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.

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.