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.

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.

10 Climate Trends That Will Shape Business in 2010

As 2010 begins, there are looming questions about climate change action: Will the political agreement made in Copenhagen in 2009 be developed by the next “COP” meeting to include detailed targets and rules? Will those targets and rules be binding?

What will happen with the U.S. Senate’s vote on cap-and-trade? Will U.S. public opinion about climate change — which has a major impact on how the Senate votes — ever begin to converge with science?

There’s no doubt that the year’s most interesting stories could turn out to be “black swans” that we can’t currently foresee. But even amid the uncertainty, there are some clear trends that will significantly shape the business-climate landscape.

1. A Better Dashboard

Carbon transparency isn’t easy — it takes science, infrastructure, and group decisions about standards to allow for more accurate information. We have started moving in that direction. Web-based information services provide illustrations: country commitments needed for climate stabilization, indications of where we are now, and the critical path of individual U.S. policymakers.

Meanwhile, more attention is being paid to real-time atmospheric greenhouse gas (GHG) concentrations, remote sensing technology that tracks atmospheric GHGs, and a new climate registry for China. As these data tools become more available, business leaders should begin to see — and report on — a clearer picture of their company’s real climate impacts.

2. Enhanced Attention to Products

There are signs that more consumers will demand product footprinting — that is, a holistic, lifecycle picture of the climate impacts of products and services ranging from an ounce of gold to a T-shirt or car. Fortunately, a new wave of standards is coming. The gold-standard corporate accounting tool, the Greenhouse Gas Protocol, aims to issue guidance on footprinting for products and supply chains late in the year, and groups like the Outdoor Industry Association and the Electronics Industry Citizenship Coalition plan to publish consensus-based standards for their industries in the near future.

3. More Efforts to Build Supplier Capacity to Address Emissions

With more attention on products comes an appreciation of product footprinting’s limitations. Many layers of standards are still needed, from the micro methods of locating carbon particles to time-consuming macro approaches defining common objectives through group consensus. Accurate footprinting that avoids greenwashing requires statistical context, especially related to variance and confidence levels, that companies often think stakeholders don’t want to digest.

Progressive companies such as Hewlett Packard, Ikea, Intel, and Wal-Mart are therefore pursuing partnerships with suppliers for carbon and energy efficiency, and they are focusing their public communications on the qualitative efforts to build supplier capacity–as opposed to pure quantitative measurements, which can imply more precision than really exists.

4. Improved Literacy About the Climate Impacts of Business

The bulk of companies’ climate management falls short of directly confronting the full scale of effort required to address climate change. That’s partly because organizational emissions accounting tends to treat progress as change from the past, as opposed to movement toward a common, objective planetary goal. But companies are becoming more aware of the need to be goal oriented. Firms such as Autodesk and BT have begun bridging this gap by illustrating that there is a common end–which is measured in atmospheric parts per million of emissions–and that company metrics can be mapped to their share of their countries’ national and international policy objectives toward them.

5. More Meaningful Policy Engagement

Related to the previous item, more companies realize that pushing for the enactment of clear and durable rules to incentivize low-carbon investment is one of the most direct things they can do to stabilize the climate. Therefore, more companies are engaging earlier — and in more creative ways — in their climate “journey.” There is growing realization that you don’t have to “reduce first” before getting involved.

There is also a general awakening to the fact that strong climate policy is good for jobs and business. Already, more than 1,000 global companies representing $11 trillion in market capitalization and 20 million jobs (PDF) agree that strong climate policy is good for business. There has never been a better time to get involved, especially in the United States, where the Senate is expected to vote on domestic legislation by Easter. Effective corporate action can help fence-sitting senators (PDF) gain the support they need by educating the public in their districts about the importance of strong climate policy.

6. Higher Stakeholder Expectations

As climate management enters the mainstream, stakeholders expect companies to do more, and watchdogs will find new soft spots. Companies should be prepared for new stakeholder tactics, such as the profiling of individual executive officers, who are perceived as having the greatest impact on company positions, and heightened policy advocacy efforts. The media’s role in promoting public climate literacy will continue to rank as an important part of stakeholder expectations. Currently, the U.S. public, which plays an important role in the critical path to a global framework, has far less confidence about the importance of acting on climate than scientists do, and the media can help educate them.

7. Increased Power of Networks

Economists see energy efficiency as a solution to 40 percent or more of climate mitigation, and with the technology and finance already available globally, companies can play a significant role in accelerating progress. While the price makes the energy market, and policy helps to set the price, companies like Walmart have shown that creating expectations for performance improvement, while providing tools and training, can help suppliers and partners clear the economic hurdles they need to get started. After this initial “push,” experience shows that suppliers take further steps on their own. As more companies take on supply chain carbon management, watch for lessons on how to do it effectively.

