Why Solar Should Care About Sustainability

Solar power is a poster child of sustainability, at least from the standpoint of energy users. It provides a clean alternative to GHG-emitting fossil fuels and runs indefinitely on free energy from the sun. What more, then, is there to the sustainability of solar energy?

Plenty, and the industry’s largest gathering, Intersolar, which I attended in San Francisco this week, offers a glimpse into why.

The event is an exhibition of more than 800 companies selling their wares—everything from wafer etchers, adhesives, and gauges to gears, filters, and fire alarms. They sell the equipment that makes equipment, and the equipment that makes that equipment. And they are the purveyors of exciting items like plasma applicators, robots, and lasers.

As for the attendees, it’s all black suits and ties, and the discussions are on engineering specs and market trends. It feels more like a summit for making deals, rather than achieving some vision of “ecotopia.”

While there is nothing wrong with all of this, it does bring to light an important truth: The parts that make up the whole of the solar industry are little different than those of any other. And while environmental conservation may be a side effect, the efforts, by and large, are about capitalism.

Thus, as manufacturers, solar companies may cause damaging environmental impacts from their use of water, gasses, chemicals, minerals, and nanomaterials. As designers of large, long-lived physical goods, they are seen as part of a great network of potential e-waste, with end-of-life responsibilities that extend beyond the law. And as global businesses that seek low-cost employees and supplies, the emerging markets that offer so much promise are rife with potential social challenges such as protecting human rights.

If the solar industry is to create the most value for its investors, customers, and communities—all of whom have growing concerns about sustainability and greater means for comparing companies and industries to one another—it has to make sense of all of this. The good news is that others have taken the lead. The information communications and technology (ICT) industry, for example, has started complying with best practices for responsible policy advocacy and working with their suppliers to improve labor conditions and environmental impacts. Since solar companies have similar production processes and supply chains, they can build off of the foundation that the ICT industry has already established.

Yet solar is different: It makes a promise, however implicit, to offer a clean alternative to fossil fuels. This expectation makes the industry a target, and if solar companies can’t objectively demonstrate better overall performance, they risk having their credibility undermined and their technologies devalued.

Some quick parting advice for solar companies new to managing sustainability: Consult the Global Reporting Initiative to understand the full breadth of key issues. Know who your stakeholders are, and identify and synthesize their concerns. Make sustainability a C-level concern, so when decisions are made about maximizing the all-important parameter of per-watt productivity, sustainability opportunities and risks are appropriately considered. And finally, attend this year’s BSR Conference, and join me at the panel, ”The CSR Blueprint for Renewable Energy.”

Helping Business Adapt to Climate Change

As climate change sets in, its impacts — increasing severity of storms and weather disasters, receding snow and rivers, advancing deserts, and more frequent landslides and floods — will test companies’ ability to effectively deliver high-quality products and services.

In response, BSR is launching a series of briefs to illustrate how these changes will affect each industry and what current adaptation practices look like, beginning with an examination of the food, beverage, and agriculture sector (PDF).

Some effects of climate change will be familiar, such as crop failures and ensuing price shocks, but over the next several years, they will happen with more frequency and with even higher insurance costs. Beyond direct business impacts, companies will also need to understand how climate change will affect their most vulnerable stakeholders — the poor, citizens of developing countries, and women — who will face increasing risks due to drought, disease vectors, and the perils of migration.

The good news is that many resources on business adaptation to climate change are already available (see end of article). McKinsey & Company developed a cost curve for adaptation (PDF), for example, which highlights different adaptation options and shows that investment paybacks can be short. Also, companies do not need to choose between adapting to climate change and helping to mitigate it; the distinction between these two is rarely clear and we should do both together.

There are also tools that translate state-of-the-art climate monitoring, prediction, and imagery into practical information to help companies improve their relevant governance and decision-making processes. These tools include: the Climate Administration Knowledge Exchange (CAKE), Google Earth Engine, the International Research Institute for Climate and Society, the National Oceanic and Atmospheric Administration’s Climate Prediction Center, and weADAPT. Companies can also take advantage of new market opportunities by providing solutions to enable effective adaptation.

There are several obstacles to climate adaptation, even for those most committed to proactive and responsible responses. First, the language of adaptation does not resonate well beyond specialists, so communicating on the topic is difficult. As Carmel McQuaid, Climate Change Manager at Marks & Spencer, recently told us, it’s usually more effective to engage stakeholders by communicating on the topics that matter most to them. For example, retailers would be most concerned with their ability to continue to sell high-quality products, such as coffee. For companies that thrive on innovation, positioning adaptation as part of the portfolio of trends affecting the industry is usually more effective than treating it as a standalone topic.

Another obstacle is the complexity and uncertainty of the climate. This goes for today’s weather, let alone the future of the climate more broadly, as evidenced by the fact that we are not well-equipped to handle disasters such as the recent floods in Pakistan and Australia. The fact is that we do not know how to properly prepare for disasters even when they are expected. This is partially due to the cognitive difficulty of coping with low-probability, high-impact consequences, and it is also a result of markets and organizations that don’t encourage or reward proactive preparation.

Third, our first reactions may not serve us well. Companies are at risk of taking seemingly sensible actions that may lead to adverse effects elsewhere or on others. Such “maladaptation” (PDF) can take many forms, such as combating heat by turning up the air conditioning (which would produce more greenhouse gas emissions), using desalinization technologies that pollute marine environments, raising prices or otherwise excluding vulnerable customers that depend on insurance or other essential services, or giving customers more resources without the incentives to conserve.

This is partly a result of focusing on the specific, current problem at hand while not taking into account the broader repercussions. It is also a result of failing to identify where weather risk and other familiar issues have climate change dimensions.

Identifying the Hotspots

Over the past year, we’ve been following the topic of adaptation through discussions with BSR member companies, leading and participating in workshops and forums, including the U.N. climate talks in Cancun, and examining business responses to the Carbon Disclosure Project on climate risks and opportunities.

In doing so, we’ve found that while climate change impacts are ubiquitous, there are some approaches companies can use to identify and focus on vulnerable “hotspots” in their operations, supply chains, and key markets. Hotspots emerge both as physical locations and features of the company.

In terms of location, companies with operations in Asia, Africa, and Latin America face some of the greatest risks due to the extreme water loss or flooding predicted for those regions. In addition, these areas suffer from a general lack of resources to respond to problems.

In all parts of the world, coasts, flood plains, and ecological boundary zones, including mountains and islands, are vulnerable. In many cases, cities (PDF), as well as settlements where subsistence is marginally viable, are especially risk-prone. Companies should consider how their direct operations and key partners and markets are situated in relation to these physical areas.

As for companies themselves, a key vulnerability is a dependence on natural conditions to foster crops, snow, and other climate-sensitive inputs, which are likely to migrate and, on average, degrade. In general, long-lived and fixed assets, such as mines, as well as extended supply chains and distribution routes, tend to be more exposed to physical disruption.

Finally, lack of transparency is a problem: A combination of weather events and climate-related political actions are increasingly likely to disrupt energy availability and general operations of suppliers and other partners. While companies may be able to take steps to mitigate their vulnerability, they will have a hard time doing so if they are unable to make informed judgments about their partners’ key issues, options, and systems for making decisions.

When companies look ahead, here are some issues that they should tune into:

Communicating about climate risks and opportunities: Investors expect companies to report on physical, regulatory, and other risks and opportunities of climate change through the Carbon Disclosure Project. The U.S. Securities and Exchange Commission has also made informed reporting on climate risks a requirement. Also, working with distressed communities to cope with climate change is an increasingly material issue for annual sustainability reporting.

Meet needs responsibly: The private sector is being called upon to drive an effective response to climate change, ranging from delivering hydration and other growing basic needs, applying finance and information and communications technology to build more resilient infrastructure, and solving the potential problems of maladaptation.

To do so, businesses need to foster connections and discussions that help deliver sustainable solutions to society under dynamic and uncertain conditions.

Create climate-resilient local benefits: Many sources of risk for companies are likely to be found far away from their headquarters and centered in local communities where, for example, vulnerabilities to floods, windstorms, and droughts are growing. These communities need help with local investments to developing disaster-response systems and continuity plans. Companies should look for ways to help their community partners achieve triple-win impacts by reducing the effects of disasters, adapting to climate change, and safeguarding development gains.

Each month through July, we will produce discussion briefs for specific industry sectors on what they are and should be doing about climate adaptation. Each brief will include basic tools and references. As we produce this series, we’ll be holding discussions with BSR members and inviting feedback. We’ll also store our resources and other tools at www.bsr.org/adaptation.

Further Information

Climate change adaptation can be defined as “adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts,” including “changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.” For more information and a list of suggested reading, visit www.bsr.org/adaptation.

First posted at GreenBiz.

A Sneak Peek at the New Rules for Supply Chain Footprinting

The art and science of carbon footprinting is about to take a step forward: The long-awaited launch of guidance for managing network and product lifecycle impacts is just around the corner.

If that’s news to you — and you have anything to do with managing a business with a significant supply chain — here’s your chance to get up to speed.

First, a little background. Carbon footprinting took off in 2001, when the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) established the GHG Protocol Corporate Standard. This standard outlined a practical way to quantify the greenhouse gas (GHG) emissions produced from materials and energy use in business operations.

It did this by offering an accounting framework with three GHG emissions “scopes:” Scope 1 is a sum of emissions from fuel, refrigerants, industrial gases, and other materials combusted or used at sites the company owns or controls; Scope 2 adds up emissions linked to electricity used by those facilities; and Scope 3 encompasses all other emissions in the business value chain.

Measurement of the “internal,” or “operational,” emissions of scopes 1 and 2 has always been straightforward, and thus those standards have been rapidly adopted. Today, a significant majority of the Global 500 companies report on operational emissions.

Scope 3, however, has incited many debates over interpretation. Originally referring to emissions from supply chains, including products, waste, distribution, and travel, Scope 3 outlined a much larger and more complex set of issues than those that characterize emissions from internal operations.

While Scope 3 has always been recognized as important, and indeed reporting has been growing, companies have been clamoring for more detailed guidance. Many companies have focused on addressing more easily measured Scope 3 activities, such as business travel and employee commuting. Also, business networks, such as the Clean Cargo Working Group and the Electronics Industry Citizenship Coalition, have begun developing shared approaches for issues very focused on their industries.

But there has not been a common language for measuring Scope 3 impacts in detail across industries. That’s about to change.

By summer 2011, WRI and WBCSD will finalize the Scope 3 standard and the related Product standard. This will be the result of a three-year project involving more than 1,500 diverse stakeholders from governments, research institutions, businesses, and civil society, all contributing to various discussions and drafts. BSR and many of its member companies have been represented in a technical working group.

Unofficially, this has been even longer in the making. A year after the 2001 launch of the first edition of the Corporate standard, a working group explored ways to flesh out Scope 3 with lifecycle assessment tools, finding that significant time and effort would be needed to produce an effective framework.

What led us to this final chapter? Brian Glazebrook, a senior manager of social responsibility at Cisco Systems who has been involved with Scope 3 efforts from the start, says that lifecycle and supply chain information is becoming more commoditized and therefore less expensive, while at the same time there is more demand for transparency. We have crossed a threshold that is making Scope 3 management undeniably more attractive to companies, and the case to do more will only become stronger.

Following are highlights of a recent discussion I had with Pankaj Bhatia (pictured below), director of the GHG Protocol at WRI, offering a preview of what’s to come.

Ryan Schuchard: Pankaj, how will the Scope 3 standard help companies?

Pankaj Bhatia: It will enable them to develop an organized understanding of the impacts, risks, opportunities, and considerations from energy and other sources of GHG emissions throughout business networks and relationships. As a comprehensive accounting and reporting framework, it will facilitate identifying GHG reduction opportunities, setting reduction targets, and tracking performance in value chains. In turn, it will provide a sophisticated framework for reporting to the Carbon Disclosure Project and the Securities and Exchange Commission, in annual CSR reports, and for other GHG transparency programs and B2B initiatives. It also may lead companies to develop stronger relationships with suppliers by reducing waste and improving efficiency through GHG management in their supply chains.

RS: What kinds of companies should utilize it?

PB: The Scope 3 standard is written for companies of all sizes in all economic sectors. It is especially applicable to three types of companies: (1) those with significant emissions in their upstream or downstream activities, (2) those that would like to engage and inform their stakeholders about their value chain emissions and performance, and (3) those wanting to identify business risks and opportunities in their value chain and develop strategies to minimize risks and leverage opportunities.

RS: Is it a full “standard” — in the way the GHG Protocol Corporate Standard is a standard?

PB: Yes. A GHG Protocol publication qualifies as a standard if it provides verifiable accounting and reporting requirements. The standard uses the term “shall” (e.g., “Companies shall account for and report all Scope 3 emissions and disclose and justify any exclusions.”) to indicate what is required for a GHG inventory to be in conformance with the Scope 3 standard.

