first appeared in a 2004 report produced by a group of financial institutions at the request of the United Nations Secretary General. Following on the heels of the corporate social responsibility (CSR) movement of the 2000s, ESG sought to address many of the issues surrounding sustainability and ethical business conduct by establishing a comprehensive framework that organizations, governments, and investors could draw on to evaluate the way corporations treat people and the environment. After gaining significant traction in the early 2020s, ESG has evolved from a buzzy catchword into an authoritative set of standards with transformational influence over how societies hold corporations accountable for their human and environmental impacts.
ESG frameworks are standards and guidelines established by nonprofit organizations to help businesses adhere to ESG's pillars and principles. While these frameworks are technically voluntary, several major ESG regulations draw heavily from the NGO guidelines and their reporting and disclosure recommendations. The table below summarizes the most influential voluntary frameworks alongside the binding regulations that build on them.
| Framework / Regulation | Type | What It Covers |
|---|---|---|
| GRI | Voluntary framework | Global Reporting Initiative: widely used standards for sustainability reporting and disclosure |
| SASB | Voluntary framework | Sustainability Accounting Standards Board: industry-specific disclosure standards |
| TCFD | Voluntary framework | Task Force on Climate-Related Financial Disclosures: climate risk reporting recommendations |
| CSRD | EU regulation | Corporate Sustainability Reporting Directive: reporting requirements drawing on the European Sustainability Reporting Standards (ESRS) |
| CSDDD | EU regulation | Corporate Sustainability Due Diligence Directive: due diligence obligations across a company's own operations and its supply chain |
| Climate-Related Financial Disclosure | Australian law | Australia's mandatory climate disclosure regime, drawing on the voluntary NGO guidelines |
Originally conceived as a successor to the European Union's Non-Financial Reporting Directive (NFRD), the initial proposal for the Corporate Sustainability Reporting Directive (CSRD) was issued by the EU in April 2021. In December of the following year, the CSRD was published in the Official Journal of the European Union, and the directive entered into force on January 5, 2023. The CSRD draws on the European Sustainability Reporting Standards (ESRS) to impose reporting requirements in 12 different categories for businesses that operate in the EU and fall within the scope of the law. The directive represents one thread in the European Green Deal, the ambitious vision for combating climate change and achieving climate neutrality within the 27-member bloc by 2050.
Following the passage of the CSRD in 2023, the Council of the EU and the European Parliament spent the first quarter of the following year working to push through an equally hefty environmental regulation: the Corporate Sustainability Due Diligence Directive (CSDDD). Though it encountered vigorous resistance from some member countries, the CSDDD was ultimately adopted by the EU in May 2024. The directive imposes six major due diligence obligations on in-scope businesses, requiring them to identify, assess, and implement targeted measures to mitigate any adverse impacts both within their business and along their entire supply chain. Examples of these impacts are outlined in the legislation itself and encompass ESG-related categories such as fair wages, safe working conditions, forced labor, emissions, biological diversity, and deforestation. In addition, the CSDDD requires covered businesses to develop a climate transition plan in line with the Paris Agreement and the European Climate Law. EU member states have two years from when the CSDDD went into effect in 2024 to codify the directive into national law. The EU's phased implementation will take place over a three-year span from 2027 to 2029, ultimately affecting over 5,000 companies operating in the bloc.
The Greenhouse Gas Protocol Initiative was launched in the late 1990s with the objective of developing and publishing internationally accepted standards for calculating and reporting greenhouse gas emissions (GHG) that could be adopted by corporations, industry groups, and even government agencies. The GHG Protocol's first edition of its accounting and reporting framework, published in 2001, introduced the concept of emissions scopes as a way of delineating the different forms of GHG emissions and their relationship to the reporting company. (The GHG Protocol covers the seven major greenhouse gases established by the Kyoto Protocol: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride.) The three scopes are defined below.
| Scope | Category | Definition and Examples |
|---|---|---|
| Scope 1 | Direct emissions | Greenhouse gases a business releases directly from its own property, infrastructure, and equipment. Examples include the generation of electricity, heat, and steam, physical or chemical processing, and the transport of products, materials, and waste. |
| Scope 2 | Indirect emissions | A narrowly defined category covering emissions caused by the electricity a company purchases from the electric grid. Because these emissions do not come from the company's own operations, they are considered indirect. |
| Scope 3 | Indirect emissions | All other forms of indirect emissions, including those released throughout an organization's value chain. Examples include raw material extraction, product use, and end-of-life management. |
As U.S. manufacturers, importers, and other businesses are well aware, environmental regulations are on the rise worldwide. The past two years alone have seen some of the most consequential sustainability directives in history become law or enter into force, including the EU's CSRD and CSDDD, the Environmental Protection Agency's new PFAS reporting requirements, and Australia's Treasury Laws Amendment. We are on the cusp of a new era for corporate responsibility and ESG reporting, and the second half of the decade is rife with critical regulatory milestones that in-scope businesses cannot afford to overlook.
Though most businesses are a year or two away from having to comply with the impending slate of major new sustainability regulations, that does not mean consumers, investors, and the public expect them to willfully neglect the ESG pillars and all the responsibilities they entail. Public perceptions around sustainability and corporate behavior have evolved substantially over the past decade, with the majority of individuals now making purchasing decisions at least in part based on the ESG performance and corresponding reputation of companies. The corporate sector has gotten the message, and the result is a generational shift toward prioritizing sustainability initiatives, spending on climate-related disclosures, and calculating Scope 1, 2, and 3 emissions, all before most of these organizations are even legally obligated to do so. A key takeaway is that it is not just governments pushing businesses to transform their behavior and take more responsibility for their adverse impacts. Our culture is doing the same.
As ESG mandates have grown into an increasingly high priority in recent years, businesses have typically looked to two groups to navigate the new landscape of sustainability laws and expectations: executive leadership and procurement professionals. Executives are responsible for shaping a company's overarching strategy and initiatives, while sourcing experts have the visibility and expertise to carry out supply chain due diligence and evaluate adverse human and environmental impacts. But for manufacturers in industries like consumer electronics, automotive, and aerospace and defense, engineers may be even more instrumental to implementing the systemic changes required to move the needle on a firm's sustainability profile.
While few engineers and sourcing experts have historically perceived sustainability and lifecycle management as related priorities, the wave of impending environmental regulations is going to turn ESG into a major determining factor in obsolescence. As these directives compel manufacturers to start incorporating issues like environmental impact, Scope 1, 2, and 3 emissions, and the labor practices of their suppliers into decision-making, businesses are going to gradually reshape their supply chains to reflect these new priorities. Parts that have a disproportionately large carbon footprint, are mined or produced using ecologically destructive practices, or draw on exploitative labor practices are going to rapidly fall out of favor. These declines in demand for components that carry a poor ESG profile are ultimately going to lead to manufacturer discontinuance. As these trends crystallize and gain momentum, droves of unsustainable parts are going to be pushed into early obsolescence. Companies that want to evolve their obsolescence management to meet this incipient era need to develop the tools and expertise to put their parts under an ESG microscope.
Track ESG and sustainability data across your entire BOM and supply chain, from Scope 1, 2, and 3 emissions to supplier labor practices, all backed by full material disclosures and source documentation. Z2 gives engineering, sourcing, and compliance teams one place to see which parts carry a poor sustainability profile and act before they fall into early obsolescence.
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