8.    More Climate Connections

Energy efficiency, which constitutes the core of many companies’ climate programs, offers a platform for broader resource-efficiency efforts. We expect to see many companies expand their programs this year to address water. Given that this is the “Year of Biodiversity,” we can also expect more movement related to forestry and agriculture. The nexus between climate change and human rights is also likely to become a hot topic, building on momentum developed during the run-up to Copenhagen.

Finally, watch for the climate vulnerability of mountain regions to gain attention, due to increased environmental instability, disruption of natural water storage and distribution systems, and stress on ecosystem services in regions near human populations.

9. Greater Focus on Adaptation

Climate management has already broadened to include adaptation, and this will receive increasing attention in 2010. This is already evident in company reporting, as evidenced by responses to the Carbon Disclosure Project (see answers to questions 2 and 5 about physical risks and opportunities). Companies are addressing many adaptation-related issues, including insurance, health, migration, human rights, and food and agriculture. It is important to note that adaptation efforts can–and must–also support mitigation, as in the case of resource efficiency.

10. More Political Venues Up for Grabs

The Copenhagen Accord (PDF) was produced only during the last few hours at COP15, as part of a last-ditch “friends of chair” effort involving around 25 countries. This nontraditional process proved to be an effective way to move swiftly in getting broad support, yet still failed to achieve consensus in the general assembly, with a small handful of nations vetoing due to a few apparently intractable disputes. In consideration, there are growing calls for additional forums beyond the regular United Nations Framework Convention on Climate Change process, to offer more responsive action in developing the global climate agreement needed.

Most notably, attention is on the G-20 countries, a group that comprises the vast majority of emitters and has shown that it can move efficiently, even while avoiding the troublesome distinction between developed and developing nations. Country associations are also changing. For example, instead of “BRIC” (Brazil, Russia, India, and China), we are more often hearing about BASIC (BRIC minus Russia plus South Africa) and BICI (BRIC minus Russia plus Indonesia). The point is, before Copenhagen, most thought updating Kyoto meant developing a global treaty through the formal U.N. structures. Now there is growing appreciation of the opportunity for complementary efforts, and new countries are coming to the fore in multilateral engagement.

In 2010, business leaders will be considering their best next steps after Copenhagen. At the same time, as BSR President and CEO Aron Cramer has written, while an overall framework agreement is important, we need to look beyond forums like Copenhagen for real results on climate — and that means looking to business. Business is important for two reasons: By engaging in policy, business can help increase the likelihood that policymakers will develop a strong framework. And by innovating and committing to progress, business will help a treaty achieve desired results.

At BSR, we will be tracking the opportunities related to these trends and working with business to focus on innovation, efficiency, mobilization, and collaboration for low-carbon prosperity. For more information about how your company can contribute, contact me at rschuchard@bsr.org.

First posted at GreenBiz.

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.

Field Notes: Helping Guide GHG Protocol’s “Scope 3”

As BSR goes to press with “Looking for Signs Along the Road to Copenhagen,” the debate about whose emissions are whose and what constitutes progress is heating up. It is going to get hotter, because it looks more likely that the WTO will enforce prospective border measures on carbon.

Hopefully, the Greenhouse Gas (GHG) Protocol’s emerging guidance for “Scope 3 Emissions” will be useful toward spotlighting risk.

The GHG Protocol, which is the global standard for organizational greenhouse gas accounting, recently embarked on a 2-year process to develop detailed guidance for calculating emissions for Scope 3—the infamously ambiguous designation for emissions outside a company’s direct ownership and control, but which they still have meaningful influence over.

As a participant in the Technical Working Group developing new Scope 3 guidance, I recently visited New York for an in-person meeting. The event was one in a multi-layered series of research collaborations bringing together perspectives from various sectors and locations.

What will Scope 3 guidance eventually look like? It is early to say, but what is clear is that that developers will wrestle seriously with the following issues:

1. How comprehensive. Some want measurement areas to focus on straightforward activities like flights and hotel stays. Others, such as some companies in the Electronics Industry Citizenship Coalition, want rules and principles that will allow propagating a measurement scheme through multiple tiers of suppliers.

2. How to measure. There are various methods of possible measurement, such as prescriptive calculations for commonly purchased services (like flights), predetermined conversion factors for emissions-intense materials (like aluminum), and descriptive protocols for counting observed emissions from suppliers (potentially, multiple tiers) based on rules for overhead allocation.

3. How to stay relevant. The current basic guidance on Scope 3 from the GHG Protocol assumes end-user consumers at the end of a value chain. This life cycle analysis-based depiction is easy to envision and practical for many so far. Yet, producers are also consumers, and the “linearity” and “endpoints” that tradition suggests are not so hard-and-fast absolutes, as a rapidly decentralizing and service-orientated global economy suggests.

Each conundrum illustrates huge trade-offs. The real challenge, therefore, is not technical perfection, but guidance that will have the maximum benefit for the most situations around the world. The ideal result? Catalyzing a transition from debating about the data of carbon to ratcheting it down.

First posted by BSR.

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.