Introduction: Why carbon footprints matter to businesses now

In recent years, climate change countermeasures have gone beyond being just an environmental issue and have become deeply intertwined with a company's business strategy itself.
As governments around the world set greenhouse gas (GHG) reduction targets and introduce specific regulations one after another, companies are increasingly being forced to respond.
In particular, the "Carbon Footprint (CFP)" is seen as an important indicator that visualizes the total amount of greenhouse gases that a company emits directly and indirectly, and governments, investors, consumers, and the entire supply chain are becoming very interested in this indicator in order to achieve a decarbonized society.
In fact, regulations in this field are already being strengthened, with new obligations being imposed on companies, such as the EU's Carbon Border Adjustment Mechanism (CBAM), the Corporate Sustainability Reporting Directive (CSRD), the US Securities and Exchange Commission's (SEC) climate-related disclosure rules, and Japan's GX League initiative.
In this article, we will summarize the key legal and regulatory issues that companies need to comply with and consider specific approaches for strategically managing carbon footprints.
Once I started writing, it became extremely long, so please just read the parts that interest you.

Carbon Footprint Basics

What is a Carbon Footprint?

Many of you may already know this, but let's start by covering the basics of carbon footprinting (CFP).
Carbon footprint refers to the total amount of greenhouse gases emitted throughout a company's activities and the entire product life cycle.
This includes emissions that occur throughout all processes, from energy use and product production, transportation, consumption and disposal.
By properly understanding carbon footprints, companies can accurately assess their own environmental impact and develop reduction plans.

What are Scope 1, 2 and 3?

When calculating carbon footprints, the GHG Protocol categorizes emissions into three scopes:

Scope 1 (direct emissions)
This refers to greenhouse gas emissions generated by a company through its own activities, such as fuel combustion in its own facilities and factories, exhaust from company-owned vehicles, and process emissions.
Scope 2 (indirect emissions)
This refers to indirect greenhouse gas emissions generated by a company's use of electricity, heat, and steam purchased from outside sources.
Scope 3 (other indirect emissions)
These are emissions related to the entire supply chain, including emissions during the production of procured raw materials, logistics, employee commuting and business trips, and post-sales product use and disposal.

Major legislation and its impact on businesses

Regulatory Trends in Japan

Some representative regulatory trends in Japan are described below.

Introduction of the GX League and Carbon Pricing

The Japanese government has launched the GX League (Green Transformation Promotion Organization) to provide a framework for companies to voluntarily implement decarbonization strategies.
As part of carbon pricing, the introduction of an emissions trading system and carbon tax is also being considered, which could have a major impact on future corporate strategies.

Responding to the TCFD (Task Force on Climate-related Financial Disclosures)

In Japan, listed companies in particular are being encouraged to disclose information about climate-related risks in line with the TCFD framework.
Companies will be required to prepare their own carbon footprint data and report it appropriately in accordance with TCFD requirements.

European regulatory trends

Some representative regulatory trends in Europe are described below.
It's just a feeling, but it seems to me that Europe is the most advanced in this field.

CBAM (Carbon Border Adjustment Mechanism)

The EU has introduced the Carbon Border Adjustment Mechanism (CBAM) as part of its carbon footprint management.
This is a system that imposes tariffs on imports of high-carbon emitting industries such as steel, aluminum and fertiliser from outside the EU, commensurate with the emissions costs within the EU.
The law is scheduled to come into full effect from 2026, and exporters, including Japanese companies, will be required to report detailed carbon emissions data.

CSRD (Corporate Sustainability Reporting Directive)

The CSRD is a directive that imposes detailed sustainability reporting obligations on companies located in the EU and those doing business in the EU.
In particular, carbon footprint disclosure will become mandatory and companies will need to clearly state their emissions reduction targets and progress.

US regulatory trends

We will briefly explain regulatory trends in the United States below.

SEC Climate Disclosure Rules

The U.S. Securities and Exchange Commission (SEC) is moving forward with a policy to make it mandatory for companies to disclose their greenhouse gas emissions, and in addition to Scope 1 and 2, disclosure obligations for Scope 3 are also being discussed.
The impact will be particularly large on large companies, requiring responses across the entire supply chain.