Companies may use the inventory information to identify, prioritize, and guide innovative emissions reduction activities within and across Scope 3 activities. For example, a company whose largest source of value-chain emissions is contracted logistics may choose to optimize these operations through changes to product packaging to increase the volume per shipment, or by increasing the number of low-carbon logistics providers. Additionally, companies may utilize this information to change their procurement practices or improve product design or product efficiency, resulting in reduced energy use.

RS: Will there be any completely new ideas?

PB: Yes. Scope 3 emissions are now categorized into 15 distinct, mutually exclusive categories that avoid double counting. These categories are intended to provide companies with a systematic framework to organize, understand, and report on the diversity of Scope 3 activities within a corporate value chain.

Also, there is more guidance on characterizing confidence in data. This guidance was requested by stakeholders, since Scope 3 emissions data may be relatively less accurate and precise than Scope 1 and Scope 2 emissions data. Additionally, the Scope 3 standard allows for a range of data collection and calculation approaches, with a varying range of data quality. Scope 3 data may include reliance on value chain partners to provide data, broader use of secondary data, and broader use of assumptions and modeling (such as for downstream emissions categories, such as the use of sold products by consumers).

Higher uncertainty for Scope 3 calculations is acceptable as long as the data quality of the inventory is sufficient to support the company’s goals and the information needs of key stakeholders such as investors, while providing transparency on limitations of the Scope 3 data to avoid potential misuses. Companies are therefore required to provide a description of the accuracy and completeness of reported Scope 3 emissions data and a description of the methods and data sources used to calculate the inventory. The standard provides descriptions of accuracy and completeness, guidance on describing data quality, and guidance on uncertainty. The standard doesn’t require companies to provide a quantitative confidence level or confidence interval associated with the reported emissions data — though this is optional.

RS: Will the standard provide a good tool to compare companies against each other?

PB: No and yes. First, it is important to understand the limits. Companies’ selection of one or more Scope 3 categories and their choice of whether to base measurement on operational control or financial investment is based on considerations that aren’t easily comparable across companies, like corporate vision and business risk. That means even companies that seem like peers may not prioritize the same things, so it would not be meaningful to uniformly prescribe what should “count.” Also, within categories, the level of data quality and control will vary with the level of vertical integration and the public data infrastructure where sites are located.

What it will enable is comparison of the level of depth that companies measure and report on. This will help to clarify that a larger footprint doesn’t necessarily mean a company is worse off, but rather, that it might be examining its networks in more detail. Also, while the standard won’t provide a robust way to directly compare GHG performance between companies, it will let a company measure performance against its own baseline, which potentially could be compared between companies.

As companies take up this type of reporting, there will be opportunities to develop more specific norms and benchmarking for better comparability among more specific situations. In many ways, that’s what this standard provides—a platform that creates unified language across industries for going deeper on comparisons of key applications through development of sector-specific rules.

RS: What kind of data will companies need to gather to measure Scope 3?

PB: The standard asks that companies select data that is most representative in terms of technology, time, and geography; most complete; and most precise. We have categorized data needed to calculate Scope 3 emissions into two types: primary data and secondary data. Primary data means specific data provided by suppliers or other companies in the value chain related to the reporting company’s activities, including primary activity data, and emissions data that is calculated using primary activity data (e.g., primary activity data combined with a secondary emission factor). Primary data does not include financial data (e.g., spend) used to calculate emissions.

Secondary data refers to industry-average data (such as from published databases, government statistics, literature studies, and industry associations), financial data, proxy data, and other generic data. Primary data and secondary data each have advantages. For example, primary data best enables performance tracking of individual value chain partners and supply chain GHG management, while secondary data can be a useful tool for efficiently prioritizing investments in primary data collection and for tracking emissions from minor sources.

Choosing the appropriate type of data depends on the company’s business goals. The standard asks companies to make sure that the data quality of the Scope 3 inventory is sufficient to ensure that the inventory is relevant — both internally and for a company’s stakeholders — and that it supports effective decision making.

Companies may find that for a given activity, secondary data is of higher quality than the available primary data. In this case, if the company’s primary goal is to maximize the data quality of the Scope 3 inventory to improve decision making where accuracy is important, it should select secondary data. If the company’s primary goal is to set reduction targets and track performance from specific operations within the value chain, or to engage suppliers, the company should select primary data.

RS: What does the Scope 3 standard have to do with the Product standard?

PB: While the Scope 3 standard covers measurement and accounting to characterize the many broad types of corporate networks and relationships, the Product standard focuses on a view of the whole lifecycle of individual products. These two standards, which have been developed in parallel, share many features in common: accounting principles, approach to data allocation, approach to data collection, and treatment of confidence. A key difference is that a Scope 3 inventory is structured by organization-wide business activities, such as leased operations and employee travel, while a Product inventory is organized by key stages in the lifecycle of a product, like processing and recycling. These two different tool sets reflect two different needs: on the one hand, characterizing products’ lifecycles, especially from the view of the customer; on the other, examining the administration of organizational interrelationships and networks, something investors in particular are concerned about.

Watch for the release of the final Scope 3 and Product text next spring, and contact Ryan if you have questions.

First posted at GreenBiz.

Why Russia is the Land of Opportunity for Climate Action

Managers who want to lead on climate and energy should be looking carefully at Russia, where President Dmitry Medvedev has decreed a 40 percent reduction in energy intensity over the next decade.

The potential for scale is immense: Russia is one of the most inefficient countries in the world, the third-highest emitter of greenhouse gases (GHG) — both by traditional measures and in terms of exports for consumption — and its per capita emissions are on a path for the top spot by 2030. Yet Russia receives far less attention than its GHG-emitting peers, such as China and tropical rainforest countries.

Why is it overlooked? There are several reasons: Russia’s list of sustainability challenges, from nuclear waste to governance, is long, so climate change gets lost in the shuffle. Commentators focus on Russia’s struggling economy, asking things like whether “BRIC” really needs an “R,” signaling that attention is better paid where business is growing more predictably. Furthermore, non-Russians are perplexed about operating in what seems like too foreign a place — one that is European, Asian, and most of all, its own category altogether — and so give it wide berth.

Nonetheless, there are growing reasons for companies invested in Russia to proactively manage and reduce energy use in operations, by suppliers, and for customers.

The first is that Russia’s climate challenge is one that business is uniquely, and profitably, good at solving: audacious inefficiency, stemming from outdated equipment and obsolete management practices. Russia is the most energy-intensive (PDF) of the world’s 10 largest countries. Few, regardless of size, score higher, and many that do are Russia’s neighbors. Cost-effective efficiency measures could cut Russia’s energy use by as much as 45 percent (PDF), with prime opportunities in industry and manufacturing. One study has identified 60 measures representing more than $200 million in investments that can be made profitably.

Second, the government is showing increased willingness to incentivize action. In 2008, Medvedev signed presidential decree No. 889, a commitment to cut energy intensity by 40 percent by 2020. Last year he committed Russia to growing its renewables portfolio from less than 1 percent to 4.5 percent in that period. Medvedev then developed Russia’s first executive climate doctrine and began calling for action on climate change — a reversal of Vladimir Putin’s stance, symbolized by Putin’s infamous quip that climate change would be beneficial because it would mean fewer fur coats.

Now an innovation center is under development near Skolkovo, where companies such as Google and Intel are setting up research and development centers, similar to special business zones in China. In sum, there has been a change in the terms of debate in Russia, with climate change being taken more seriously by the government and productivity now a priority.

Another reason is that the drama of climate change is clearly unfolding in Russia, and so people are starting to appreciate the benefits of managing energy for sustainability. This summer, the hottest in 130 years, led to 27,000 wildfires and burning bogs, sending global wheat prices through the roof. Meanwhile, global warming is melting the arctic, where the government is leading a high-profile exploration, turning the most iconic imagery of climate change into a point of local news. Climate change is increasingly seen as real and important, making conversations more natural.

A fourth reason is Russia’s natural assets. The world’s most geographically expansive country, Russia is a storehouse of some of the world’s most significant natural assets and threats, from the greatest reserves of fossil fuels and forests to vast volumes of methane ominously locked up in tundra. If environmental markets are able to take hold in Russia — though it will be some time before the prerequisite monitoring and verification frameworks are instituted — business will have an opportunity to benefit from effective resource management on a vast scale. Heading in that direction in July, the government endorsed 15 clean-energy projects to start making use of its carbon credits.

Finally, Russia holds the key to a bigger puzzle: its 15-plus neighbors with similar ecological impacts and business environments, including burgeoning Ukraine and Kazakhstan. Succeeding in Russia also means opening possibilities for the whole region, which connects the markets of China, Europe, and the Middle East.

While these trends are encouraging, companies interested in managing climate and energy matters in Russia still must confront significant issues. Following are three key challenges that companies are likely to face and suggestions for addressing each of them.

Challenge #1: Low Awareness

Despite Medvedev’s efforts and the impact of this summer’s wildfires, there is still little social momentum for action on climate change in Russia. Many people still think that global warming will help this cold country. There is also generally a low appreciation of the impacts, risks, and opportunities that climate change creates for business. The Carbon Disclosure Project (CDP), reflecting on 2009 reports from Russia’s top 50 companies, found that climate change is often misunderstood (PDF) in the country as a purely environmental, rather than strategic, topic.

Solution: In working with Russian partners new to the subject, emphasize the links between climate action, energy management and modernization, a political priority likely to draw more government resources. Medvedev has said that his country’s subpar economic influence is due partly to the fact that “energy efficiency and productivity of most of our businesses remain shamefully low.” He has made becoming “a leading country measured by the efficiency of production, transportation, and use of energy” the first of his five pillars of modernization.

With that in mind, connect with partners on the ways that energy hits the bottom line and discuss opportunities to modernize. This can lead to discussion of how action on climate change can create other benefits, from carbon credits to attracting more international investors.

Challenge #2: Governance Obstacles

A second challenge is that energy waste in Russia is rooted in systemic, sometimes dysfunctional governance, and companies will typically find government difficult to engage because if is needed on larger projects.

For example, IKEA was recently stymied by Lenenergo, the electricity utility, in simply hooking up to the grid, and has thus tabled new investments in Russia. This is a problem not only for companies, but the government itself, since it is unlikely to effectively address climate change without policies that instill confidence and encourage investments.

Governance obstacles also come in the form of entrenched non-transparency in companies. After China and Hong Kong, Russia has the largest share of Global 500 companies that don’t disclose to the CDP. Of the mere six firms among Russia’s top 50 that did respond to the CDP last year, only two reported emissions or energy reduction goals. Low transparency is a substantial constraint, since measurement and governance are considered cornerstones of effective climate and energy management.

Solution: Focus in the near term on capacity building rather than precise data disclosure. Given BSR’s experience in China, there should be substantial opportunities to help companies identify energy-saving opportunities and train energy managers, and to assist them with developing action plans and understanding their economic decisions.

Although these activities don’t address transparency directly, they can build trust with suppliers and create results that they will want to be transparent about. Even if you don’t start with a discussion about disclosure, companies that succeed on climate and energy management will have an incentive to communicate their results over time. For those that are ready, show how the process of disclosure can lead to learning about risks and opportunities and create a basis for management. For projects connected with government contracts, encourage standardized, effective processes on how the government will decide tenders by doing an integrity pact with bidding peers.

Challenge #3: Slow Going in the Policy Realm

Although Medvedev appears serious about leading his government toward modernization, he is the first to admit that progress will be gradual. Ultimately, the challenge of modernization is to cultivate, unleash, enable, and protect the innovative potential of the Russian people — and that will take time.

On climate in particular, there is no unifying policy, and the government does not appear motivated to curb emissions soon. The country’s climate negotiator, Alexander Bedritsky, says Russia should be judged on progress since 1990, like other countries. The problem with that, however, is that emissions plummeted with the economy in the 90s, and when it bottomed out in 1998, emissions were far below the 1990 level. Russia’s current proposal (PDF) to reduce emissions by around 20 percent from 1990 actually means letting them rise today until they are fully 20 percent higher than their low point. Therefore, even if energy intensity decreases under Medvedev’s plan, total energy use and GHG emissions are likely to rise.

Solution: Focus on voluntary business actions that generate tangible savings in the near term. Improvements in energy efficiency offer direct and virtually immediate cash savings, give companies a better view of their processes, and enjoy support by the government. In the context of other CSR issues, this is a relatively straightforward starting point. In doing so, watch other organizations that are invested in energy modernization, such as the World Bank, the European Bank for Reconstruction and Development, and the International Finance Corporation, which may be able to offer signals and even more direct support.

To summarize, Russia holds vast potential for business action on climate change and should start to become a higher priority in managers’ minds. Doing sustainability work there is difficult because of low awareness, governance obstacles, and slow going in the policy realm.

