Carbon is now both a liability and an opportunity. Enterprises that act now will not only protect margins but also unlock new sources of value.
Nation-states, supranational organizations such as the European Union and individual companies are taking ESG increasingly seriously. So much so that from Brussels to Beijing, carbon has moved onto the P&L balance sheet.
Europe leads across most industries, especially in energy and finance. North America shows strong ESG integration in technology and healthcare. Asia still lags behind in most sectors, although China has recently introduced new guidelines and mandatory reporting requirements. Leading Chinese companies, such as constituents of SSE 180 Index, STAR 50, SZSE 100, ChiNext, and dual‐listed companies, are required to prepare and publicly disclose a sustainability / ESG (corporate sustainability) report for the 2025 calendar year by April 30, 2026. These guidelines explicitly adopt a double materiality assessment which is conceptually very similar to what exists in the European Union under the CSRD/ESRS framework although less extensive in scope (it is binding on certain large or index-listed companies, but not (yet) a uniform national law. Enforcement mechanisms are more limited at this stage, though penalties may develop as standards mature.
At the company level, ESG targets are now frequently part of executive compensation, with incentives to meet sustainability targets. Signify, the world leader in lighting, for example, has not only made sustainability an important component in compensation but also devised and implemented a strategy linking company success to climate action and the circular economy. Its 2025 goals include doubling the pace at which Signify achieves the goals of the Paris Agreement on climate change and doubling circular economy revenues to 32%.
Against this background, carbon reduction becomes one of the most powerful levers procurement can pull, as procurement owns the relationship with a company’s suppliers. With more than 80% of emissions coming from the supply chain, procurement has a direct influence — but only if it moves beyond reporting and into data-driven action.
So how should a company go about this? Step one is to create a baseline. To do so, you need to be able to quantify sustainability metrics such as emissions, converting them into costs so that they are measured with the same rigor as financial metrics. And most of this information has to come from your suppliers. A major challenge is that most of the relevant is typically scattered across a variety of legacy ERP systems (or, in the worst case, the data does not exist at all.) To create an accurate baseline, you need to collect granular data (at the SKU level), but you also need to be able to surface this to executive leadership.
Step two is to integrate this information into the sourcing process, which will typically involve procurement working in collaboration with R&D and other functions to find the optimum combination of price, quality and path to net zero. Given that suppliers cannot be switched on and off, this is a strategic task with a relatively long time horizon.
The third step is then establishing clear links between reporting and action. This could mean telling suppliers that if they do not implement their own ESG plans they can no longer be invited to bid for contracts.
The economic benefits
Increasingly, companies understand that far from being only a cost of compliance, sustainability is a driver of long-term value. In fact, carbmee’s research shows that sustainability will deliver an uplift to EBIT of two to 4.5%. There are three main components in this total. Reducing carbon costs (including the cost of compliance, for example with CBAM now coming in) will drive between one and two percent to the bottom line over the long term, while companies that achieve high levels of sustainability can typically command a price premium of half to one percent. Reducing supply chain risk adds a further net worth of half to one percent. In addition to this, but not so readily quantifiable, is the impact of maintaining market access. However, loss of access clearly has a high cost – potentially putting you out of business altogether.
The financial benefits
There are also mounting financial benefits of decarbonization. Sustainability-linked loans, which now account for a significant portion of the EMEA loan market, offer interest rate discounts for meeting environmental targets. Additionally, reducing carbon emissions can lead to lower capital costs, as companies with strong ESG performance often enjoy better financing terms.
Lower financial costs can save millions for companies in carbon-intensive sectors such as automotive manufacturing. Moreover, government incentives and subsidies for green investments can significantly offset initial costs, allowing companies to save money while improving sustainability.
Consider your sourcing strategy
The Carbon Border Adjustment Mechanism (CBAM) is the first regulation that imposes a requirement on companies to get granular data on emissions from their suppliers. And while some companies are currently unaffected or only marginally affected (as CBAM only relates to categories such as iron, steel, aluminium, cement, fertilisers and electricity) the scope of CBAM will be expanded and other regulations will come into force. CBAM is an EU climate protection instrument that levies a carbon price on certain imports from third countries in order to create fair competitive conditions and prevent the relocation of carbon-intensive production to regions with lower climate protection requirements. A transition phase with reporting requirements for importers has been in place since 1 October 2023 and will be replaced by a cost obligation through the purchase of CBAM from 2026. Companies should take CBAM and upcoming regulations as an opportunity to rethink their sourcing strategies to look for optimum total value of ownership (TVA). There are various ways to incorporate carbon criteria into sourcing events along with costs. At carbmee we do not just quantify the total footprint of an SKU but rather break it down into its constituent parts such as material composition, production processes, transport, and energy consumption. You can then go to suppliers with a pre-calculated footprint and their responses will be integrated into the JAGGAER sourcing event, giving you the transparency needed to make informed award decisions.
On-Demand Webinar: The Hidden Power of Carbon in Procurement
Discover how leading companies are cutting both emissions and costs by embedding carbon intelligence into their procurement strategies. S
ee how Signify and other innovators are driving measurable impact through data-driven decisions, digital tools, and smarter sourcing practices.
Learn more and watch the full on-demand session here.
eBook: Carbon Management – The Hidden Source of Procurement Savings
Explore how leading organizations turn carbon visibility into measurable impact — reducing costs, driving sustainability, and gaining a competitive edge in procurement.
Learn more and download the full eBook here.
