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.

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.

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.

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.

Creating Systemic Change: Lessons from Responsible Labor

Just one decade ago, the public was appalled to learn that children were producing Nike’s soccer balls in Pakistan, and the company was swiftly targeted by numerous high-profile, antagonistic NGO campaigns. Since then, more companies have come under fire by NGOs publicizing alleged corporate social and environmental abuses. Yet Nike — along with a handful of other companies once perceived as symbolizing ethical problems from global outsourcing — has come to be
regarded as a sustainability pioneer. What could explain such a fundamental turnaround?

In response to the exposure of poor labor practices in their supply chains, Nike and other consumer product companies embarked on a series of supplier audits and corrective actions to turn the problems around. They made many incremental improvements, but over time reached a common and critical conclusion — that on their own, compliance and monitoring processes are insufficient for creating real, sustainable improvements.

It turned out that although Nike was singled out by many in the NGO and corporate social responsibility (CSR) community, the company was not the sole culprit, but rather a harbinger of a greater, system-wide failure. As companies like Nike began to address symptoms of child labor through auditing, it became clear that the problems were driven by more fundamental institutional causes, such as absent and ineffective public policies, perverse and contradictory incentives from multinational business customers to their suppliers, and employees that lacked the power to stand up for themselves, given their communities’ prevailing customs.

In this process, industry learned a key lesson: Systemic change requires that multinationals work with relevant stakeholders to understand the root causes of problems and address them strategically. To increase the impact of this lesson, BSR has created the Beyond Monitoring initiative, which encompasses a strategy for next-generation management of sustainable supply chains. Beyond Monitoring uses four pillars to achieve its goal:

1. Alignment of commercial and social objectives by brands
2. Ownership of this agenda by suppliers
3. Empowerment of workers
4. Engagement with policy and governments
Now, as industry faces increasingly complex challenges,

Business for Social Responsibility (BSR) has started thinking about how to apply the Beyond Monitoring framework to sustainability issues beyond supply chain labor conditions.  Perhaps even more so than labor, other sustainability issues such as climate change and freedom of expression are increasingly complex. It is our hypothesis that by addressing the complexity of the whole system, the Beyond Monitoring principles could strengthen a host of other sustainability initiatives. The following framework, based on the four key concepts of alignment, ownership, empowerment and engagement, aims to do just that for two areas of particular interest:
􀀝 Greenhouse gas (GHG) emissions: in particular, reducing the impacts of supply chains.
􀀝 Privacy and freedom of expression: addressing the increasingly complex human rights problems faced by internet and telecommunications companies.

Alignment
In practice, aligning commercial and social objectives means bridging traditionally unrelated company teams and creating
consistent enterprise objectives and communications messages on sustainability.
􀀝 GHG emissions: For many companies, the primary driver of GHG emissions is energy use, which bears directly on costs. To encourage suppliers to undertake new energy investments and strategies, companies need to align the CSR and purchasing teams to give consistent and predictable messages about customer priorities.
􀀝 Privacy and freedom of expression: Three functions should align commercial objectives with human rights: 1. Technology and product design need to address the freedom of expression and privacy features and applications of the product. 2. Legal affairs needs to manage its relationship with law enforcement agencies consistent with human rights. 3. Sales and strategy need to consider human rights when deciding which markets to enter and which products and services to offer.

Ownership
Ownership means that all relevant actors identify a business case for “owning” their sustainability agenda, and they work with their partners in shaping shared objectives. With ownership, stakeholders are likely to make personal investments that support sustainability goals, and they are less likely to block progress.
􀀝 GHG emissions: Increasingly, companies are under pressure to disclose emissions. However, like many labor compliance disclosure requests during the past decade, emissions disclosure requests are often based on methodologies that were made without supplier input. As a result, suppliers resist for a number
of reasons: They don’t understand the request, they don’t know how to get the information or they don’t see the point. Instead, it’s important to work with suppliers to co-create protocols that make sense for everybody.
􀀝 Privacy and freedom of expression: In terms of ownership, the challenge is moving beyond large multinationals such as

Google, Yahoo! and Microsoft. With so many startup companies emerging, progress is most likely if these companies are equipped to “own” their own approaches to privacy and
freedom of expression. The goal is to develop international standards that are widely understood and accepted by the hundreds of small and startup companies operating in markets all over the world, such as those providing services for blogging and user-generated content.

Empowerment
By ensuring that stakeholders understand their options for recourse and have channels for action that are consistent with existing incentives and worldviews, empowerment increases the likelihood of sustainability policies to be embraced and implemented.
􀀝 GHG emissions: In this context, there’s an opportunity to empower two constituencies. The first is workers, who are most likely to act if they are trained, given a mandate and provided resources to increase energy efficiency. Communities and the public, which are stakeholders in the context of climate change, comprise the second constituency. Help educate them about issues and help them act through direct and other measures, such as voting in elections or making product choices.
􀀝 Privacy and freedom of expression: It’s important to empower the user through transparency about the circumstances
in which personal information may be passed to governments or content may be restricted. Information empowers the user to make informed judgments about data privacy or the
completeness of the content being provided.

Engagement
Companies often work with governments to ensure the consistent and fair application of laws and regulations. This includes
strengthening policies that exist but are not yet fully implemented, and facilitating the development of appropriate new ones.
􀀝 GHG emissions: Companies have two key policy opportunities — participating in dialogue about standards, and engaging in discussions
about legislation. With respect to standards, companies can help develop new emissions reporting systems like the GHG Protocol’s guidance
on product and associated (“scope 3”) emissions, and the Carbon Disclosure Project’s treatment of suppliers with respect to reporting. Companies can also attempt to provide input on rule-making. For example, in the United States, members of the U.S. Climate Action Partnership have been lobbying the U.S. Congress to begin phasing in regulation steadily and predictably.
􀀝 Privacy and freedom of expression: Often, when it comes to violations of privacy and freedom of expression, government is the main cause, and companies have limited room
to maneuver. However, companies can take action, such as advocating government approaches that are consistent with international human rights laws and standards on freedom of expression and privacy, and challenging governments when human rights standards or local law are not applied. They can also help educate and build capacity in governments of emerging economies.  At its heart, the sustainability challenge is characterized by common systems problems, and there is a wealth of knowledge
to build from. Sustainability practitioners owe it to their cause to make sure that they are thinking in terms of systems, and collaborating with each other. We believe the lessons from BSR’s Beyond Monitoring framework will help companies do just that.

Originally published by BSR.