Yet these challenges are surmountable, and conditions are increasingly favorable for climate and energy management. Companies have opportunities to start on practical initiatives that can make big impacts now, growing their efforts as policy and consumer behavior evolve.

First posted at GreenBiz.

Making Customers Behave: Download from the Behavior, Energy, & Climate Change Conference

I just returned from the sold-out Behavior, Energy, and Climate Change Conference, a three-day event examining ways to understand decision making on climate and energy. Here are a few ideas I took away:
There’s opportunity in teaching climate awareness. Gallup’s Anita Pugliese and George

Mason University’s (GMU) Ed Maibach and Connie Roser-Renouf all pointed to two related items on climate awareness. First, awareness is surprisingly low across the globe. Only 16 percent of citizens in China understand climate change is real, human-caused, and a threat, while only half in many African and Middle Eastern countries have even heard of it. Second, literacy is actually declining in Europe and North America.  The good news is that consumers are open to being engaged on the subject, so businesses may find an opportunity to build relationships through educating on climate issues, particularly in rural areas, where awareness is lowest.

Effective communication requires segmenting and targeting. Reaching people on climate and energy requires identifying the motivation for the discussion and parsing out who to engage and how. For example, if the aim is to discuss climate change broadly, said Tami Buhr of Opinion Dynamics Corporation, research the audience, especially political persuasions. Then, focus on their leverage point (e.g. for those with mixed feelings on climate, show why it’s a threat; for doubters, explain why we know what we know). Tailor it to include issues like foreign oil dependence, health, environment, and saving money—but only what they’ll be receptive to. Similarly, if the aim is inspire specific energy choices, says Jodi Stablein of PG&E, people take on many different personifications, only some of which will be moved by climate change. So say only what’s necessary.

“Behavioral economics” holds the keys. Many well-intended message are surprisingly counterproductive. OPOWER’s Robert Cialdini explained that a common—and destructive—mistake is to frame sustainability problems as “regrettably frequent,” which makes undesirable activities seem normal and can actually increase unwanted behavior. Better, appeal to people’s sense of stewardship by showing what positive actions have already been taken, then ask the audience to do their part.  Also, suggested GMU research, address two protests (“I’m not an activist” and “It wouldn’t make a difference”) before they arise. Then, work to identify, train, and activate opinion leaders who are likely to take action and inspire others.

What do you think—what’s most useful to you about behavior with climate and energy? 

First posted at BSR.

Understanding the Benefits of CSR

This week, I spoke on the panel “ROI and the Triple Bottom Line: Can Companies Do Well by Doing Good?,” the first webinar in a series by Social Media Today. I shared thoughts on how to understand the benefits of CSR, and here’s what I covered.

First, the basics: What is CSR? CSR is the integration of environmental, social, and good governance practices into everything that business does, and the recognition of material aspects of nonfinancial issues that are integral to overall strategy and operations. These two ideas came from BSR President and CEO Aron Cramer and UN Global Compact Executive Director Georg Kell at the recent public debate on CSR. This definition is useful given the varying semantics out there: ESG, people-planet-profit, corporate citizenship, triple-bottom line. A recent paper found at least 37 different CSR definitions.

With that in mind, it’s important to understand the “constructs” of CSR in order to recognize its benefits:

  • Activities: Corporate responsibility activities can lead to concrete and even quick returns on investment. There are specific activities or projects—for example, efforts to reduce greenhouse gas emissions through energy efficiency—that can save a sizeable percentage of energy costs. Such returns can be found everywhere, from conserving water to using better materials. BSR’s factory-based women’s health initiative, HERproject, has also showed that people-related initiatives can lead to real, measurable benefits.
  • Systems: More generally, organization-wide management systems that embrace corporate responsibility often lead to better decision making, and ultimately a more economically efficient organization. Such systems include increasing transparency (e.g. through CSR and climate reporting); better governance (e.g. ensuring that the board has a sufficiently sophisticated view of risks and opportunities, and that incentives throughout the organization are mutually reinforcing); and systematic discourse with external stakeholders. Like with other company systems, such as marketing or HR, the direct results of better systems may be intangible, since it is more about creating a new platform for making investments than the return itself.
  • Vision: Finally, there is the broad potential of aligning society and business, which is found in optimistic sentiments like, “Our goals are to make money, make it ethically, and make a difference,” (GE’s corporate citizenship website) as well as its criticisms, such as Milton Friedman’s manifesto and Aneel Karnani’s recent case against CSR. Such statements of vision offer some of the most colorful discussions on CSR, though they are more inspirational than concrete in appraising impact one way or the other. One thing that is firm, however, is that CSR—as defined by Cramer and Kell above—is part of a long-term trend whereby companies that effectively manage greater accountability and complexity are likely to succeed.

That fact that CSR offers so many different types of benefits is one reason that it is stronger now than before the recession, and, as BSR recently found, why companies are planning to increase CSR budgets next year. As this important conversation about the benefits of CSR evolves, I look forward to continuing the discussion.

First posted at BSR.

The Latest CDP Results Reveal the Rise of Scope 3 Reporting

Last month’s release of the Global 500 Report, Carbon Disclosure Project’s (CDP) annual summary of climate reporting by the world’s 500 largest companies, gives the most insight to date on corporations’ reporting about climate change and their supply chains.

What does it tell us?

First, the number of companies reporting on their supply chains continues to steadily grow. Two years ago, only about a quarter of the world’s top 500 companies reported on “Scope 3” greenhouse gas (GHG) emissions, or the emissions from activities they have influence over, but are beyond direct ownership or control, such as in supply chains.

Last year, the reporting share climbed to 42 percent, and this year it grew to nearly half. That’s a steep change compared to reporting overall, which rose only a few percentage points this year to 82 percent.

At the same time, the quality and scope of reporting is improving dramatically. This year, for example, Kraft Foods said physical risks linked to climate change are not material, but they still described a whole set of supply chain and other issues that potentially matter. Kraft also clarified that they are closely examining supply chain issues to anticipate emerging enterprise risk and opportunities. The provision of this depth of information is a new development in CDP reporting, and has been aided in part by the more systematic ways that CDP is asking questions.

This relates to a third development: CDP made Scope 3 reporting more robust by expanding definitions this year. In following the Greenhouse Gas (GHG) Protocol’s Scope 3 Guidance under development, CDP transformed last year’s five categories into eight more specific ones, and then added nine more (see sidebar).

This helps transparency by increasing the comparability of reported figures. It also foreshadows the increasing sophistication of supply chain reporting to come. Indeed, Frances Way, CDP’s Head of Supply Chain, told me that CDP will continue working to ensure reporting requirements are aligned with the standard once finalized. Meanwhile, CDP is taking public comments on the design of the next survey.

Scope 3 emissions have taken center stage and turned out to be every bit as significant as we thought they would be. This raises an important question: Just how big are they?

In the summary report, CDP tallied aggregate figures by industry, finding Scope 3 to be on average about two times the amount of Scopes 1 and 2 emissions, which are sometimes called “internal” emissions. It will take a little digging, however, to get a representative number since 50 percent of companies don’t report Scope 3 at all. Of those that do, 40 percent only publish just one convenient category, such as transportation.

The companies to watch are the 10 percent that reported supplier emissions, and the even smaller 5 percent that reported supplier emissions beyond direct purchasing relationships.

For these companies, the Scope 3 multiple is much higher — more like five times greater for those reporting on direct suppliers, and 10 times more for those providing a comprehensive assessment. Some companies were much higher still: Kraft and Danone reported Scope 3 emissions that were more than 15 times the amount generated from their internal operations, and Unilever’s are more than 50 times greater.

As companies disclose their climate change and business interrelationships more fully, higher multiples like these are likely to become more common.

How to Open the Door to Supplier Disclosure

To learn more, I spoke to Kraft, which this year CDP named to its Climate Change Leadership Index, a designation for the most transparent companies taking action. Kraft is an interesting case because as recently as two years ago it had not reported Scope 3 emissions at all.

I asked Francesco Tramontin, associate director of global issues management, why Kraft is interested in managing and reporting supply chain emissions. Tramontin said that it is a logical extension of the company’s approach to climate change, and a natural step following Kraft’s achievement of GHG reduction targets within its own operations.

But, he said, Kraft’s increased CDP reporting didn’t begin with a reporting effort. Rather, the company’s R&D team leads its Scope 3 management efforts with the aim of collecting and interpreting data for strategic perspective and internal decision making. The reporting is a byproduct of these efforts, and Kraft began sharing it as management became aware of partners’ and stakeholders’ increasing interest.

One of the main benefits of Scope 3 management, Tramontin said, is that it provides an impetus to take a more careful look at internal management systems. It also enables Kraft to take part in important forums, such as the development of GHG Protocol Scope 3 Guidance.

Currently, Kraft is involved in testing a draft version of the guidance, and the company recently submitted feedback for it. According to Tramontin, participating in this governance-building effort has been beneficial. It has helped them exchange methodologies with peers and given them confidence in measuring and reporting in an environment where many communication standards are lacking.

One of Kraft’s main challenges has been deciding what types of information to publish. When Kraft set out to report Scope 3 emissions for the first time last year, the company had more information than it ended up reporting, but wanted to share the data in which it had the most confidence. The company published information in just two categories, business travel and logistics, which then represented about 40 percent of operational emissions. As Kraft did so, Tramontin said, it used a “lead with results” approach that emphasized progress against goals while remaining cautious about prognosticating.

This year, Kraft not only expanded the categories it reported on, it also found a way to provide more information on topics where there is more uncertainty. Kraft did this by disclosing emissions by subcategory with narrative descriptions and confidence estimates for each, ranging from plus or minus 20 percent (business travel) to about 40 percent (supply chain and end-of-life packaging). Tramontin said he couldn’t yet say whether Kraft would add more categories next year, but felt certain the quality and confidence of data would improve.

The Road Ahead

The supply chain will enter the picture more and more, Tramontin concluded. His experience, however, reveals a difficult balance that companies need to achieve. On the one hand, there is an incentive to report as openly as possible. On the other hand, there is pressure to ensure that disclosed information is trustworthy.

This leads Kraft and other companies to an important debate that is arguably the front line of supply chain reporting: the extent to which they can use the coarse data produced by life-cycle assessments and generalized industry “models,” versus more specific information provided by suppliers themselves.

The former is easier to obtain, but largely overlooks potentially vast differences in practices among peer suppliers; the latter can generate factory floor-level information about particular suppliers, but requires a much greater commitment of resources to manage.

Questions and answers regarding these issues will continue to unfold as new GHG Protocol guidance comes out this winter and companies report to CDP next May and beyond. In the meantime, here are some promising approaches borrowed from the experiences of Kraft and others.

1. Collect Data to Gain Insight for Prioritizing Sustainability Investments

In this context, reporting is important but it is a byproduct of understanding interconnections with suppliers, products, partners, and the physical world. This is really what most stakeholders are interested in.

2. Don’t Be Afraid of Your Footprint

The next phase of Scope 3 reporting will see more companies report on their impacts, more deeply and in more categories. This will allow greater comparability, better benchmarking, and more insightful discussion about ways forward.

Until that happens, a large Scope 3 footprint is a much better sign of leadership than no reported footprint. Scope 3 management can lead to enrolling suppliers directly in improvement efforts and leveraging their dollars and skills.

3. Address Budget and Resource Constraints by Using Sampling and Estimations

It is acceptable to provide information that is approximate or based on random and/or targeted verifications. The key to getting that right is to understand how accurate the information is, and make your level of confidence and uncertainty — like the figures themselves — transparent.

First posted at GreenBiz.

FTC’s New Anti-Greenwashing, Good-for-Business Green Guides

The U.S. Federal Trade Commission (FTC) has released its long-awaited draft guidance on environmental marketing. The so-called “Green Guides” tell companies how to prevent misleading customers—and avoid FTC actions against them.
Why now? The FTC says consumers are confused about environmental claims such as “sustainable” or “offset,” which lack consistent rules for usage. In response, the FTC’s proposed guidance does three things:
  1. Requires claims to be substantiated. Companies should communicate on specific issues for which they provide competent and reliable scientific evidence and avoid ambiguous umbrella terms like “green” or “eco-friendly.”
  2. Prescribes action on targeted issues. While the FTC leaves methodology mostly to companies, it advises on a few issues where deception is rife and solutions are particularly obvious. For example, the guides say that if companies generate renewable energy onsite and then sell their environmental attributes separately, they shouldn’t also say that they use that renewable energy themselves. Categories of specific advice include: certifications and seals, degradability, compostability, ozone-safe/ozone-friendly, recyclability, free-of/non-toxic, renewable materials, renewable energy, and carbon offsets. See the FTC’s cheat sheet.
  3. Defines where to tread carefully. The FTC acknowledges that some issues are difficult to provide blanket guidance on. For example, life-cycle assessments and ecolabeling are complex and require context, while the determination of carbon offset quality may be better handled by agencies with more expertise. In cases where the FTC “lacks sufficient information on which to base guidance,” it promises to analyze claims on a case-by-case basis.
What does this direction mean for business? I asked three individuals. Kevin Myette, director of product integrity at outdoor retailer REI, told me: “Guidance on green marketing claims has been extremely loose for years, and as a result, industry and marketers have operated virtually unchecked for too long. The FTC’s action to further define the rules is not a bad thing as they are only asking for the truth.”
Stanford Graduate School of Business Professor Erica Plambeck was similarly hopeful. She told me that the guidance “will increase incentives for retailers like Walmart to invest in the measurement of environmental performance and to provide detailed information about environmental performance to consumers. Transparency will lead to improvement.”
Finally, Dara O’Rourke, founder of the Good Guide—a product-rating initiative—said that more FTC involvement isn’t only good for consumers, but also for business. That’s because “the more there is transparency, the more the leading firms will do well in the marketplace. It’s a win for smart, thoughtful, progressive companies. This is basic ‘Econ 101’.”

