Scope 3: The missing link
Victor Parrilla advises businesses on how best to measure their supply chain emissions
Businesses that have for years been measuring and managing their own direct carbon emissions are increasingly looking at their suppliers to gauge their overall carbon footprint as they seek to be more transparent. Supply chain footprinting also helps to identify “hot spots”, which are often not only sources of emissions, but also of significant cost.
Capturing information on so-called scope 3 emissions – those associated with purchased goods and services; business travel; employee commuting; waste disposal; transportation and distribution; investments; and leased assets and franchises – is often feared for its complexity, resource need and the cost of tools and support.
However, there are some pragmatic and cost-conscious approaches that an organisation can take to measure such indirect emissions.
One step beyond
The majority of large businesses are familiar with how to measure their organisational carbon footprint, and more will be so with the advent of mandatory greenhouse-gas reporting, when it rolls out for businesses listed on the London Stock Exchange from 1 October this year.
The obvious next step is to consider emissions from suppliers. Many multinational companies, such as Kingfisher, Tesco and Unilever, are already doing this and there is a solid business case to underpin the action. A poorly performing supply chain will, ultimately, be obvious to stakeholders, including customers and investors; this will reflect badly on the business and can severely damage brands.
Failure to address suppliers’ emissions could have financial implications, potentially damaging a firm’s share price and costing it £240 for each tonne of carbon “wasted” through energy inefficiencies, for example.
Some organisations view their supply chain’s carbon footprint as an integral part of ensuring sustainable operations – that can mean low cost, but also low risk. Others may be attracted by the potential marketing edge they can gain over their competitors, for example, by disclosing performance through the Carbon Disclosure Project (CDP) or the Global Reporting Initiative.
Rising to the challenge
Footprinting a supply chain database that potentially runs into thousands of firms might seem a daunting task, so some pragmatic decisions need to be made.
Do you need to assess all suppliers? It is highly unlikely that most organisations will be able to report 100% of their supply chain emissions. So, unless a firm is following a reporting standard with specific requirements, it should focus on those emissions that are material to its operations.
The best way to do this is by first mapping your supply chain – this may include a list of purchased goods and services and a list of suppliers.
Then you can decide the parameters to use in defining what is material to the business. For example, it could include all suppliers with which the organisation spends more than 5% of its purchasing budget, or those that supply it with more than 5% of its annual goods by weight.
Organisations wanting suppliers’ data will need to engage with them. There may be obstacles to overcome; some, for commercial reasons, may be unwilling to disclose data, while others may be less knowledgeable about measuring emissions than their customers. If the latter is the case, it suggests that there is probably more scope for carbon efficiencies and cost savings.
You will need to “sell it” to suppliers by explaining why your company is seeking such information and the various potential benefits available for them – not forgetting that you are the customer.
The data collection process also needs to be very simple, as that is the best way to generate a high response. Sustainability software solutions can be very detailed, but are frequently expensive, difficult for non-expert users and can seem over-specified for what you need them to do.
The humble spreadsheet still has a role to play, but you are likely to need a fair amount of administrative support to collate data, depending on the length of the supplier list, and a keen eye to spot errors. You may be able to use your spreadsheets in combination with a simple database to achieve this and save some pain.
Online tools – such as the Carbon Trust’s value chain manager software or Carbon Footprint’s carbon tracker tool – collect suppliers’ energy use and transport data, and can be easily completed by dozens of responders over international locations with one common methodology.
Where it is impossible to collect all the data, then you may need to model it. Modelling is a powerful tool as long as it is based on valid assumptions. Internationally respected databases, such as EcoInvent, provide broad emissions datasets for various steps of the value chain.
Defra also provides a useful set of emission factors at ukconversionfactorscarbonsmart.co.uk. These can be used to model supply chain emissions, based on the weight of specific goods or materials.
As an example, a hotel wanting to model how much carbon is associated with the purchasing of bedding and towels will need to estimate the weight of such goods bought during the reporting period and multiply it by 22.31kgCO2 equivalent per tonne, as indicated by the environment department’s latest guidelines.
Updated guidance from the Greenhouse Gas Protocol concerning scope 3 emissions was released in April 2013. This free guide provides comprehensive detail on a variety of appropriate techniques and methodologies for calculating supply chain footprints, and is useful throughout the calculation process.
A return on investment?
Management of supply chain carbon emissions should not end at just knowing suppliers’ footprints, however. Corporate customers will benefit from making efforts to assist existing suppliers in reducing their emissions or from adding sustainability criteria to the process to select new ones.
“Carbon insetting” is a relatively new concept and relates to investing in your supply chain to help suppliers reduce their operating emissions. Such assistance can not only reduce the embodied carbon of goods, but also have a positive effect on their cost.
Initiatives might involve sharing best practice on behavioural change, for example, or perhaps helping with the cost of energy or carbon saving equipment. This becomes a “win-win” proposition for the supplier and the client, as well as providing lower carbon goods and services to end-user customers.
If suppliers are small or medium-sized enterprises in the UK, they may also be able to get financial support to improve their environmental performance. The government-funded Manufacturing Advisory Service, for example, can provide matched funding to help businesses in England engage with consultants.
The analysis of the embodied carbon of products will frequently identify “hot spots” in CO2 creation across the value chain and can lead to improvements in design, which reduce environmental impacts and take cost out of the product – providing a better “greener” design that can give competitive advantage.
Shedding some light
When the analysis of suppliers’ emissions is completed, the organisation will be in a good position to promote what it has done, both internally and externally. If it does not already report to the CDP, for example, doing so can be beneficial, by demonstrating to stakeholders that the organisation understands the risks posed by climate change and is seeking to future proof the business from their impact.
Sustainability professionals need to ensure their marketing teams are briefed properly and are able to communicate in a clear, jargon free and evidence based way the actions that are being taken by the business to tackle its supply chain emissions at both a corporate and a product level.