Is carbon universally material?

Here’s an excerpt this Substack note from Matthew Sekol:

If companies want far upstream suppliers to decarbonize, pressure and incentives to report won’t work. This means there is no simple way out of this challenge. To support change this far up in the value chain, it takes significant cooperation, engagement, and policy support to drive this complex transition. And perhaps at this level, we find the most significant lesson in our never-ending chase for carbon accounting. Every company will have core material issues like this that can only be solved at the systemic level.

At this low-lit intersection, we find the impact of material ESG issues with impact. Few companies have reached this destination. A handful of management teams are standing at the well-lit intersection of ESG and disclosures but are curiously looking at this intersection with distant interest.

While the world is focused on point solutions focused on mitigation through measuring and managing, we need to be aware of three key points:

• Carbon may not be your most material environmental issue.
• The further up the supply chain, the more difficult systemic issues are to address without a systemic approach.
• Adaptation may take precedence over mitigation for specific industries due to near-term and long-term challenges, like climate risk.

For now, rather than pressuring high-upstream value chain players with surveys and emissions reporting, we need to ensure they are focused on adaptation for near-term climate risk issues. Otherwise, they may not survive the short term to be long-term suppliers. Proxy data and averages can help alleviate this pressure.

In the meantime, having a frank discussion about their observations, concerns, and plans for the next few years would help ensure they are ready for the next pressing crisis.
After all, if they go down due to climate risk, what would you do? Would you last long enough yourself to save the world?