What to do next: In the near term, leave any suggestions you have for finalizing the Green Guides below (with your name and affiliation) or contact me, and we’ll aggregate and submit your suggestions to the FTC before the comment period closes on December 10.

First posted at BSR.


3 Surefire Steps to Bring Climate Transparency to Your Supply Chain

With the release of guidance on supply chain reporting by the Greenhouse Gas Protocol just around the corner, companies will soon have more clarity on how to manage “Scope 3” emissions. 

At the same time, companies such as HP and others in BSR’s Energy Efficiency Partnership are working with a growing number of suppliers on climate change. As a result of these developments, minimum expectations for climate reporting on the supply chain are rising.

Now is the time for your company to embrace transparency, if it hasn’t done so already. It will help investors and partners, who increasingly see transparency as an indicator of a company’s competence, perceive your business as trustworthy. It will make outstanding achievements more credible, and it may even soften potential criticism, which is valuable in an environment where just about everyone, from journalists to employees, is inclined to write, blog, and tweet about your business.

But such transparency doesn’t come easily.

For one, almost every interest group, from consumers to investors to governments, has different information requirements, making reporting on climate impacts less about creating a single, comprehensive document and more about sharing granular information. The differences are growing. Consumers, for example, are using the Good Guide to screen for criteria that are most important to them, in effect creating their own “personal” certification.

Another challenge is the increasing demand for more specific information about companies’ suppliers — and their suppliers — when there is a lack of standards on what should be reported, when, and how.

A third challenge is the sheer expense of transparency, which takes substantial time and effort to effectively monitor and communicate.

To overcome these hurdles to transparency, we recommend a practical, three-part approach that involves monitoring your impacts, translating that data into actionable information, and promoting governance standards that catalyze progress.

1. Monitor in Order to Measure

Satisfying demands for granular information about climate impacts requires good measurement. Fortunately, most greenhouse gas (GHG) impacts boil down to energy, which is easy to measure.

Unfortunately, many suppliers whose impacts you want to report don’t have the monitoring equipment that’s needed to do so. It is unusual for suppliers in many countries, especially China — which matters most for many companies — to manage their energy use at all, both because they perceive it as a way to keep overhead low and because they don’t see other suppliers doing it.

Therefore, working with suppliers to install portable energy meters can be one of the most cost-effective ways to get more data. 

The basic versions of these monitors are available for less than US$10; more sophisticated options offer remote sensing and allow the uploading of data for analysis with software elsewhere. Over the course of a few months, companies can use a handful of meters to triangulate the most energy-intensive processes and pieces of equipment, and in doing so, show suppliers how they can take control.

In 2008, Nike was one of the first companies to report using remote energy meters (PDF). Today, Walmart is working with EDF to install energy meters in China, and BSR has recommended using energy meters to the 80 China-based suppliers who attended the recent launch of our Energy Efficiency Partnership.

In addition to enhancing transparency efforts, monitors open up new doors to companies in search of finance options. One of the main things holding up loans for the many energy-saving projects in China is verifiability. Monitors can potentially provide this assurance and therefore help companies in their efforts to gain finance from capital markets or private investors.

2. Count What Matters Most

Gathering granular data of the type provided by energy meters is useful in responding to the varying demands of different stakeholders, but it also creates a challenge in itself, often overloading you with information. To zero in on the important issues about your company’s climate impacts, it’s necessary to prioritize.

There are two ways to do this: Invest in intelligence tools that will help you glean more from the data, and use the right proxies to indicate how successful your company will be in meeting its quantitative targets.

Let’s look at intelligence tools first: Companies should consider how they can go beyond spreadsheets — the traditional mechanism for tracking GHG information — to using tools such as climate software packages (PDF) to glean more from data.

These tools complement energy metering equipment by allowing you to compare energy use at different points in time and on different time scales, which can help you identify cost-reduction opportunities and situations requiring maintenance. They also contextualize the energy meter information by putting it in terms of production output volume or other indicators your company is already managing. This helps embed analytics into existing business processes and continuous improvement initiatives.

Using proxies can also help you focus on the most important information. When starting energy management, it can be challenging in the short run to find a pattern in the most obvious and easily measurable data — energy actually used. That’s because things like weather and business variability make it difficult to see improvements in energy efficiency through electricity bills. However, you can use proxies as good predictors of success. These include, for example, whether a supplier has developed an energy action plan, what kind of target (say, to achieve 30 percent energy reduction) it has committed to, and how many energy meters it has installed.

Similarly, shortcuts are available with verification. For BSR’s work with Walmart, we designed a tiered approach to gathering data about suppliers’ energy impacts that included requests for narrative descriptions of energy projects and the names of team members working on energy efficiency. Those types of questions are easier to verify than accounting numbers themselves, and company representatives can use the information gathered to look for physical evidence of these things when they conduct supplier site visits.

3. Promote Action with Better Governance

Even when you have done your diligence to gather granular data and translate it into actionable information, one of the biggest barriers to progress in transparency remains: a lack of governance standards used by your peers. These shared systems are needed both to give stakeholders confidence in claims, and to create more clarity on where companies should focus their action.

What follows are some areas that are likely to present development needs for some time to come: 

Technical standards on how measurements are made: Even with more requirements, such as the Environmental Protection Agency’s mandatory reporting rule (PDF) and the U.S. Securities and Exchange Commission’s (SEC) interpretive guidance (PDF), many conventions are undefined, such as how to characterize progress on energy management, how to cost-effectively verify such results, and how to convert many local energy sources to GHG impacts. (See sidebar below for a more descriptive list.)

How Corporate Energy Managers Can Champion Better Technical Standards
One of the key challenges to improving business transparency on climate change is the development of technical standards that are shared across industries. Company energy managers have the opportunity to encourage the development of these standards, which are lacking in the following areas: 

•  Conversion factors: In much of the world, there is a lack of common measures for deriving GHG from energy sources. For example, in China, the government has published energy-carbon conversion factors for its seven grids, but there’s not yet an accepted standard for more local applications. A leadership opportunity exists for business to create open platforms that house much more specific and trustworthy conversion factors.

•  Supplier energy performance factors: In all but the most energy-intensive industries, there are few performance standards for energy use with suppliers in countries such as China. Managers can look for ways to identify and disseminate information about thresholds (e.g. best, average, minimum acceptability) with energy consumption and the type of equipment being used.

•  Management progress: There is a lack of agreement about how companies can state they have reduced or improved energy use for a group of diverse suppliers. Issues that need resolution include defining the scope and drivers of energy to account for changes to energy owed to operational changes, to describe how energy use is expressed (absolute or in terms of revenues or material inputs), and to determine rules for sampling (what minimum time period is allowed).

•  Cost-effective verification: There are few generally accepted alternatives to traditional energy audit processes like the International Performance Measurement and Verification Protocol, which are very expensive. Companies have the opportunity to work with stakeholders to create a system with sufficient accountability, while still being practical enough to apply to large sets of suppliers.

Shared systems: The process of interacting with suppliers and other partners to obtain information takes a commitment of people and resources. Suppliers and partners, in turn, are under pressure to respond to greater numbers and types of requests, meaning they have less time for your company’s request.A pioneer industry group, the Electronic Industry Citizenship Coalition (EICC), was formed in part to develop a central repository for suppliers to report into and buyers to read from, significantly cutting down on administrative expenses. This and other kinds of “cloud computing” solutions offer important opportunities for sharing information.

Communication among diverse stakeholders: The development of new governance requires participation by a range of stakeholders, including technical experts, civil society representatives, and industry peers. In addition to observations being made and analysis done, subjective issues matter.

These issues include the types of people who want the climate information (e.g. whether they are customers or project financiers), what action the measurement is meant to encourage (e.g. energy management decisions or something else), and how much “uncertainty” is tolerated and how it is accounted for (e.g. what disclaimers are used for making estimations).

With this in mind, companies that want to improve the impact and recognition of climate transparency should join existing programs or groups such as the EICC. If such groups are not available, consider starting a new one with industry peers by sharing metrics, publishing useful internal studies, and sharing insights about the efficacy (or lack thereof) of a certain key performance indicator. Companies can also suggest that their existing working groups and associations facilitate standards.

In summary, more climate transparency will be good for business. It can improve credibility, win trust, and make discussions about climate change more meaningful. While the solutions provided here will take work, they are likely to lead to better incentives to find efficiencies and lower costs, and ultimate progress on climate change.

First posted at Greenbiz.

BSR Kicks Off New Energy Management Collaboration…and Just in Time

I’ve just returned from China where I attended the launch of BSR’s Energy Efficiency Partnership (EEP), a working group of 11 member companies working with 80 of their suppliers on energy management.

Participants discussed the many reasons why this is an important—and urgent—issue for their companies. Starbucks’ Director of Ethical Sourcing Kelly Goodejohn explained in an opening presentation that climate change poses a substantial threat to coffee, the company’s core business, and that energy management is the most direct thing they can do to stop greenhouse gases (GHG).

Felix Ockborn, a member of H&M’s Far East CSR Program Development team, relayed that working with suppliers to mitigate climate change impacts is vital to H&M’s CSR strategy because the issue is important to its customers. He also said that it is a fundamental part of working toward sustainable use of natural resources in H&M’s value chain.

The one issue, however, on everyone’s mind was the recent pressure from the Chinese government to curb energy waste, which resulted in the mandatory closure of more than 2,000 factories and the shutdown of power to companies in major manufacturing provinces like Jiangsu and Anhui. This obviously has a major impact on companies: An auto-components maker reported that it had to slow production, and a cement factory said it would have trouble meeting orders and likely lose work in progress.

The shutdowns are part of China’s efforts to meet its current five-year plan commitment to reduce energy intensity by 20 percent from 2005 levels. All signs indicate that such pressure will increase: The next five-year plan (due out soon) is likely to include even more stringent targets, and last year’s goal to reduce GHG emissions by 40 to 45 percent by 2020 will also warrant additional measures.

EEP member, HP, has been keeping a close eye on these kinds of developments. Ernest Wong, Manager of HP’s Social and Environmental Responsibility Supply Chain program, said it’s important for factory managers to have tools for energy management so that they can understand their exposure and communicate their situation. In turn, explained Wong, it’s important for companies like HP to have a good picture of how suppliers can have better energy-saving plans and use energy management to minimize their carbon footprints.

We have a lot of exciting work to do. From helping executives in the board room understand the impacts of and options for energy efficiency to enabling managers on the shop floor to take action, I look forward to working with EEP to explore how companies can get the most out of energy management and raise awareness about the importance of working with suppliers to conserve energy.

First posted at BSR.

How Businesses Can Plan for the Unpredictability of Climate Change

With managers across industries under pressure to develop sophisticated views about how climate change will impact their companies, it might seem natural to look to the insurance industry for guidance on how to act and communicate about risks and opportunities.

After all, with climate change threatening to increase the severity of humanitarian crises, economic disruptions, and weather-related disasters — which, in the last half century, have cost more than a trillion dollars and killed more than 800,000 people (PDF) — the insurance sector is being called on (PDF) to play a special role in helping society to adapt to climate change.

Unfortunately, even the insurance industry lacks the coveted crystal ball that would preview exactly how climate change will impact us. That’s partly because prediction works by projecting future events based on past experiences, such as showing what the average distribution of the next thousand hurricanes in the Gulf of Mexico might look like. Climate change variables can be factored in, but what to include and how much to adjust them remains largely guesswork.

Even if we had the parameters to guarantee more statistical accuracy, we would still be at the mercy of what matters most: low-probability, high-consequence events that happen once in a generation, such as this summer’s heat wave in Russia and floods in Pakistan. Such outliers are hard to pinpoint in advance, yet these are precisely what the Intergovernmental Panel on Climate Change (IPCC) says business should be most worried about.

