Carbon footprints: business focus turns to supply chain
Large firms are increasingly involving upstream suppliers and downstream users in efforts to reduce carbon emissions. Sonja van Renssen looks at initiatives to measure, reduce and report carbon cuts across the supply chain
“Climate change is a risk management issue for all firms,” says UBS investment bank analyst Julie Hudson. “In a sense, the rights and wrongs of the science have become irrelevant.”
She is addressing an ENDS conference in Brussels at the end of October. Her message is clear and reinforced by many speakers. The questions used to be “is climate change happening?” or “will it affect me?” But now they are “how will it affect me?” and “what can I do about it?”
Large firms are stepping up efforts to measure, reduce and report to stakeholders their total carbon emissions, or carbon footprint.
More and more, they are also looking to include upstream suppliers and downstream users in these efforts – the supply chain emissions of a big retailer like Wal-Mart are about 30 times the company’s direct emissions.
Engaging suppliers brings fresh challenges, such as where to set the boundaries of individual corporate responsibility, whether to focus on company or product footprints, and what information to convey to consumers.
Driving all this activity are international and EU greenhouse gas reduction targets. The Kyoto protocol demands an 8 per cent cut in EU-15 emissions by 2012. The EU-27 has committed to reducing greenhouse gas emissions by at least 20 per cent by 2020.
To meet these goals, Brussels policy makers have devised an array of measures to stimulate carbon cuts in the private sector. These range from the EU emissions trading scheme (ETS) and energy taxes to energy efficiency standards and environmental labels for products.
Firms are faced with legislation that increasingly penalises or bans high emissions. They are also beset by rising oil prices and demand for low carbon products from ever more climate-conscious consumers. These factors explain the flurry of activity around supply chain carbon footprints.
“Only what is monitored, reported and disclosed can be managed,” says Ms Hudson. How can you reduce your emissions if you don’t know what they are?
Measuring and reporting
The largest reporting initiative to date is the Carbon Disclosure Project (CDP), set up in 2000 (see figure 1). Now representing 315 investors with assets of $41 trillion – or almost a third of the global total – the CDP annually asks the world’s largest firms to provide data on carbon emissions and related risks and opportunities. Investors use this information to judge how firms will be affected by climate change and its economic, regulatory and technological consequences.
In its most recent report in September, the CDP saw a “dramatic rise” in the reporting of indirect emissions, or those originating from a company’s suppliers rather than itself, says Nigel Topping, head of supply chain work at the CDP.
Leading corporations are starting to collect climate change management data from suppliers to identify new cost-effective emission cuts.
But there is also a belief that this data can be used more generally as a proxy for management quality, says Mr Topping. He also thinks companies use it to judge their exposure to physical risks such as extreme weather. This is important for retailers that need to transport goods to their stores.
In October, the CDP launched the Supply Chain Leadership Collaboration (SCLC) with six large consumer goods companies including Tesco, Unilever and Nestle. This will efficiently extend carbon reporting down the supply chain.
As large corporations begin to engage their supply chains, they are faced with a question: where should they stop? There is no universal answer.
The UK’s Carbon Trust defines a carbon footprint as the total greenhouse gas emissions for which an individual, company, product or event is responsible. But how do you define responsibility? Is a bread seller responsible for the extra emissions customers generate when they keep a loaf in the fridge, toast it before eating and throw it away half finished?
A footprint can be split into three parts, according to the Greenhouse Gas Protocol – a widely used standard developed by the World Business Council for Sustainable Development and the World Resources Institute.
The first part includes direct emissions under control of the company; for instance, emissions from burning fuel. The second part comprises indirect emissions from electricity use. The third involves indirect emissions from products and services such as raw material extraction and transport, and customer use and disposal (see figure 2).
Perhaps the best way to define responsibility is to equate it with control. For Simon Thomas, head of environmental research consultancy Trucost, this means companies should be held responsible for all emissions up to the point of delivery of their product or service. “People almost prefer reporting [downstream] emissions they have no control over than ones they do,” he says, “but this is not so useful… everyone becomes responsible for everything.”
Customer use emissions are not always beyond a firm’s control, however. Salla Ahonen, environmental and regulatory affairs manager at Nokia, says her company has set targets to reduce these. One third of the life cycle energy consumption of a mobile phone stems from its use phase. Of this, a third is used to re-charge the battery and two thirds are wasted because the charger is left plugged into the wall without the phone attached.
Nokia aims to reduce the average “no-load” energy consumption by 50 per cent by 2010. One route is a plan to build into new chargers an alarm that sounds when a mobile phone is fully charged. This will prompt users to unplug the charger once its job is done.
Mr Thomas’s second reason for restricting carbon footprints to upstream emissions is that it is the only way to enable cross-company comparisons. This argument is also voiced by Marco Mensink, environment and energy director at European paper industry federation Cepi.
Earlier this month, Cepi published a carbon footprint framework for paper and board products. “A carbon footprint is product, producer, company, site and country specific,” says Mr Mensink. “What we have found is that if you want things to be comparable, a CV approach makes a lot of sense.”
Just as a CV is built up during a person’s life, a carbon footprint is built up during a product’s life. A firm can report all those emissions up to the point where it hands its product or service to the next player in the supply chain.
If paper manufacturers had to include end-of-life emissions in their carbon footprints they would have to calculate hundreds of them, says Mr Mensink, to cover all the different disposal situations across member states. “What our customers want is comparable data,” he emphasises.
