Accounting for the Nuts and Bolts of Supply Chain GHG management

Lots of energy is going into figuring out how to properly account for indirect GHG emissions from a company's business activities (scope 3) and the GHG emissions associated with a company's products.

Just over a week ago, I joined a group of NGO, business, academic and consulting experts as part of the WRI/WBCSD GHG Protocol Product and Supply Chain Initiative to standardize accounting and reporting protocols for these emissions. The group was brimming with expertise and grappled with a number of questions that demonstrated just how complex and nuanced a task it can be to define the rules for capturing a company's relevant scope 3 or product emissions.

Where do you draw the boundaries for what gets counted within a company's indirect/scope 3 emissions? It seems like a no-brainer for many companies today to include the indirect emissions that result from employee business travel and paper consumption into their scope 3 emissions, but what else should be counted, to what degree and how?

Where do you draw the boundary for products? If you're an engine maker, do you have to figure out the life-cycle GHG impact of your product down to the nuts and bolts? And is life-cycle analysis (LCA) the most appropriate methodology to manage GHG impact anyway? (See Andrew Hutson's recent blog on LCA vs. value chain analysis (VCA) methodologies.)

Given the potential for complexity in measuring supply chain emissions, it's no surprise a recurring theme in this field is the need to balance the stringency of standards' requirements with practicability. And we agree that practicability needs to be a key feature of the standards. At the end of the day, our hope is that the WRI/WBCSD standards will enable droves of companies (those that are experienced with GHG management and also those that are not) to efficiently measure and manage scope 3 and product emissions. That's the first step to identifying exciting new opportunities to drive measurable, verifiable and cost-effective emission reductions through the corporate supply chain.

For more background on this standards development process, click here.

Bringing Lifecyle and Value Chain Analyses together…at Last

A webinar hosted by the Supply Chain Council this morning on GHG Accounting in the Supply-Chain brought me back to a question I've been chewing on for a long time. How can we best take advantage of the complementary methodologies of life cycle assessment (LCA) and value chain analysis (VCA) for better supply chain management? In his very thoughtful presentation, Taylor Wilkerson from the not-for-profit government consulting group LMI, outlined a framework for greenhouse gas accounting using the SCOR (short for supply chain operations reference) model in conjunction with the WRI/WBCSD GHG Protocol (wow, what an alphabet soup!) under development and review. His case was compelling, that the SCOR model, already used by many supply chain professionals for tracking standard supply chain metrics (i.e. cost, quality, price and delivery) is an excellent tool for companies to track the greenhouse gas pollution emissions along their supply chains and in their operations. I think Taylor is off to a great start and his approach is extremely innovative. But I think we need more people, and a much deeper effort, working to integrate lifecycle thinking into how products are designed, manufactured and delivered to consumers.

LCA and VCA are two extremely useful platforms that can help push such an effort forward and each has its own strengths and limitations. In general, LCA is great for quantifying the impacts and giving a fairly good idea of where the most significant areas in a production chain exist from raw material extraction, through manufacture, use, and hopefully new life. But, in many ways, the raw numbers LCA provides are dumb. What it can't do is explain the dynamics that exist within a particular industry or identify the most effective levers for change. This is where VCA holds the most power, and it seems to me, is a perfectly complementary methodology to use alongside LCA. Not only does VCA provide a roadmap of sectors, identifying with great detail the stages of production – from firms responsible for raw material extraction through the lead firms orchestrating production, but also the relationships among actors (firms, governments, industry groups, etc), and the power dynamics among them: a level of detail that LCA alone cannot hope to provide, even in a perfect world using the cleanest possible process-level data.

Imagine you are a global retailer, concerned with the environmental impact of a brand new must-have children's toy. In order to better understand the environmental impact of this toy to satisfy eco-conscious moms, you commission an LCA to determine where in the lifecycle the "hotspots" (areas of greatest impact) exist. Your consultant comes back to you, two weeks later with a report full of bar charts and boxes connected by lines of varying thickness – telling you exactly which attributes you need to worry the most about and the relative impact of each. Ok, so now you know that the electric motor is by far the most impactful component and something you should target, but what do you do? Who makes that motor? Where is the factory? Is it even the same company who sold it to you? How deep in the supply chain is it? Are there competitors out there who could produce the same item in a much more environmentally sound manner? Is there much you can do about it given your relative influence in this industry? Who else might you recruit to help make this product better? These are all questions VCA can help answer.