As a result, while climate science provides evidence of general trends, we are still a long way from being able to predict specific climate events. In lieu of precise predictions, a key to effectively managing the physical effects of climate change is preparedness, which can be achieved through developing literacy, identifying plausible impacts, evaluating priorities, and building resilience.

Practical Frameworks for Climate Change Preparation
•  U.K.-based Acclimatise’s three themes for senior executives (PDF): The group’s 10 questions cover risks, opportunities, responses. 

•  Alberta Sustainable Resource Development’s four-part framework (PDF): Scope and prepare, assess vulnerability, assess risk, and identify options — and integrate these into strategic management.

•  Economics of Climate Adaptation Working Group’s five-part framework (PDF): Identify risk, calculate expected loss, build response portfolio, implement, and measure.

•  Pew Center on Global Climate Change’s three questions (PDF): Is climate important to business risk? Is there an immediate threat, or are long-term assets, investments, or decisions being locked into place? Is a high value at stake if a wrong decision is made?

•  Risk Management Solutions’ four-module natural hazards model (PDF): Define hazard phenomena, assess hazard level, quantify physical impact, and measure monetary loss.

Developing Literacy

For business, developing literacy means understanding the mechanics by which climate change is likely to affect your company, and how to manage uncertainty.

In that sense, while climate change is expected to produce negative effects overall, there will also be important new societal needs related to climate change’s direct effects on water, food, health, ecosystems, and coastal areas that businesses can focus on. These impacts can be thought of as both risks (your workforce becoming increasingly susceptible to disease) and opportunities (the chance to develop and distribute health-improving solutions).

Future climate impacts are a function of three things:

1. Impacts from today’s climate, which may pose real risks, such as windstorms or floods, even if they haven’t materialized
2. The potential effects of climate change, which could multiply those threats
3. Development paths that put more people and assets in harm’s way

To develop expectations about total future impacts, business can use various techniques for characterizing the future, such as scenarios, storylines, analogues, qualitative projections, sensitivity analysis, and artificial experiments such as thought exercises. These all offer different tools. For example, analogues use past events to anticipate how communities will respond in the future, and storylines create narratives about how the company might logically evolve in response to climate-related economic trends.

Identifying Impacts

Given the most plausible physical effects of climate change mentioned above, which impact virtually all industries and regions, the next step is to identify where and how they might affect the company the most.

The answer depends on a range of geographic, market, and sociopolitical factors. As a starting point, the IPCC suggests that the most intense business impacts are likely to result from extreme weather, especially in coastal and flood-plain regions, in areas where subsistence is at the margin of viability, and near boundaries between major ecological zones.

With respect to business operations, impacts are most likely when there is dependence on longer-lived capital assets, (such as energy), fixed resources (such as mining), extended supply chains (such as retail and distribution), and climate-sensitive resources (including agricultural and forest products, water demands, tourism, and risk financing).

Finally, impacts are most likely in sociopolitical environments where substantial key stakeholder groups are based in poor communities, especially in areas of high urbanization. (For more details, review the IPCC’s report on “Impacts, Adaptation, and Vulnerability.”)

Evaluate Priorities

Once a set of potential impacts has been identified, they can be used to evaluate the relative areas of concern. One way to structure this assessment is to evaluate the following conditions independently: the intensity of likely climate change hazards, your company’s and its stakeholders’ vulnerability to those hazards, and the values at stake, both financial and human.

You can combine these to form probabilistic values for each potential impact, and then compare these impacts against each other to provide a picture of the most important expected effects across the organization.

Such a study is accessible to most companies. For example, a combination of desktop research, interviews with experts, and a facilitated discussion with management could provide a good estimate of the conditions mentioned above. This, in turn, can form an appropriate initial assessment for coverage in an annual report or in your company’s reporting to the CDP in May. To make the conclusions actionable, aim less for an abstract list of calculations and more for judgments that yield a rank-order priority set.

Build Resilience

A final step in preparing for climate change is to build resilience, which involves two steps. The first is to make “if-then” decisions. For instance, if energy prices quadruple, a drought occurs near a water-intensive plant, or a key ingredient is listed as endangered, what would your company do? This assessment should include both traditional disaster planning as well as defining contingencies for sudden changes in market needs or necessary supplies.

By extension, this is the time to consider how your company should react to plausible changes that could impact the whole enterprise, such as breakthroughs in energy information technology or aggressive climate policies in China’s next five-year plan.

Of course, this should also include a review schedule: what to watch for, and when. In sum, managers should be ready for anything, or at least what’s plausible.

The second step is taking proactive measures now, or if not now, then timed with and integrated into new capital investments. These measures include ensuring that new buildings and infrastructure meet codes to withstand extreme events; improving land-use planning, such as by limiting development in at-risk areas; and preserving wetlands, forests, and other natural ecosystems that provide cost-effective natural protection against storms and erosion.

When investing in these measures, combine adaptation with mitigation efforts wherever possible, such as by building green, and be wary of paths that are increasingly energy and water intensive because such resources will likely be under increasing strain.

It’s also important to pay special attention to people in poor communities and developing countries, as they are likely to be most affected by climate change, and therefore have growing needs for companies to fulfill.

First posted at GreenBiz.

Five Lessons from Walmart’s Supply Chain Work in China

Late in 2008, following Walmart Vice Chairman (now CEO) Mike Duke’s announcement that the company would improve the energy efficiency of its top 200 China-based suppliers by 20 percent by 2012, Walmart enlisted BSR to help launch its first supply chain energy-efficiency efforts in China.

From our post in Walmart’s Shenzhen global procurement headquarters, we started by studying how the successes of Walmart’s U.S.-led Supplier Energy-Efficiency Project could be adapted to China’s unique environment. We then led a launch meeting, trainings, and the development of measurement tools to connect suppliers with energy-service companies.

In its first year, the program recorded an increase in efficiency of more than 5 percent in more than 100 factories, and revealed that suppliers had the capacity to do much more. That success emboldened Walmart to announce it would eliminate 20 million tons of greenhouse gas (GHG) emissions from its supply chain — about 40 percent of the collective annual commitment of the nearly 200 companies (PDF) in the U.S. Environmental Protection Agency’s Climate Leaders program, as of late 2009. That’s progress as far as sustainability is concerned, but it’s also good business sense: Walmart, a relentless cost-saver, sees it as a way to make suppliers leaner, more resilient, and more competitive.It’s time for more companies to follow Walmart’s lead. By expanding energy-efficiency efforts into their supply chains, companies can quickly and substantially decrease supplier costs, substantially reduce greenhouse gasses, produce satisfyingly quantifiable results, and provide a gateway for further sustainability initiatives. There’s never been a better time to start: With the long-awaited GHG Protocol guidance on “Scope 3” GHG accounting scheduled for release in December, an era of more comprehensive supply chain reporting is imminent.

Companies whose supply chains lead to China should start there, because the opportunity is profound. On average, Chinese supplier factories are five times less efficient than factories in the United States, and the country is the No. 1 emitter of GHGs. By cutting energy waste in China, it’s possible to reduce the world’s energy demand by 5 percent.

Fortunately, energy-efficiency investments in China are cost-effective (PDF) compared with similar initiatives in industrialized countries. In spite of this, improved energy efficiency has not taken off in China because the country suffers from an inefficient market. Factory managers and other energy users often don’t have meaningful diagnostics about the price of energy, government subsidies make it cheap to waste energy, energy-management contracts are hard to implement, and people in positions to improve efficiency — building owners, investors, and tenants — often aren’t the ones paying the bills.

The problem is vivid when considering that neighboring Hong Kong, one of the world’s most energy-efficient regions, has a thriving industry of energy-service companies (known as “ESCOs”) that identify energy-saving opportunities and then install and locate funding for energy-saving equipment.

On the bright side, this shows that the challenge for companies is not one of engineering, equipment, or even finance. Instead, it’s about taking pieces of the puzzle that are already there and putting them together. For these reasons, China is one of the best places for companies to start scaling up knowledge about climate-related supply chain risks and opportunities, communicating results to investors, and improving climate performance by leveraging business networks.

The job of international companies in supply chain energy efficiency is to keep China’s specific challenges in mind and build bridges between ESCOs and suppliers. What follows is a series of steps based on our recent experiences working with Walmart that can help companies effectively engage suppliers in China on energy efficiency:

1. Establish Common Ground

Often in China, suppliers see productivity as a distraction from growth (PDF), and by extension they can be skeptical about consulting services and the value of pursuing savings versus top-line sales. Such suppliers may agree to participate in a company’s program but are unlikely to make significant progress over time until their culture rewards enhanced managerial productivity in general. Therefore, companies should begin their engagements on efficiency by surveying suppliers’ views about continuous improvement broadly and then educating them on that subject early and often.

2. Show the Road Map

When it comes to labor compliance, companies like Nike have famously warned (PDF) that demanding conformity on its own is not likely to yield sustained and honest results. On the other hand, sustainability initiatives are likely to take hold only if the specific action requirements include goals, timelines, and rules that are made clear at the outset.

Ensuring that suppliers head in the right direction means showing them clear pathways, with options, in a road map. This was confirmed for us at Walmart’s first launch meeting, where suppliers and ESCOs agreed that Walmart’s 20 percent goal, five-year timeline, and detailed participation guidelines enabled the suppliers to get traction.

Sharing the road map with suppliers is also a good way to make action seem urgent, which is a strong additional motivator. Finally, providing a road map is a good way to encourage suppliers — which may be reticent to make long-term commitments without good prospects for continued business — that the program is meant to drive long-term collaboration.

3. Require Accountability

Just like with sustainability efforts more broadly, suppliers are best positioned for progress when senior management sponsors the initiative, and then teams are instituted to execute objectives with clear roles, responsibilities, and substantial performance consequences. At our Walmart launch meetings, we included both operations managers and senior leaders, and we emphasized to executives the ease and benefits of participation. Another ingredient for accountability is open communication between suppliers and companies. On one level, companies should review suppliers’ progress frequently (ideally quarterly) to ensure continued momentum. On another level, companies should make a help line available to quickly answer suppliers’ questions. Companies should also pay close attention to demonstrated commitments to management systems like named teams and action plans, because these programs can predict whether the supplier will succeed.

4. Build Capability

Next, companies should integrate into their programs efforts to help suppliers understand where and how to focus tactics. This includes teaching factories how to identify low-hanging fruit, and understanding expected inefficiency hotspots and challenges to implementation.

According to surveys we have taken during BSR’s China Training Institute events, operations managers consistently identify training as the top need in successfully starting energy-efficiency programs. Many don’t have a strong energy or efficiency background, in part due to the prevailing focus on growth, so providing insight and resources through trainings, call-in lines, and diagnostic tools are often critical resources.

5. Solve the Problem Itself

A final step is for suppliers to identify and deploy efficiency solutions, such as retrofits with better lighting and cooling systems, by tapping into the ESCO industry. However, many ESCOs aren’t arranging deals in China because the lack of infrastructure makes energy savings difficult to verify, and contracts can be hard to enforce (PDF). Companies can help efficiency projects take hold by making the cost of doing business easier for ESCOs. For example, companies can host forums gathering both ESCOs and suppliers, and inform them of possible opportunities by sharing statistics and needs revealed in the suppliers’ reports.

First posted at GreenBiz.

Simple Tools for Effective Climate Reporting

With the fiscal year drawing to a close for many companies, it’s writing season for corporate social responsibility (CSR) reports.

As usual, reports provide a medium for communicating to investors who want to see companies creating value, customers who want to know which companies and products are leaders versus laggards, and watchdogs looking for inconsistencies.

In 2010, these groups will be particularly interested in how companies report on climate. This is due to several developments:

  • Last year’s treaty negotiations in Copenhagen, which prompted major economies to start their own, independent negotiating process (additional to the consensus-oriented UN framework), and resulted in the understanding that there is much more work to be done
  • The recent U.S. Supreme Court decision to allow spending on political campaigns
  • The Carbon Disclosure Project’s (CDP) increased emphasis on climate policy efforts in its 2010 Investor Questionnaire (PDF, due May 31), which asks companies to detail their climate policy efforts (question 9.10), as well as how those efforts fit into overall company strategy (question 9.1)

To date, however, companies have lacked direction on how to report on climate policy engagement. BSR’s new report, “Communicating on Climate Policy Engagement: A Guide to Sustainability Reporting,” (PDF) provides some of the first guidance available for companies.

