As a sector, manufacturing has one of the highest environmental impacts globally. The industry is responsible for about 20% of global emissions and significantly affects other biodiversity, water use, deforestation, and waste, as well as social issues like labor rights and modern slavery.
Because of its vast environmental and social impact, the manufacturing industry is more heavily regulated than most other sectors. With governments across the world intensifying efforts to manage emissions and promote sustainability, the manufacturing sector must comply with an increasingly rigorous regulatory landscape.This article presents a detailed overview of the manufacturing regulations U.S. manufacturers must adhere to and provides practical advice for ensuring compliance.
Sustainability Reporting Regulations for U.S. Manufacturers
The volume of sustainability reporting regulations continues to trend upwards. As nations across the globe start to better understand and reduce their sustainability impacts to meet international agreements, they are increasingly asking companies in their jurisdiction to report and reduce their environmental and social footprints.
Currently, around 25 countries have these regulations. From a U.S. manufacturing perspective, the main regulations to focus on are the rules being implemented in the EU and the U.S. – – the rules most likely to affect them.
Additionally, there is a trend toward product-specific and supply-chain regulations targeting emissions measurement and reduction, circularity, and other sustainability impacts. Even if sustainability reporting regulations don’t directly impact your company, you may be subject to downstream reporting requirements based on the companies you supply or the type of products you produce.
Overview of Key Manufacturing Sustainability Regulations
Sustainability reporting is shifting from a voluntary initiative performed by a few leaders to a mandatory requirement for most industries across several geographies. In the coming years, thousands of U.S. manufacturers will be affected directly and thousands more indirectly through supply chain reporting requirements. Here are the primary regulations:
Applies to any U.S. facility emitting more than 25,000 metric tons of CO2e annually must report their greenhouse gas emissions.
- Impact on U.S. Manufacturers: This affects about 650 manufacturing sites.
- Requirements: Annual reporting related to impacted facilities and third-party data verification.
CSRD
The Corporate Sustainability Reporting Directive requires 50,000 EU and 10,000 non-EU companies to disclose comprehensive sustainability information.
- Impact on U.S. Manufacturers: By 2029, it will affect around 400 U.S. manufacturers directly and over 5,000 indirectly through supply chain impacts.
- Requirements: Extensive sustainability reporting covering E, S, and G across 12 European Sustainability Reporting Standards. Including a range of supply chain reporting and third-party assurance.
SEC Climate Rule
Upon finalization, this rule will mandate publicly traded companies to report climate-related risks and emissions.
- Impact on U.S. Manufacturers: It will impact approximately 700 publicly traded manufacturers.
- Requirements: Companies will be required to report on climate risks, with some needing to report Scope 1 and 2 emissions and secure assurances.
California Climate Rules
Starting in 2026, SB 253 and 261 will require large companies operating in California to report their emissions and climate risks.
- Impact on U.S.Manufacturers: SB 253 will impact around 1,000 companies, while SB 261 will affect about 2,000, with broader implications for over 5,000 companies in their supply chains.
- Requirements: Manufacturers will have to report their climate risks and Scope 1 and 2 emissions beginning in 2026 and Scope 3 a year later and get assurances.
The Supply Chain and Manufacturing Sustainability Regulations
Given how central the manufacturing sector is to global supply chains, regulators increasingly require companies to measure and mitigate the sustainability impacts of their supply chain and products. The EU has been at the forefront of these regulations, with other regions likely to follow. Here are some key regulations affecting U.S. manufacturers:
Carbon Border Adjustment Mechanism (CBAM)
- Impact on U.S. Manufacturers: U.S. manufacturers exporting covered goods (such as cement, electricity, fertilizers, iron and steel, aluminum, and hydrogen) to the EU will be subject to the rule. An estimated $4 billion worth of U.S. exports to the EU will be impacted, increasing the cost of US-manufactured goods by up to $300 million.
- Requirements: Exporters to the EU must disclose emissions related to their products.
- From 2026, EU importers will pay for excess emissions, giving a competitive advantage to US manufacturers with the lowest emissions.
EU’s Eco-design for Sustainable Products Regulation (ESPR)
- Impact on U.S. Manufacturers: U.S. manufacturers producing furniture, textiles, batteries, electronics, and every other manufactured product for the EU market will need to comply.
- Requirements:
- Improve product durability, reusability, upgradability, and reparability.
- Enhance energy and resource efficiency.
- Provide sustainability information, including materials, carbon footprint, and repair details, in a Digital Product Passport (DPP
Corporate Sustainability Due Diligence Directive (CSDDD)
- Impact on U.S. Manufacturers: This directive mandates that the EU and certain U.S. companies address human rights and environmental impacts within their operations and supply chains. US manufacturers supplying to the EU will also be affected by data requests.
- Requirements:
- Conduct due diligence to identify and mitigate adverse impacts on human rights and the environment.