The overlap between these approaches seems obvious, but the barriers to useful integration are substantial – but they don't need to be. The communities that exist around each have their own languages, in many cases peculiar nomenclatures that can seem foreign-sounding even when using common English words (e.g. functional unit, reference flows, allocation through partitioning, et al). Even worse, they have their own fiefdoms, which can be difficult to penetrate. However, there are thoughtful scholars and practitioners in both areas, who see the benefits of each method and the inherent complementarity between them. This is good news.

In order to move forward, we need to get leading thinkers in each area together and help them better understand the linkages between approaches – how they can best design their studies to be of greatest collective value. Perhaps this is where initiatives such as the Sustainability Consortium can provide a forum, and framework, for collaborative innovation that leads to better environmental outcomes.

These kinds of data incorporated into a framework like SCOR could be really powerful across environmental media. I'd love to see what Taylor Wilkerson could do with that information and how supply chain managers, NGOs and governments around the world could take advantage of the new opportunities it would provide.

What Should the Innovation Exchange Do?

No, really, we're asking you – what should the EDF Innovation Exchange do? We're going through a strategy and planning exercise that will guide our work for the next few years and we'd like your input.

The objective of this effort is to"grow and strengthen a 'problem solving' network that can generate rapid and widespread adoption of environmental innovation in business." The bottom line is to help make sure that both the economy and the environment are sustainable. Of course, the devil is in the details.

Over the past two decades EDF has worked directly with a number of large corporations including McDonald's, FedEx, and now others like Wegmans, KKR, and PHH Arval. We've had great success with these engagements and are proud of our work, but think we need to do more. As Joel Makower said in a recent post, "The point is that time is short, and getting shorter. In that light, where's the urgency? Where's the audaciously big thinking? Where's the scale?"

So, for Innovation Exchange planning, what are the big opportunities we should jump on? Do we need new software infrastructure, bigger online communities, better training, closer partnerships, more conferences? Should we share patents, share data, share lessons, share ideas? Are there weaknesses in our knowledge base or our networks that EDF can help solve? What sectors are most critical and which are most open to our engagement? We know lots of other individuals and groups are working on related problems. Who, in particular, should we partner with? Are there specific contributions we can make that will have broad impact? What special value can we create?

I hope that you will join us in thinking about and discussing this problem. Our draft planning materials are online for your review and comment (you have to sign-in to comment). If you prefer, send your thoughts directly to me or post comments below.

Thanks in advance for your help.

Less Glitter, More Green

Cross-posted from triplepundit.

With today's economy in such dire straits, it's understandable that some executives are asking, "Can we afford to go green?" Recent examples would indicate that they can't afford not to.

At its most basic level, pollution is waste, and on the corporate budget sheet, waste is red ink. Now that companies are looking to save every penny, environmental initiatives present a truly strategic opportunity.

At networking technology titan Cisco Systems, an Environmental Defense Fund internship program helped Cisco engineers develop plans for a new energy-efficiency device that would save an estimated $8 million per year in Cisco's R&D labs. And the early results of an Environmental Defense Fund "green portfolio" partnership with KKR, the giant private equity firm, unearthed $16 million in annual savings from measures that included reducing truck fuel usage at US Foodservice, cutting paper consumption at Primedia, and improving material use at Sealy.

While smart businesses are cutting costs and improving efficiency to increase profitability, they are also putting themselves ahead of the curve when it comes to our energy future.

In his recent address to Congress, President Obama asked Congress to, "…send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America." In doing so, he captured the urgency of the problem and the real economic opportunity in solving it. Companies that cut their energy usage now and position themselves for renewable energy in the future will fare better under a carbon cap than those that don't.

But there's another really interesting thing going on here. Environmental and energy initiatives, though financially sound, have often suffered from their pragmatic character. Yes, you can save money and quickly recoup your investment through steps like installing efficient HVAC equipment or reconfiguring your production process to collect and reuse waste. These kinds of initiatives are not risky, but they're also not as sexy to senior executives as costly propositions like launching a new product line or creating a joint venture in Asia.

In the past, dependable environmental initiatives often lost out when corporate eyes turned to the glitter of high-risk, high-reward alternatives. But today, many of those alternatives are off the table for good (or at least for now), allowing us to focus on the green instead of the glitter.

Market leaders, by definition, capitalize on challenge better and more consistently than their competitors. The same is true of businesses that are environmental leaders, which capitalize on environmental challenges in order to increase their competitive advantage. Some improve energy efficiency, reduce waste or take other steps that are as good for business as they are for the environment. Others look to green their supply chains, prompting other companies to adopt environmentally friendly practices and harvesting cost savings through the value chain.