Regulatory Trends in Southeast Asia

It may come as a surprise, but regulations regarding carbon footprint management are actually being strengthened in Southeast Asia as well.
Singapore has introduced carbon pricing, requiring companies to manage their carbon emissions.
Indonesia has opened a carbon credit market as a means to help companies meet their emissions reduction targets.

Specific measures that companies should take

Establishment of data management and reporting system

Companies will be required to accurately measure GHG emissions and collect data across their supply chains.
In particular, it will be important to utilize international frameworks such as the Carbon Disclosure Project (CDP) report and to disclose information transparently.
When it comes to data management, strengthening a company's internal audit system is essential, but we believe that standardizing the measurement methods for emissions data and introducing appropriate verification processes will enable reliable reporting to regulators and investors.

Development and implementation of reduction strategies

Reducing the carbon footprint can also be a competitive advantage for companies.
The following initiatives can be considered as specific reduction measures:

Utilization of renewable energy (PPA (Power Purchase Agreement), RE100 (Renewable Energy 100, 100% renewable energy initiative))

Companies will reduce Scope 2 emissions by increasing the proportion of renewable energy used in their electricity generation.

Utilization of carbon credits (J-Credits, international market)

Use carbon offsets to accelerate progress towards our net zero goal.

Improving energy efficiency (introduction of energy-saving technologies)

Optimize production processes and introduce equipment that consumes less energy.

Cooperation with the supply chain

Strengthen collaboration with business partners and cooperating companies to reduce Scope 3 emissions.

Managing risks and taking advantage of opportunities

As companies move forward with climate change measures, we believe they should not only respond to new laws and regulations, but also see them as opportunities to strengthen their competitiveness and increase their brand value.

Strengthening compliance

We will keep abreast of the regulations of each country and take prompt action.

Strengthening relationships with investors and financial institutions

As ESG investment increases, companies will be better able to promote their environmental initiatives.

Utilizing sustainable finance

The company will raise funds through green bonds and sustainability-linked loans.

We believe that companies need to combine these measures to simultaneously reduce their carbon footprint and achieve sustainable growth.

Corporate practice examples

European companies

Unilever

Unilever is focusing its strategy on Scope 3 reduction and is driving emissions reductions throughout its supply chain.
The company works closely with its suppliers to ensure that its products are sourced from sustainable sources and with a low environmental impact.
We are also accelerating the introduction of renewable energy and promoting the decarbonization of factory operations.

Nestlé

Nestlé has committed to reducing its Scope 1, 2 and 3 emissions by 50% by 2030 and reaching net zero by 2050.
In particular, we are focusing on reducing emissions in the agricultural sector, promoting low-carbon dairy farming and forest conservation activities.
Additionally, we are making our manufacturing sites more energy efficient and moving away from plastic packaging.

Success stories of Japanese companies

Japanese companies, particularly large ones, are also working hard in this field, and I would like to give you two examples below.

Toyota Motor Corporation

Toyota is not only working to reduce Scope 1 and 2 emissions, but is also actively working to reduce Scope 3 emissions.
The company plans to accelerate the development of hybrid and electric vehicles (EVs) and achieve carbon neutrality for its production activities by 2035.
We are also introducing renewable energy into our own factories to promote decarbonization of our manufacturing processes.

Sony Group

Sony has set a goal of achieving carbon neutrality across its supply chain by 2050 and is committed to reducing Scope 3 emissions.
Specifically, we are working to improve the energy-saving performance of our products and promote the use of renewable energy.
We also aim to strengthen collaboration with our suppliers to establish sustainable manufacturing processes.

Examples from Southeast Asia

Utilizing Indonesia's carbon credit market

Indonesia has developed a carbon credit market and created a system that allows companies to achieve both emissions reductions and economic benefits.
Energy companies and manufacturing industries are introducing offset strategies that utilize carbon credits, and efforts to reduce emissions are progressing.

Singapore's green finance push

The Singaporean government is promoting the issuance of green bonds and the introduction of a carbon pricing system to encourage companies to make decarbonization investments.
Financial institutions and the real estate industry in particular have placed carbon footprint reduction at the core of their business strategies and are accelerating the promotion of environmentally friendly projects.