- Develop and implement a compliance strategy.
- Report annually on due diligence activities and outcomes and provide relevant supply chain data if supplying to an impacted company.
These regulations highlight the growing landscape of the global supply chain and product-specific sustainability rules. To remain compliant and competitive, manufacturers must measure, report, and reduce the sustainability impacts of their operations and products.
EPA Manufacturing Sub-Sector Regulations
In addition to the overarching manufacturing regulations, each sub-sector within the industry faces its own set of sustainability regulations.
For example, the textile manufacturing sector faces multiple sub-sector-specific regulations from the U.S. Environmental Protection Agency (EPA), which include rules like:
- National Emissions Standards for Hazardous Air Pollutants (NESHAP): This rule requires hundreds of textile manufacturing facilities to have emission standards reflecting the application of the maximum achievable control technology (MACT). It includes emitted chemicals such as methanol, xylenes, formaldehyde, and others.
- Leather Tanning and Finishing Effluent Guidelines: This rule regulates water pollutants such as biochemical oxygen demand, chromium, pH, oil & grease, suspended solids, and sulfide for various subcategories within the leather textile manufacturing industry. The regulations impact companies that direct dischargers and include control mechanisms for indirect dischargers.
The regulations in other countries, such as the UK and Japan, may be more stringent. U.S. manufacturers planning to export must be aware of these higher standards and ensure compliance.
Market-Driven Sustainability Reporting for Manufacturers
In addition to regulatory mandates, market forces increasingly influence manufacturers’ sustainability reporting. Investors and large corporations are demanding more sustainability reporting and action from their suppliers.
The number of companies required to share data through CDP has surged from 15,000 in 2020 to a projected 75,000 in 2024. EcoVadis has seen a similar rise in requests. Considering the critical role of manufacturing in the global supply chain, a significant percentage of these companies will be from the manufacturing sector.
Microsoft is asking its suppliers to do more on sustainability reporting and impact mitigation through their supplier code of conduct. Microsoft requires suppliers to disclose complete, consistent, and accurate Scope 1, 2, and 3 greenhouse gas (GHG) emissions data, potentially with third-party assurance. Suppliers must also reduce the absolute GHG emissions related to goods and services delivered to Microsoft by a minimum of 55% by 2030 and transition to 100% carbon-free electricity by the same year.
This surge in reporting demands highlights the complexity of maintaining compliance from both regulators, large companies, and investors. Engaging a CPA firm can help ensure your sustainability data is accurate and verified, facilitating compliance with these evolving market-driven requirements.
Manufacturing Sustainability Reporting Compliance Strategies
With an ever-evolving regulatory landscape, manufacturers will be challenged to meet the compliance requirements that are coming their way in the next few years. To help you prepare for any regulation, follow these four simple steps:
- Understand Regulatory Requirements: Identify the specific regulations that apply to your manufacturing processes, products, and supply chains.
- Perform a Materiality and Gap Assessment: Determine the most significant sustainability issues affecting your business through a materiality assessment, which is required for some reporting regulations. Then, do a gap assessment to understand your current practices and what you need to do to comply.
- Create a Compliance Roadmap and Engage Stakeholders: Develop a detailed plan with steps to meet compliance requirements, assigning responsibilities and resources. Communicate those plans internally and externally with suppliers, investors, and other stakeholders in case you need help collecting data or reducing supplier impacts.
- Establish Internal and External Verifications: Implement systems to monitor and collect all relevant data with internal and external auditing. The external audit should be completed by an approved third party, as it is required for most regulations. Continue to iterate on processes each year to streamline compliance and be flexible for new regulations and regulatory changes.
These strategies should help ensure your manufacturing operations, products, and supply chains remain compliant with both regulatory and market-driven sustainability requirements.
Manufacturing significantly impacts global sustainability, prompting regulators to enforce transparency and reduction measures for the sector. With upcoming regulations across the U.S. at the national and state levels, the international community is already implementing many regulations that impact U.S. manufacturers’ compliance. Proactive preparation for upcoming compliance is crucial to reduce the risk of non-compliance and to improve competitiveness.
Whatever type of manufacturer you are or what sustainability regulations you face, Withum offers expertise in complying across the board, ensuring simple and effective compliance through accurate data collection and reporting.
Takeaways
The manufacturing sector is one of the most impactful industries on global sustainability, which is why regulators are taking steps to ensure they are transparent about their impact and reduce it.
In the coming years, manufacturing companies in the U.S. will be hit with an array of regulations in addition to the sector-specific regulations that already impact many of them. To prepare for this new compliance normal proactive action will be key.
Whatever sustainability regulation your company faces, Withum can make your compliance seem simple. With our expertise in the manufacturing sector, coupled with rigorous data collection and our non-financial data reporting experience, we can deliver the sector-specific compliance needs you have.
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