These economic times pose a tremendous opportunity for companies to overcome challenge – and to challenge themselves – by making basic changes in their operations that benefit the environment. Companies that implement sustainable solutions in this way will save millions of dollars while reducing their environmental impact, showing everyone the true appeal of green.

A New Environmental Design Tool for Packaging

Yesterday the Sustainable Packaging Coalition (SPC) launched COMPASS, a new software tool that corporate packaging designers can use to assess the environmental impacts of packaging designs and inform decisions about packaging changes.

COMPASS grew out of an earlier software tool called MERGE that EDF developed through our partnerships with SC Johnson, Bristol Meyers Squibb and Aveda in 1996-2001. The goal of those partnerships was to create an easy-to-use software program that companies could use to evaluate the environmental profiles of different product and packaging designs. Bristol Meyers Squibb and Aveda each used MERGE to redesign packages to reduce environmental impact.

In 2006, the SPC, an industry working group of packaged goods companies and packaging suppliers, conducted a review of available environmental packaging design tools. Selecting MERGE as the most promising among them, SPC approached EDF about updating and redeveloping MERGE for use by a broader group of companies. We licensed MERGE to GreenBlue, the non-profit organization that convenes the SPC, for its use as the basis for COMPASS. Our Senior Scientist Dr. Richard Denison, who was the original developer of MERGE, served as a peer reviewer for COMPASS' new methodology.

The new COMPASS tool is supported by updated datasets, includes additional packaging materials and environmental metrics, and includes specific packaging fabrication processes not included in the original version of MERGE. It should be a good resource for companies looking to understand and improve the environmental impacts of their packaging. A license will run you $750 ($500 if your company is an SPC member), but you can get a pretty good sense of the tool’s capabilities by using the free trial. Check it out and share your thoughts with the Innovation Exhange community!

Notes from London

It's always a good idea to get out of your everday routine, and I had the good fortune to spend last week in London, looking at the U.S. through British eyes. There's huge enthusiasm there for the idea that the US will (finally) be playing a leadership role in global climate policy. And while Britons are rightfully proud of the fact that they already have a carbon trading system in place, I felt no resentment toward the US for our slow pace of change but rather, a "welcome to the game" attitude.

Of course, like us, they're shaken by the local and global recession. Uncertainty over the future of the banking system is both headline news (well, maybe right after Price Harry's latest escapade) and dinner table conversation. But in several discussions with business executives and financiers, I was heartened to hear that green initiatives continue to be high on the corporate agenda in the UK.

One of the most surprising aspects of this came during a meeting with News International, Rupert Murdoch's news and entertainment conglomerate. In the UK, News International publishes daily papers (including The Times, The Sun and News of the World) and internet news outlets. Members of News International's commercial team told me that they are now being asked by potential advertisers about the company's green credentials. Imagine – corporate clients are questioning the environmental performance of their advertising outlets! That's like Nike or Ford telling the New York Times it might not buy ad space unless the Gray Lady goes green. If such a thing is happening in the US, I hope readers of this blog will let me know, because I find this astonishing!

As it happens, News International is already measuring its carbon footprint and the larger News Corporation has set a goal to be carbon neutral by 2010. They're also disclosing their carbon footprint through the Carbon Disclosure Project (CDP) so that readers – and advertisers – can see where they stand.

In many of my conversations, opinions were expressed about whether it's businesses in the US that talk a lot about climate without doing much, or whether it's businesses in the UK that talk a lot about climate without doing much. The decision seemed to be split, but I left hopeful because the one consensus was that that everyone needed to do more.

$300 Million Available for Clean Trucks – Contact Us

We are actively recruiting fleets around the country interested in buying hybrid diesel-electric trucks to take advantage of funds made available in the recently-passed Stimulus Bill.

Last year we created the Northeast Hybrid Truck Consortium to help New England fleets buy hybrid trucks, leveraging last year’s allocation of EPA Diesel Emissions Reduction Act (DERA) funds. This year's ARRA Stimulus Bill created an additional (and expanded) pot of DERA funding, and we plan to leverage our success in EPA Region 1 into a national effort to pursue DERA funds to accelerate purchases of hybrid trucks. We are currently recruiting fleets to participate and are matching them up with other fleets and/or local NGO partners to meet DERA requirements. We can also provide generic language for DERA applications and can assist fleet managers with application questions.

We're recruiting private, municipal, and non-profit fleets across the country who would like to buy a hybrid diesel electric truck (or 10 or 100!) this year. If that describes your fleet, please contact Rachel Beckhardt at 617.173.2996 for more information. (This funding is on a very short timeline so please respond by 3/31/09.)