12 Top Reporting Themes
• Acknowledgment of climate change as a problem and importance of climate policy for business 

• Advancement of industry standards through working groups

• Advocacy to national-level policymakers for climate legislation

• Demonstration of how the industry — especially ICT and finance — are poised to be solutions providers

• Disavowal of support for trade bodies that pursue inconsistent or regressive objectives

• Joining of coalitions and signatory initiatives

• Launching of carbon market or other quasi-government institutions

• Leadership of voter-education initiatives

• Participation in U.S. Environmental Protection Agency (EPA) and other government partnership programs

• Publicity of unintended consequences or re-framing issues

• Sponsorship or provision of research

• Testimony to national or state law-making bodies or filing court amicus briefs

What follows is an overview of what companies are reporting on today, what we recommend that companies focus on going forward, and how companies can approach reporting on climate policy engagement.

What Companies Are Saying Today

To learn what companies today are saying about their approach to climate policy, we recently conducted an assessment of more than 150 companies’ sustainability reports and related materials such as their websites, their responses to the CDP questionnaire, and their submissions to the United Nations Global Compact Communication on Progress.

We found that most large companies report one or more of the following:

1. Public policy is a main pillar of their climate approach, largely because climate change may not be solved without it.

2. Climate change is a main focus area of public policy efforts, in part because it is one of the single greatest issues of this generation.

3. Climate policy is a strategic issue, in that it is both likely to happen and likely to disrupt fundamental business drivers—for better and worse.

What to Cover

In general, managers should include three themes in their climate reporting:

  • Greenhouse gas (GHG) impacts: First, companies should report on their impact on climate change in terms of GHG emissions and efforts to reduce them. This is probably the longest-standing climate reporting topic, and it is more important than ever as increasing attention is focused on the impacts of the world’s largest companies. Companies should report on absolute and intensity figures using the Greenhouse Gas Protocol, and try to include impacts from their supply chain and other networks. One emerging best practice is to report figures in terms of the company’s share of planetary climate boundaries, as do British Telecom and Autodesk.
  • Risks and opportunities: Second, companies should communicate the business risks and opportunities created by climate change, such as the effects spurred by new regulations and/or changing physical environments. This area has followed closely behind development of reporting on GHG impacts, and is now not only expected by investors, but required in new guidance issued by the U.S. Securities and Exchange Commission. Risk and opportunity reporting should include the impact of legislation and regulation, international accords, indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments), and the relevant physical impacts of climate change.
  • Climate policy engagement: Third, companies should report on climate policy engagement. Companies are expected to show what they are doing to address climate change, and many stakeholders see policy engagement as one of the most direct ways to do it. According to this view, effective climate policy is an important instrument for creating business value, and companies can build trust with stakeholders by leading more meaningful discourse.
This means companies should communicate about all policy efforts, including those that go beyond traditional lobbying, such as: 

1.    Calling policymakers to action by promoting specific legislation or endorsing the key objectives and parameters contained in them, as Johnson & Johnson has done in its 2008 sustainability report

2.    Informing policymakers through the provision of research and other technical insights on how specific policies could be most effectively implemented, as in IBM’s 2009 CDP response

3.    Enabling policy solutions by shaping the inputs to decision-making, such as by enhancing the state of knowledge among voting constituents, as Aspen Skiing Company is doing through its “Save Snow” website

4.    Setting the stage by advancing standard approaches to measurement and other processes that enable more meaningful dialogue about issues, as groups such as the Clean Cargo Working Group and the Electronic Industry Citizenship Coalition have done

An Effective Approach

Company managers preparing the climate-related sections of their reports should detail the governance around how climate policy engagement decisions are made, the strategy describing the broad outline of their companies’ objectives and approach, and their companies’ activities aimed at addressing climate change.

We also advise that leading reporters take the following approaches:

Be explicit. Use clear statements of position and objectives to focus the message. For example, Dow Chemical Company says that it will be “fearlessly accountable” in the pursuit of climate change solutions. This clarifies the company’s aims for stakeholders, who are, in turn, more likely to appreciate the commitment and support company efforts. Vale, one of the world’s largest mining companies, takes a different approach in its document, “Corporate Guidelines on Climate Changes and Carbon,” which acknowledges the scientific evidence of climate change and provides provisional guidelines subject to change based on the state of science.

Be the first to the punch. Aim to be straightforward about the company’s climate policy involvement. Head off potentially difficult questions by taking the time to answer them in advance. For example, let’s say a company is well known for lobbying — perhaps it’s on the Center for Public Integrity’s top 100 list or is prominently involved in a major trade association. That firm should be as detailed as possible about what it is doing and why. According to a recent study, this is especially important for companies in industries such as media, information and communications technology (ICT), oil and gas, transportation, pharmaceuticals and biotechnology, and mining and extractives, which tend to be heavily involved in policy engagement because governments either play a strong role in shaping their markets’ structure or substantially regulate them.

Use diverse reporting channels.
Climate policy engagement is a public affair, but company managers shouldn’t count on the public seeing the message if it’s only in one place. Some companies with compelling ideas and initiative aren’t saying much about their efforts, and others aren’t communicating very widely. Still others mention work in their CDP reports or websites, but omit it from their sustainability report. At the very least, companies should communicate a comprehensive and consistent message through their own websites and sustainability reports, and through the CDP. They should also consider reaching key audiences through customized channels as needed.

It’s also important to remember that communications happen not only through formal reporting, but through events such as trade association committees or government advisory groups. At such gatherings, the messenger is part of the message, so it is crucial that representatives know all the key points and have the authority to speak those messages on behalf of their company. As Matthew Bateson of World Wildlife Fund told us, “Having the wrong people at meetings is a barrier. If they are unable to listen, to contribute, and to be constructive — that won’t work.” So, when opportunities to collaborate or speak arise where climate policy efforts might be addressed, aim to send senior and prepared leaders.

First posted at GreenBiz.

Information, Please! The Knowledge Crux at Copenhagen

I spent half of my first day at COP15 in line, mostly outside, in the cold. But I was one of the lucky ones to eventually emerge inside the Bella convention center. Others waited for six hours or more only to be turned away at the door (if they even made it that far).

I don’t know whether I’ll make it back in on Friday, when I’m scheduled to present at the China Climate Registry panel. Word has it that the 15,000-person occupancy for the 35,000-plus who are registered will shrink by the day until virtually no one but government delegates is allowed in at the end of the week. We’re all bewildered. After all, we’re all on the invite list.

The problem is information. We could have used some pretty simple advice about what to expect as we planned our meetings at the event.

It occurs to me that information (in particular, the dearth of information) has become something of a theme with the climate negotiations.

On one hand, there is “Climategate.” In this case, U.S. policy crafters have been forced to defend themselves as news pundits and others have taken snatches stolen from private emails among scientists to put science itself on trial in the court of public opinion. In reality, nothing has yet come to light that implicates climate science in any fundamental way. Nonetheless, the fact that climate experts spent valuable political time and energy defending the validity of this information points to a continued gap between scientists and the public on opinions about climate science.

The issue of information—or rather how information is verified—is also one of the chief sticking points governing whether China will sign on to a climate treaty. The country is reticent to have outsiders monitor and verify its greenhouse gas emissions, yet assurance of climate effectiveness is needed globally. This need for robust auditing highlights a challenge that is especially thorny when done across cultures like China and the United States.

Business managers who live or die based on the effectiveness of global communication might think these problems are easily solved. A message to you: Your help is needed. Without business helping to communicate the best available information we have about climate science and showing the way for solutions that work on the ground in countries like China, climate policy will be slow in coming, and we may not achieve results that effectively unleash investment capital. And without such results, real progress on climate change is unlikely.

Originally posted at BSR.

Postcards from the climate negotiations in Copenhagen

I chose Thunderbird for my MBA largely because I knew that it was ahead of the game on two megatrends: globalization and sustainability. As a student, I found that the school delivered, preparing me for a career to take on these issues and the broad, difficult managerial decision making needed for research and innovation in sustainability consulting.

Since finishing in 2007 and then starting with BSR, I have learned a lot more about how those topics interact. Global management is essential for leading on sustainability because value chains go across cultures, and so engaging suppliers effectively calls for a softer hand than just demanding compliance. Also, starting with a global framework is essential for understanding the world’s myriad regulatory environments and consumer markets, in order to translate what’s coming to your company, and to know where to lead.

This week I am representing BSR at the “COP15” climate negotiations in Copenhagen, and here I find that these themes have never been truer. Ultimately, an effective global climate deal that’s good for business and the world will require a balance between asking the countries which have historically emitted the most greenhouse gases (industrialized countries, led by the U.S.) to change the most, versus those expected to emit a much larger amount in the future (developing countries, led by China). In reality, this is not an objective question, but a highly charged emotional one which raises deeper questions about equity and values, which are in turn based on enormously varied essential assumptions across cultures.

Such vexing cross-cultural problems are also found in the details. Currently, a chief barrier to a global climate deal looks to be China agreeing to its emissions being independently monitored and verified. The country is reticent to leave inspection to outsiders—it says out of principle—yet assurance of environmental effectiveness is needed globally. This need for robust auditing highlights a major challenge that is especially thorny when done across cultures like between the China and the U.S., where there are different tastes for ceremony, relationships, and formality when important issues are at stake.

If you want to do more on sustainability, you are in the right place at Thunderbird. Within its community, you have an opportunity to be at the forefront global management of the most difficult questions we face–and decisions companies address today about how to engage policymakers in order to best incentivize a more profitable and durable future for companies.

Originally published at Thunderbird School of Global Management.

Real Climate Leadership and The Rules of Policy Engagement

As negotiators gather in Copenhagen next month to discuss a global climate policy framework, there has never been a better time for companies to influence policy instruments that could dramatically affect the future of climate change.

Business’ management of greenhouse gas (GHG) emissions is already improving. According to the Carbon Disclosure Project (PDF), more than 70 percent of the world’s 500 largest companies are now reporting their GHG emissions, and similar efforts are spreading rapidly, especially in the BRIC countries and throughout Asia.

Meanwhile, global emissions are continuing at a pace to surpass the 2 degrees Celsius threshold of climate change caused by a 350- to 450-parts-per-million concentration level. Even if we enact the most aggressive legislation proposed today, the concentration of GHG emissions would continue to rise rapidly, according to calculations from the Massachusetts Institute of Technology’s C-ROADS simulator. Meanwhile, there are questions about whether countries such as the U.S. and China — which together account for nearly 50 percent of global emissions — will be able to garner political support for basic commitments.

Under current regulatory frameworks, there is virtually no economic cost for producing GHG emissions, and it is increasingly clear that reversing the current path of climate change will require policies that put a price on carbon. By stimulating innovation in processes and products that would encourage a low-carbon economy and effectively align economic and environmental interests, this would address the single largest impediment to the significant expansion of fossil fuel alternatives.

Enacting such policies can happen only with the support of the private sector. Hundreds of companies ranging across industries and geographies — from British Telecom to Aspen Skiing Company to Levi Strauss to Shell — now consider climate policy engagement a key part of their efforts. These pioneers are demonstrating that there are many levers for informing and advancing effective climate policy.

Here are some examples and ideas to consider:

Direct and indirect engagement: Aspen has helped advance climate policy directly by submitting an amicus brief (PDF) to the U.S. Supreme Court, which led to a ruling that requires the U.S. Environmental Protection Agency (EPA) to regulate GHGs. Direct action — which includes advocacy like this as well as lobbying for specific laws — is the most obvious option for climate policy engagement. There are also important opportunities to engage indirectly, such as by empowering the public to advance policy through education, and giving them more of a voice with policymakers. Marks & Spencer, for example, is inviting stakeholders to add their views by uploading patches to a virtual “quilt” that will be presented to negotiators at Copenhagen.

Input via multiple policy cycle stages: The previous examples emphasize input into policy formulation, but companies can also affect policy at other stages. For example, Hewlett Packard and Intel are co-leading an initiative of the Electronic Industry Citizenship Coalition to develop a standard industry approach to measuring GHG emissions in supply chains. This effort aims to inform policymakers about how companies can share information at the operations level across borders. This will play a part in framing potential policy options. Once policy has been formulated, companies can engage in implementation in various ways. For example, the EPA offers 30-plus business partnership programs (PDF), to which companies such as Dell have subscribed, that offer feedback for further policy development.

Individual and collaborative action:
Timberland (PDF), Vale (PDF), and China Light & Power (PDF) are making individual appeals for robust climate policy, but they are also working collectively. Timberland, for example, is a member of the Business for Innovative Climate & Energy Policy (see sidebar for a list of coalitions). Other companies are focused on influencing the direction of existing business groups. PG&E and a host of others, for example, have left the U.S. Chamber of Commerce in protest of the organization’s position on climate legislation.

As these examples illustrate, climate policy engagement means more than simply taking a position; engagement must also include deliberate actions that inform and advance specific outcomes. This is difficult, however, because it is often unclear what the ideal policy outcome is. Indeed, companies and stakeholders are affected differently by different points of legislation.