Future outlook

Corporate strategic approach

Carbon footprint management is no longer simply a matter of complying with regulations; it is becoming an important factor in increasing corporate value.
By implementing environmentally conscious management, we can gain the trust of investors and consumers and strengthen our competitiveness.
As a result, we encourage companies to consider the following strategic approaches:

Setting carbon neutral goals and formulating a roadmap

Companies will need to set specific targets to reduce their own emissions and ultimately reach net zero.
This process will likely also include setting short-, medium-, and long-term reduction targets, introducing necessary technologies, and strengthening cooperation with the supply chain.

Building a sustainable supply chain

Because a large part of a company's carbon footprint is linked to its supply chain, it is important to work with suppliers and partners to develop strategies to reduce their environmental impact.
This will include selecting suppliers that meet environmental standards, improving transportation efficiency, and utilizing renewable energy sources.

Proactively introduce low-carbon technologies and promote innovation

Many companies are already taking steps to reduce their emissions, but they need to take advantage of the latest low-carbon and renewable energy technologies.
In addition, it is necessary to consider decarbonization at the product and service development stage and promote technological innovation.
For example, this includes the introduction of energy-efficient equipment and the use of materials that have a low environmental impact.

Preparing for stricter regulations from 2025 onwards

Environmental regulations are expected to become even stronger from 2025 onwards, particularly in Europe and the US, so companies need to understand regulatory trends now and begin making preparations in advance.
In particular, since it is expected that requirements for measuring and disclosing carbon footprints will become stricter, it is urgent to establish a data collection and management system.

Ensuring transparency and improving accuracy of emissions data

Companies need to accurately measure their greenhouse gas (GHG) emissions and improve the reliability of their data.
Specifically, you can improve the accuracy of your data by adopting international standards such as ISO 14064 or the GHG Protocol and undergoing external audits.
Additionally, as carbon footprint disclosure obligations become stricter, one approach companies can take is to digitize their data collection processes (such as by using IoT sensors and blockchain technology).

Strengthening compliance with changes in environmental laws and regulations

As environmental regulations in each country are changing rapidly, it seems that companies need to put in place systems to adapt to the new rules.
For example, reporting obligations are being strengthened in each country, such as the EU's CSRD (Corporate Sustainability Reporting Directive) and the US SEC's climate-related disclosure rules.
One possible measure that companies can take is to set up an in-house ESG compliance team and constantly monitor the latest regulatory developments.

Adapting to environmental standards in global markets

Multinational companies and companies that export need to adapt to the environmental standards of the international market.
For example, companies selling products to the EU market will likely need to begin complying with the Carbon Border Adjustment Mechanism (CBAM).
It will also be important to strengthen Scope 3 emissions reduction strategies to meet customer and investor demands for emissions reductions throughout the supply chain.
Strengthening this section will make it clearer how companies should make specific preparations for the tightening of regulations.

Gathering information and strengthening compliance

Environmental regulations vary from country to country and are frequently updated, meaning that companies must stay up to date on the latest developments in countries that may affect them.
(In fact, this would likely be a significant burden for companies…)
In particular, with the expansion of ESG investment, scrutiny of companies' environmental responses is becoming stricter, requiring stronger risk management.

Establishing a system to monitor regulatory changes in each country

Companies need to continually monitor changes in environmental regulations in the markets in which they operate and take appropriate action.
In particular, in major markets such as the EU and the United States, environmental laws and regulations are frequently revised, so it is necessary to obtain the latest information and take prompt compliance measures.
It is important that legal and sustainability teams work together to develop a framework for analyzing the impact of regulations.

Strengthening in-house training and collaboration with experts to ensure compliance with laws and regulations

We believe that companies should regularly provide in-house training to deepen employees' knowledge of environmental laws and regulations and carbon footprints.
In particular, it is very important to consider the risk that non-compliance with sustainability issues can affect brand value, and to promote consistent understanding from executives and managers to front-line employees.
We also work with environmental law experts and external consultants to provide guidance based on the latest regulations, allowing us to take appropriate action.
It is recommended that, while seeking advice from experts, internal controls be strengthened and compliance with laws and regulations be increased.