The Carbon Trust, which is leading work in Europe to create a single footprinting standard, takes a different view. “It is less about comparisons, but more about everyone being committed to reducing,” says senior strategy manager Harry Morrison.
Moreover, sometimes downstream emission must be included to allow a fair comparison between products. Disposable nappies generate most of their emissions during production, reusable nappies during use.
Preferences for boundaries vary by sector and purpose of the footprint – for example, for communication to customers or simply to identify new reduction opportunities.
Tanguy du Monceau, a partner at carbon audit firm CO2logic, says that the more ambitious the boundaries are, the lower the accuracy of the footprint (see figure 3, p 22). If suppliers are located in emerging or developing economies like China, this problem may be compounded.
In practice, firms can choose whether to consolidate the emission information they collect into a company or product carbon footprint, or both. One sets out the supply chain emissions of a whole company, the other of a single product.
Company footprinting is more advanced, although the Carbon Trust hopes to publish standard methodologies for both next year. These will be based on the Greenhouse Gas Protocol and international ISO14064 accounting standards, with a view to going global.
It remains uncertain if they will include controversial downstream emissions. Initially excluded, customer use is again being considered. The Carbon Trust’s Euan Murray believes it is “likely” to be in the final product footprint standard at least.
Product footprints could build on company footprints, says Mr Morrison, exactly by tackling customer use. Companies are in a better position to do this, he explains, because they can directly influence consumers with a label. His view is that a company’s emissions responsibility – both upstream and downstream – is proportional to its power and influence.
In total, the Carbon Trust is working with about 150 firms, half of them multinationals, to calculate product carbon footprints. The exercise is identifying significant emission reduction opportunities. Boots the Chemist is aiming to cut emissions from shampoo by a third. It has already realised over half of this by increasing the amount of recycled plastic in shampoo bottles and delivering straight from factory to store rather than through regional distribution centres.
While the Carbon Trust is at the forefront of footprinting in Europe, it is by no means the only player. Apart from Cepi’s initiative, there is also a French scheme devised by scientist Jean-Marc Jancovici.
The Bilan Carbone also builds on the ISO standard mainly for company footprints, but expansion to products is under way. Unlike the Carbon Trust approach, the Bilan Carbone uses pre-calculated reference averages for all indirect emissions. Firms in France are encouraged to use it as the government reimburses at least 50 per cent of the costs.
Mr du Monceau, whose firm works with the Bilan Carbone standard, believes these different standards will in time be merged into one under pressure from suppliers and customers.
Cepi launched its carbon footprint framework in response to customer demand. But there is a trade-off between clarity and comprehensiveness, says Mr Mensink. The simpler a carbon label is, the less the customer is told about the boundaries and assumptions behind it.
Four fifths of global CO2 emissions come from consumers. Research suggests two thirds of these are more likely to buy low than high carbon products if given the choice. But they don’t navigate through tens of different labels. In October, EU environment commissioner Stavros Dimas said he was looking at the development of a single EU carbon label. Commission officials later stressed this is still very much in the early stages.
Some businesses have announced big product labelling initiatives. Others appear less enamoured with the idea. They say that no label would be necessary if all environmental impacts were internalised in the price of a product.
Labels typically cost from a few thousand to the low tens of thousands of pounds to develop, says Mr Murray. The cost depends on how much work firms have already done.
There are substantial economies of scale. The Carbon Trust worked for nearly three months to develop a carbon footprint for Walker’s 34.5-gram cheese and onion crisps packet. Afterwards, Walker’s repeated the process for the remaining half dozen packet sizes and all 30 flavours within a week.
The communication imperative extends up as well as down the supply chain. Nokia builds environmental elements into all its contractual agreements with suppliers. New requirements relating to carbon are currently being discussed.
“It’s not easy, but they are used to being asked,” says environmental manager Ms Ahonen. Nokia plans to give suppliers emission reduction targets in line with its own goals. It is prepared to work with the local authorities where a supplier is based if this can help deliver emission cuts.
But before engaging the supply chain, employees must secure senior management buy-in. This can be difficult. GlaxoSmithKline vice president Jim Hagan says a separate fund for green initiatives is essential because their payback time tends to be longer than traditional cost-cutting measures.
Full speed ahead
Things are moving. Wal-Mart disclosed its emissions to the CDP for the first time last year. This autumn, the two launched a joint initiative to engage the supply chain. Wal-Mart will calculate a carbon footprint for seven product categories.
“We will see the Americans catching up very fast,” warns Mr Topping at CDP. He urges European firms to take advantage of their current lead.
The impact of climate change on different sectors will vary in strength and timing. But all firms should be exploring risks and opportunities, says Ms Hudson. The Carbon Trust recommends that firms focus first on reducing direct emissions, then indirect emissions. Carbon offsetting should be a last resort, it adds.
Partnerships can prove useful. WWF has 12 major firms in its Climate Savers programme, which have all pledged considerable absolute carbon cuts. WWF has helped measure the firms’ carbon footprints and identify potential reductions.
Carbon footprints may be just the beginning. For Coca-Cola, managing water is more of an issue than managing carbon, says Mr Topping. Climate change and water scarcity are ultimately symptoms of poor resource management. If footprinting can help tackle this, the economy and environment will both benefit.
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