So what should companies subscribe to? It’s safe to say that we should heed the calls of scientists to stabilize the climate. Business needs stable conditions to enable investment. It is also clear that these two issues are interdependent. Carbon-reducing investments are required for climate stabilization, without which there will continue to be persistent calls for more aggressive policies, which in turn will destabilize market expectations. And so on.

Companies should therefore call for legislation that peaks greenhouse gas emissions in the near term — ideally before 2020 — and that includes specific, robust accountability mechanisms. It also means asking for clear and durable rules that create the incentives for companies to invest in low-carbon energy and other GHG-reducing projects now.

Some companies have yet to join the policy debate due to the perception that their first step on climate issues should be to reduce their own emissions. However, engagement on policy can actually be undertaken concurrently, and may even enable more effective and efficient emission reductions.

What follows are five recommendations for engaging in climate policy based on the research BSR has conducted for a series of reports on climate policy engagement that will be published in early 2010:

1.    Start where you are. For most companies, managing climate policy proactively may seem like a brand new arena. But many of those same companies are already engaged in related activities, such as education and awareness building. Companies have pursued these activities because the public is often unclear that there is such robust scientific consensus about climate change, and public attitudes can have a strong impact on the success of legislation. Take stock of your existing efforts and capabilities, and use those successes to build the case internally for greater commitments.

2.    Follow emerging performance indicators related to climate policy. These include the Carbon Disclosure Project’s Investor Questionnaire (see question 28.1) and the Center for Political Accountability, as well as frameworks like Climate Counts. If you see room for improvement, communicate with these groups about the type of policy they should be encouraging.

3.    Focus your efforts. Identify your strongest levers for credibly influencing climate policy. The suggestions above provide a framework for considering your options.

4.    Pay attention to your company’s process. Policy outcomes are important, but so is the credibility and effectiveness of your company’s internal process. When it comes to managing operational emissions, the outcomes garner the most attention. With climate policy engagement, however, the quality of your approach is a chief success driver, because standards are emergent.

5.    Act now — and stay involved. The rules are currently being defined, and policy action is urgently needed to both mitigate climate change and reduce the uncertainty of market conditions. At the same time, key upcoming events, such as the Copenhagen climate change summit and the prospective U.S. Senate vote on emissions regulation, represent beginnings more than ends, because they will start a long process of standards development, international harmonization, and financial and technological innovation.

Given the fundamental changes that new climate policy will drive for energy, agriculture, and other markets, companies should develop more robust intelligence functions for anticipating and reacting to opportunities, and treat policy engagement as a continuous process.

First posted at GreenBiz.

Dispatch from Hong Kong: Will We Ever See Big-Picture Climate Accounting?

This week in Hong Kong, ASrIA held a press conference that covered two arenas of business climate action that, disappointingly, have yet to mix.

The first was Carbon Disclosure Project’s 2009 Asia report, which announced that the number of companies reporting on emissions has doubled from the previous year, up to 127. This study, much like Newsweek’s inaugural Green Rankings, emphasizes the micro-accounting of entities, and exudes optimism.

The second was the announcement of the Copenhagen Communiqué, a movement to re-gear the economic systems within which companies work. This signatory policy call—much like the Business for Innovative Climate and Energy Policy, the U.S. Climate Action Partnership, and the World Wildlife Fund’s Open Letter to the U.S. Senate, and Ethos’ similar letter to Brazil—emphasizes that in the big picture, greenhouse gas and clean energy trends are unlikely to change without legislation making the former more expensive and the latter less so. In this macro context, managing emissions has little overall effect if the regulatory systems are defunct.

Will these two arenas ever mix, with climate accounting incorporating performance against the big picture?

Originally posted at BSR.

Three Ways Climate Action Offers a Business Advantage

Building on BSR’s article last month on why climate change matters for every company, managers should be aware of some important, and very specific, opportunities for creating business value while promoting climate stability.

First, the good news: It’s not mechanically hard to manage greenhouse gases (GHG), the key ingredient to climate change. There’s a saying that “a ton of carbon is a ton” everywhere, which, for climate purposes, is true. And given that roughly two-thirds of global emissions are tied to energy in networks that are already regulated, finding your company’s GHG hotspots is no great feat.

Now for the hard part — responding to the actual problem. Averting climate change requires the will to deal with a decade-plus lag between activity and reward, which our current business and political institutions do not seem very well equipped to handle. It also requires a coordinated global effort in order to avoid “leakage,” ensuring that emissions really disappear rather than migrate from one place to another. This has proven to be a great challenge, as country coalitions including the U.S. and China, which comprise approximately half of global emissions, work to find common ground that has so far been elusive.

Even with a growing number of experts, advocates, and average citizens committed to addressing climate change, there remain conspicuous gaps — in public knowledge, in action, and in results. For example, while scientists agree that global climate change is a genuine, systemic threat, many legislators in the U.S. are quibbling about short-term price hikes in their districts — which does not bode well as the rest of the world prepares for a global climate treaty.

These gaps may represent serious potholes on the way to climate stability — but they are also gaping opportunities for smart companies willing to help bridge these divides.

The Gap Between Science and Knowledge

Here’s the bad (but not surprising) news: The public thinks there is still debate about climate science. According to an important recent study (PDF), more than 95 percent of Earth scientists who specialize in climate say the Earth is warming and that human activity is to blame. In contrast, approximately half of all Americans think scientists have yet to settle the matter.

This gap is profoundly consequential because, despite what the truth may be, the life force of decisions for lawmaking politicians and business managers is public opinion.

On the bright side, this gap gives companies a chance to improve the public’s environmental literacy, and develop goodwill, credibility, and loyalty by doing so.

So what is a company to do? Start by considering some of the traits of this disparity, such as the knowledge divide. Most climate-related science is updated in scholarly journals, which are expensive, inaccessible, and not targeted to the public. Misinformation, on the other hand, is cheap and easy to access, and mass media — its conflict-hungry carrier — often treats science as a matter of opinion, and therefore gives disproportionate coverage to extreme views.

Here’s where business comes in: Take a look at how your organization might be causing misinformation and then stop it at the source, especially in your media outreach and branding. A related opportunity is to find ways to share accurate science through your communications efforts.

As BSR has reported in the past, Patagonia brings an educational approach to communicating issues, especially through its website, which teaches consumers about the lifecycle impacts of products. You can also educate your industry, as the apparel company H&M has done by sponsoring a recent BSR-led lifecycle study on carbon dioxide emitted during the manufacture of garments.

The Gap Between Knowledge and Action

We have learned from Princeton University researchers Stephen Pacala and Robert Socolow — and many others — that the world has no shortage of technology or financial resources to solve climate change. Furthermore, the popular McKinsey report, “A Cost Curve for Greenhouse Gas Reduction,” reveals that many solutions to eliminate emissions result in a net-zero cost.

So what’s the delay? One reason is malfunctioning markets. For example, energy service companies perched in border areas like Hong Kong are ready to enter China, the world’s biggest energy-efficiency market, but they are blocked by prohibitive transaction costs and project risks due to persistent, entrenched market barriers.

But companies can address challenges like these themselves, and in doing so create value all around. For instance, as part of a recent collaboration with BSR, Walmart launched a supplier energy-efficiency program that created a marketplace pairing more than 30 energy-service companies with more than 300 factory representatives, in turn making both shopping and selling easier.

There is another dimension. Walmart is providing training, practical tools, and encouraging messages to its suppliers to promote energy efficiency. The company’s aim is to improve the energy efficiency of 200 Walmart suppliers by 20 percent. This alone is significant, but experience shows that once managers begin to find efficiency gains, they are even more likely to identify and reduce waste, which could create a ripple effect throughout the company and among the company’s partners.

Theoretical models such as Pacala and Socolow’s studies also fail to account for the internal hurdles that can prevent action. These tend to be situational and include obstacles related to timing, momentum, politics, unfamiliar cultural environments, and human psychology. The lesson here is that starting a new climate change program is no small feat, and should be seen as a major accomplishment and milestone.

In our experience, you can build early momentum by using qualitative and quantitative data to capture quick “wins” that demonstrate the value of making further commitments.

The Gap Between Action and Results

At the World Business Summit on Climate Change in Copenhagen last May, one participant remarked, “It doesn’t matter how fast you are moving if you are going in the wrong direction.” Unfortunately, with climate change, the reverse is also true: We have the mechanics and are gazing in the right direction, but we are moving too slowly. According to the C-Roads simulator, an MIT-developed software modeling tool, even if the most progressive proposed legislation around the world is enacted, we would still have a long way to go to achieve stabilization targets. Recent findings by Carbon Disclosure Project support this conclusion.

According to conventional wisdom, companies concerned about climate change should focus on reducing emissions from internal operations, management of which is closely tied to their control or ownership. Yet if the goal is to stop climate change, we must make a collective effort to outpace emissions, which continue to grow despite reduction efforts to date. Unfortunately, few companies view it as their job to solve this problem. As a result, the bar is even higher: Instead of reducing emissions by 80 percent from our 1990 baseline, we need to reduce them by 83 percent from 2005.

The problem, says Chris Tuppen, chief sustainability officer at BT, is that we are measuring the wrong thing. While climate business metrics measure carbon dioxide emissions compared to the company’s past performance, the metric for the collective goal of solving climate change is carbon dioxide parts per million in the atmosphere with agreed-upon peak dates. That metric is measured by physical science.

Tuppen suggests we change our business metrics: Rather than tracking individual reductions, we should measure what we, collectively, have left to achieve. That thinking led BT to pioneer the CSI Index, which associates the company’s emissions with those of the global economy, thereby linking company efforts with national targets, which are based on climate stability.

Undoubtedly, it will be challenging to bring these technical standards to scale, but Tuppen’s idea to start with the ultimate goal in mind is a necessary step. His approach is rooted in Peter Senge’s “systems thinking” and Harvard Business School’s recommendation that sustainability efforts start from the future.

When we start to think more broadly about business progress, it’s easy to see more options for action. Auden Schendler, Aspen Skiing Company’s executive director of sustainability, says business can have the biggest impact by influencing policy, because climate change is, at its core, a market failure. Without robust climate policies, individual efforts, however “directly” related to operations, will be limited.

Looking at the big picture, influencing policymakers — whose numbers are relatively few — is not only likely to make a bigger impact, it’s also more manageable than tracking billions of disparate emissions sources. According to Schendler, Aspen has engaged in policy through national advertising, lobbying Congress individually and through coalitions such as Business for Innovative Climate & Energy Policy, leveraging industry trade groups to send letters, and speaking publicly. Schendler himself contributed by writing the book “Getting Green Done.”

It is natural when planning and reporting to follow the crowds, but there are opportunities for climate leadership when you look for the gaps in public knowledge, action, and results. Taking them seriously will do wonders for your credibility, and potentially lead to new kinds of business growth.

Originally Published at Greebiz.

Why Climate Change Will Matter to Every Company

BSR has recently fielded inquiries from a range of member companies asking how climate change is relevant to their business.

The timing of these questions is obvious: With prospective climate change legislation and policy discussions in the United States and elsewhere, intensive international negotiations culminating later this year, and ongoing stakeholder interest, companies are scrambling to develop or boost their climate change strategies, assess their internal and supply chain emissions, and examine the potential risks and opportunities throughout their operations, value chain, and industry.

For energy companies and heavy manufacturers, it has long been clear that climate change regulation would have a significant impact on business. And while some representatives from other industries still insist climate change is not relevant for them, the best available research indicates it is material for virtually every company, both in the traditional accounting sense and the sustainability context, which incorporates wider stakeholder concerns. Unlike issues such as animal welfare or toxic waste that may be irrelevant to some firms, climate change is never off the playing field for any company.

It’s About Owned Operations

For companies that generate large quantities of greenhouse gases or purchase large amounts of energy, climate change regulation is clearly a significant issue that is likely to affect future costs. As recent negotiations in the U.S. Congress have shown, however, climate change regulation is not just about greenhouse gas emissions and energy use. It has significant implications for international trade, agriculture, transportation, and other areas.

In addition, physical risks and opportunities presented by climate change are already becoming manifest. Companies need to think about how a changing climate affects things such as heating and cooling needs, water availability, and emergency preparedness for catastrophic weather. An extended drought in Australia, for instance, has forced the food company Heinz to curtail production of tomato paste there, and to consider shifting other production out of the country. Meanwhile, nations and industries have begun to discuss the possibilities presented by expanded shipping through the Northwest Passage.

Taking action in a company’s owned operations can also lay the foundation for business opportunities and reputation building through engagement with peers, suppliers, and customers. Although the retail industry is responsible for only a small amount of greenhouse gas emissions, for example, some retailers such as Walmart and Tesco have been applauded for addressing climate change throughout their value chains — efforts that are founded in part on efficiency and renewable energy programs in their own stores.