Disclosure of climate change risks and promotion of dialogue with stakeholders

In recent years, investors and consumers have become increasingly interested in how companies are responding to the environment, making corporate disclosure of ESG information an important factor.
Companies need to quantitatively assess the impact of climate change risks and reflect them in their business strategies based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
Furthermore, by engaging in active dialogue with investors, consumers, and supply chain partners and ensuring transparency regarding environmental measures, it is possible to increase corporate value, and this is something that should be aimed for.
We believe that it is necessary to strengthen relationships with stakeholders by issuing regular sustainability reports and disseminating information through conferences and webinars.

Shifting to a sustainable business model

By incorporating carbon footprint management into business strategies, companies can aim for sustainable growth.
By developing environmentally friendly products and services and promoting decarbonization throughout the entire supply chain, it is possible to create new market opportunities.

Development and market expansion of environmentally friendly products and services

By developing environmentally conscious products and services and bringing them to market, companies can achieve sustainable management and gain the support of consumers and investors.
For example, this could include developing products using recyclable materials, introducing low-carbon manufacturing processes, and utilizing new technologies that reduce the environmental impact.
Additionally, companies can strengthen their competitiveness by promoting sustainable brand strategies and obtaining environmentally friendly product certifications (eco-labels and carbon footprint certifications).

Utilizing green finance (utilizing green bonds and ESG investments)

One option for companies is to utilize green finance as a means of raising funds for the purpose of reducing the environmental impact.
Green bonds are specialized financing instruments for environmental projects and can direct funds to projects such as renewable energy, energy efficiency, clean transport and sustainable buildings.
ESG investing is an investment method that evaluates and provides funding to companies' environmental, social, and governance initiatives.
By improving their ESG ratings, companies can expand their options for raising funds from institutional investors and financial institutions and achieve sustainable business growth.

Implementing decarbonization measures throughout the supply chain

Not only are there calls for individual companies to reduce emissions, but decarbonization across the entire supply chain.
It is important to work with suppliers and logistics providers to reduce Scope 3 emissions.
Specifically, possible measures include reviewing the criteria for selecting suppliers and giving priority to doing business with suppliers that use renewable energy and adopt low-carbon manufacturing processes, reducing CO2 emissions by optimizing transportation, making emissions data throughout the supply chain transparent and promoting continuous improvement.

Recommendations for corporate initiatives

We believe that the following initiatives will be effective in helping companies transition to sustainable business models and strengthen their carbon footprint management going forward.

Enhanced data management

By making emissions more visible and collecting more accurate data, companies will be able to set appropriate reduction targets and promote sustainable initiatives.
In particular, in order to ensure data transparency, it will be necessary to utilize the latest digital tools and cloud systems to conduct monitoring and analysis in real time.

Accelerating regulatory response

It is important to continuously monitor domestic and international laws and regulations and take appropriate measures at an early stage.
As environmental regulations become stronger in the EU, the US and other countries, companies need to strengthen their internal audit systems and adopt proactive strategies to minimize compliance risks.

Collaboration with the supply chain

It is essential to strengthen collaboration with business partners in order to reduce Scope 3 emissions.
Companies can accelerate decarbonization throughout their supply chains by asking their suppliers to adopt environmentally conscious practices and encouraging them to share their emissions reduction plans.
This will also lead to increased corporate value and strengthened competitiveness.

Promoting technological innovation

Actively considering the introduction of decarbonization technologies and renewable energy sources will directly lead to a reduction in a company's environmental impact.
There is a need for investment in technology to achieve sustainable growth from a long-term perspective, such as introducing the latest energy efficiency technologies, utilizing green hydrogen and CCUS (carbon capture, utilization and storage) technologies, and adopting new materials with a low environmental impact.

summary

This has been a lengthy write-up, but I hope it will be helpful for your carbon footprint strategy.
This article explains the latest regulations regarding carbon footprints and the measures that companies can take.
As environmental regulations continue to become stronger around the world, companies will be required to take proactive measures.
Viewing regulatory responses as opportunities and formulating strategies for sustainable growth will likely be an important key to corporate management going forward.