It’s About Supply Chains

For many companies, the most important climate change risks and opportunities may lie outside of their owned operations. As a 2008 McKinsey study noted, between 40 and 60 percent of manufacturers’ carbon footprints often lie in their supply chains. BSR has worked closely with food-processing companies and retailers whose supply chain emissions are more than three times larger than those represented by their own facilities and purchased energy. It’s important for companies to realize that climate change regulation may have significant implications for supply chain costs in carbon- and energy-intensive industries.

Greenhouse gas emissions and physical climate change impacts also have significant implications for logistics and transportation choices in the supply chain. Companies that have “Just-in-time” inventory systems may rely heavily on air transport for rapid shipment of goods to keep inventories low. However, air transport — which contributes more than 3 percent of global greenhouse gas emissions — has a much larger climate change impact than trucking, rail, or ocean cargo shipping. Increasingly, aviation is brought up as an area for regulation. In effect, climate change is a material issue for companies that have intricate supply chains or otherwise rely heavily on air travel and transport.

Climate change will also have significant physical impacts on supply chains. At BSR, we have seen more companies focus on this area, including Kraft, which is addressing growing climate and other risks to high-value tropical crops like coffee and cocoa by working with organizations such as the Rainforest Alliance and the Bill and Melinda Gates Foundation to support its suppliers and encourage sustainable production.

The supply chain also presents climate-change-related opportunities. The confectionary company Cadbury, for example, is working closely with dairy suppliers to reduce greenhouse gas emissions. Such actions benefit companies like Cadbury by strengthening the firm’s supply chain understanding and relationships and by improving its reputation for addressing climate change. It’s also possible that these efforts will provide financial benefits if the company is able to obtain carbon credits for use or sale.

It’s About Customers and Consumers

In addition to “upstream” supply chains, climate change has growing implications for companies through their “downstream” customers and consumers. Nearly a decade ago, Ford Motor Co. was one of the first large companies to publicly address this issue through its corporate citizenship reports. Information technology companies like IBM and Cisco are touting the benefits of lower climate change impacts from their energy-saving products, while apparel companies such as Levi Strauss and Co. have begun using garment labels, promotions, and store staff to encourage customers to adopt reduced-energy washing practices.

Companies whose products generate substantial greenhouse gases during use aren’t the only ones for whom consumer climate change issues should be important. There are growing efforts to encourage consumers to select products with a smaller total greenhouse gas footprint (such as peanut butter rather than lunch meat), while physical climate change itself may shift customer preferences and needs. Farmers may begin planting more heat- and drought-tolerant crops, for example, while the spread of dengue fever and other diseases (PDF) is likely to significantly affect pharmaceuticals markets. Companies that understand and are prepared to meet these trends will have a competitive advantage over those that don’t.

It’s About Industry Dynamics

Physical climate change and related regulation will also lead to long-term changes in industry structures. Climate-related regulation, market incentives and other factors may encourage new competitors to enter an industry, as we see in the auto and energy fields, while climate change reporting and compliance requirements may increase barriers to entering other industries.

It’s clear that climate change is one of the largest and most persistent sustainability megatrends of this generation — and for many companies, the pinch points are obvious. For others, climate issues are more subtle, affecting the company indirectly through the vulnerabilities of its partners. And for others still, climate change may affect the company in such broad but low-intensity ways that is hard to know where to begin.

In any case, although some companies may not identify climate change as the most pressing issue they face today, these examples should demonstrate that the breadth and magnitude of the likely physical and regulatory impacts — from owned operations and industry dynamics to supply chains and customers — mean the issue is relevant for virtually all companies. It presents a wide range of risks, as well as new opportunities to reduce costs, differentiate products, and work with suppliers and consumers.

First posted at GreenBiz.

The Difference Between Product and Supply Chain Footprinting

As more companies gain carbon management experience, they are expanding work from their scope of direct operations to a broader sphere of influence. Expansion is happening through two main efforts — product footprinting and supply chain footprinting, both of which are based on broadening from the organization to the inter-organizational value chain system. Each has interrelated issues and drivers, but they represent two different movements with distinct activities and tradeoffs. As standards emerge, understanding their common denominators is important for guarding against greenwashing and making the right investments. The question for companies taking the lead on carbon footprinting now is: What is the relationship between product footprinting and supply chain footprinting, and what should your company be doing?

Product Carbon Footprinting

According to London-based Carbon Trust, a company founded in 2001 in partnership with the U.K. government, consumer purchasing is the ultimate driver of all carbon emissions, and because of this, policymakers in Europe and North America are paying more attention to carbon footprints of products.

In 2007, the E.U. Parliament called for companies to begin placing carbon labels on products. In part because of this effort, Carbon Trust, along with England’s Department of Environment, Food and Rural Affairs (Defra) and BSI, the U.K.’s National Standards Body, are developing the product standard PAS 2050, which will measure the embodied emissions from products.

In the United States, economists recently testified to Congress that product carbon content should be regulated through border tax adjustments, and this year, California Assemblyman Ira Ruskin, D-Los Altos, advanced the Carbon Labeling Act known as AB2538. In Japan, the Economy, Trade and Industry Ministry is working on rules for carbon labeling, which it aims to have ready for next spring.

Corporate product pilot programs are already hitting the shelves. The most prominent one, created by Carbon Trust, is led by 20 companies, including the U.K. retailer Tesco, which has begun placing carbon labels on detergents and light bulbs. In addition to working with industry to develop standards, Timberland, an outdoor shoe and clothing manufacturing based in Stratham, New Hampshire, is disclosing product metrics as part of its Green Index product rating system.

So far, product carbon labels make three types of promises:

1. Carbon embodied: This is based on a lifecycle analysis (LCA) of the cumulative carbon produced throughout the life of a product, which includes production, distribution, consumer use and disposal. The PAS 2050 and Timberland’s Green Index are both embodied carbon frameworks. Currently, these frameworks are most developed in the Europe, and are slowly spreading to the United States.

2. Carbon reduced: This framework covers embodied carbon avoided from “business as usual,” or the likely emissions trajectory if the emissions reduction program hadn’t intervened. The only significant program in development is one by Carbon Trust called the Product-Related Emissions Reduction Framework (PERF), which is based on PAS 2050.

3. Carbon neutral: Products that fall under this category promise net zero emissions, made possible with carbon offsets. The Washington, D.C.-based offset provider Carbon Fund, a Washington, D.C.-based offset provider offers its CarbonFree certification, which covers carbon-neutral products. Many multinational companies make carbon-neutral product claims, and this framework is probably the most widespread of the three types of promises.

In order for these labels to be meaningful to consumers, data need to be objective, comparable and prudent. But many companies are running into challenges, such as how to define “boundary conditions,” or which carbon to include. For example, should shampoo include the energy associated with hot water during use of the product?

Jay Celorie, program manager for supply chain energy at HP, points out that for some product sectors, such as electronics, which may have thousands of parts and hundreds of suppliers, the boundary problem is extremely complex. In those cases, it’s impractical to aggregate primary data.

In addition to making data collection expensive, this sort of complexity leads to ambiguous results. According to Mark Newton, environmental policy manager for the computer manufacturer Dell, product footprinting may seem simple but statistical errors related to each incremental greenhouse gas (GHG) impact in the product lifecycle must be considered cumulatively, and variation of these can easily supersede apparent differences between products or features, making legitimate comparisons or claims difficult. 

Finally, communicating meaningful results is thorny. Edgar Blanco, executive director of the MIT Center for Latin-American Logistics Innovation, explains that it’s misleading to boil down footprints into a single figure without qualifying the depth, breadth and precision of data. Nonetheless, few companies are acknowledging the statistical context of their data, and therefore many companies may face questions they have a hard time answering.

Supply Chain Carbon Footprinting

Supply chain carbon footprinting, the practice of accounting for the carbon emissions of suppliers, is intended to increase the transparency of energy use and the efficiency of suppliers, and also to eliminate waste and help managers make responsible purchases. Like product footprinting, supply chain footprinting addresses emissions outside of a given company’s ownership and control, by accounting for other organizations — potentially multiple tiers of them — among common value chain systems. Unlike with product footprinting, this requires tracking primary data from specific companies, generally starting at the enterprise level. While product footprinting has been evolving since LCA emerged in the 1970s, supplier footprinting is much younger and less standardized.

The most prominent effort in this arena is London-based Carbon Disclosure Project’s Supply Chain Leadership Collaboration (SCLC), a group of 29 multinationals led by Wal-Mart that encourages suppliers to disclose their emissions publicly. Another initiative — the Electronics Industry Citizenship Coalition (EICC), an effort in which BSR is assisting — is developing a supplier reporting protocol for the information and communication technology (ICT) industry. These efforts are focused primarily on direct supplier relationships, with the aim of establishing robust systems for pushing emissions reporting carefully but firmly up the supply chain.

Not surprisingly, there are challenges with these initiatives. Despite media attention to the issue, few companies — even those that disclose their own product carbon footprints — are directly engaging suppliers about carbon emissions. And those who are engaging suppliers rarely go beyond the first tier.

The challenges are multifold: Many suppliers, citing that they are small, private and/or exclusively business-to-business, don’t see a business case for disclosure. Others aren’t familiar with common emissions measurement practices. And in addition to technological and data transparency and assurance challenges, there are often language and/or cultural gaps between suppliers and customers. In some cases, suppliers feel they lack the authority to disclose, or they fear that if they do offer disclosure, they’ll be barraged with multiple questionnaires in varying formats.

The Wisdom to Know the Difference

As it turns out, product and supply chain footprinting have interrelated drivers and issues, but they represent different movements with distinct activities and tradeoffs. Many companies are committed to supply chain footprinting, which they expect to increase efficiency and reduce waste, yet they are reticent to advocate product footprinting because data complexity and virtually no standards mean high costs and uncertain results. At the same time, some companies advertise product carbon footprints in an effort to deliver more customer value, but they don’t engage suppliers directly because they lack the systems and know-how. Yet despite their differences, “bottom-up” supply chain footprinting and “top-down” product footprinting are both important, and contrasting them can provide useful insight for companies aiming to achieve a lower carbon footprint.

Companies seeking to reduce emissions from the value chain should keep in mind the opportunities and costs of both product and supply chain footprinting. Product footprinting frameworks such as PAS 2050 start with a product’s boundary conditions (e.g. which carbon to include), and then model the cumulative impacts of processes at various stages along the value chain. While this provides a conceptual overview of the value chain’s hotspots, it does not take into account operations changes inside individual companies, which is why supply chain footprinting is also essential. In looking at the supply chain, this framework identifies the most important suppliers and observes their actual data. (For SCLC, this means suppliers of the largest public companies, like Unilever and Procter & Gamble; for EICC, it is first-tier suppliers. HP has recently disclosed [PDF] its list of key suppliers. Unlike with product footprinting, the data can be used to define operational baselines and set process performance targets. The tradeoff is that it doesn’t prioritize areas where value chain carbon emissions are highest. 

Product footprinting extrapolates secondary data from manufacturing processes and makes assumptions regarding use and disposal, while supply chain footprinting measures data from real companies directly. The former gives substantial information with high variance, while the latter provides high confidence, but for one company at a time.Each has its own standardization problems. Product footprinting must merge hundreds of processes across multiple companies yet there are scant norms for making these massive summaries meaningful to the customer, whose aim is to make simple product-to-product comparisons. Supply chain footprinting, on the other hand, struggles with how to allocate and normalize emissions by revenue, production unit, facility or another other figure.

Although both product and supply chain footprint frameworks are still emerging, it is wise for businesses to invest in the building blocks for both while legislation, pilot programs and technologies develop. In doing so, consider the following recommendations:

  • Watch for meaningful standards to emerge, particularly the GHG Protocol, which is developing guidance for product and “scope 3” emissions, and the SCLC, which is establishing reporting norms.
  • Get involved in industry-focused forums to make sure that the right incentives are being created and your efforts are being counted. As economy-wide frameworks develop, there is an increasing need for industries to play a part in informing situational guidance and the rules for boundary-setting, normalization and allocation.
  • Work with your peers on standardized content for industry supplier questionnaires to ensure that the process is also the same, with a single entry point for suppliers and buyers. In doing so, develop tools that invite entry-level and experienced users alike, and that produce standardized data that potentially support both product and supply chain footprints.
  • In making carbon claims and wider promises (see BSR’s recent report, “Eco-Promising: Communicating the Environmental Credentials of your Products and Services”), watch for advice from authorities like the Federal Trade Commission, which plans to update its guidance on green marketing claims toward the end of 2008 for the first time in 10 years.
  • Keep it simple. Companies naturally want systems that best describe their situations. However, when aggregating footprints among many companies, data grow unwieldy so there’s a premium on accessibility and common denominators. To keep it simple, focus on materiality, deferring when possible to primary data (e.g. electricity use) and public data (e.g. financial statements), and encourage your peers to communicate analyses in straightforward, comparable equations.

Originally published at Greenbiz.