Agricultural Revolution Conference Addresses Sustainability

EDF Project Manager and Geballe Fellow, Elizabeth Seeger, is in Lansdowne, Virginia this week attending the "Growing a 21st Century Agricultural Revolution" conference. She is joined by representatives from industry, government, the civic sector, and academia to discuss the concept of sustainability in agriculture. The conference organizers explain the issue by quoting then President-elect Obama:

Our entire agricultural system is built on cheap oil. As a consequence, our agriculture sector actually is contributing more greenhouse gases than our transportation sector. And in the mean time, it's creating monocultures that are vulnerable to national security threats, are now vulnerable to sky-high food prices or crashes in food prices, huge swings in commodity prices, and are partly responsible for the explosion in our healthcare costs because they're contributing to type 2 diabetes, stroke and heart disease, and obesity.

Elizabeth is live-tweeting the event. A few of the tidbits she's picked up so far include:

  • mcdonalds: sustainability is like having clean bathrooms in the stores: not an option or luxury.
  • challenges to farmers' sustainability: 1) "sustainability" complex w many hard tradeoffs 2) fear/lack of transparency, 3) not enuf research and funding for, 4) lack metrics
  • internally, orgs are concerned abt energy use, but see h2o as biggest supply chain issue in ag.

Check out the agenda and read more about the ongoing discussion in Lansdown.

Why Exchange Your Innovations? Because You'll Benefit Too.

When our Corporate Partnerships team meets with a company for first time, there is a predictable a moment in the conversation when the manager or executive sitting across the table takes a long pause, squints her eyes, and says, "Why in the world would we agree to that?"

The idea that seems so objectionable at first, but more palatable once we explain the benefits? Just as soon as we help the company develop a product innovation, process improvement, or new methodology that leads to cost savings and measurable environmental results, we're going to knock on its competitors' doors and hand it to them with a big green bow on top. It is the core of our business model and how we ensure that the best ideas are brought to scale. It stems from our understanding that we cannot solve the world's most pressing environmental problems in isolation, or with one-off projects, but rather need the collective energy of the planet's smartest companies and individuals to ensure the survival of our species and the biosphere.

This initial dissonance on the part of managers is so predictable because it sits at the core of 20th century business strategy: deem everything cooked up in your kitchen as "proprietary" and share with no one. The reality in the 21st century is that the environmental threats we face are deep, interconnected and global in nature and substantial opportunities for value creation exist through finding collaborative solutions. But, for broad-sweeping innovations to occur, companies must drop their default position of "everything is proprietary" and accept that we're living in an open-source world. This doesn't mean giving up the farm, but it does mean that companies need to closely separate core competitive issues from areas where they can benefit from cooperation and innovation within their industries and across sectors.

While many software companies find the open source concept old hat by now, and IT, biotech, and branded apparel firms (among others) already understand the value of co-development and co-design with contract manufacturers, most managers still shiver at the thought of sharing their best ideas so openly (and fear the ire of their legal departments). Getting over this fear and embracing the open exchange of technologies and processes will more often than not lead to greater efficiency in operations, the ability to bring technological changes to scale, optimize logistics networks, and limitless other opportunities.

Still afraid? It may help to start slowly and think very carefully about operational problems that are inherently non-competitive in nature, but result in great inefficiencies due to business-as-usual practices.

The most obvious places to begin are through solving problems stemming from common processes or a shared supply base. In other words: addressing classic public goods problems. The Global Social Compliance Program a forum organized by global retailers, is attempting to do just that by collectively facing the inherent inefficiencies of individually addressing social and environmental problems in their vast and complex global supply chains. Does it makes sense for five retailers to use five sets of standards and audit the same two hundred manufacturing facility four times a year without sharing any information? Probably not. Co-determining standards and sharing information on vendors could literally save companies millions of dollars, increase quality assurance, and improve social and environmental performance (assuming the standards don't get watered down to a 'lowest common denominator'). Similarly, multi-stakeholder forums, such as those hosted by Business for Social Responsibility create a space to openly discuss common problems and share best practices across several sectors with substantial environmental impacts.

Ultimately, the end goal should be to co-develop new technologies and products (either through explicit coordination, or simply sharing ideas) that solve environmental problems and deliver real returns for each of the companies involved, with distinct market offerings building on each firms unique competencies. The beauty is in a process that brings together ideas, skills, and people that otherwise would not interact. Consider the idea of an environmental technology waiting to be brought to market, but an individual company's footprint is far too small to bring about the scale necessary to lower the costs or substantially drive environmental improvements. For example, your company has developed a green chemistry solution (that has eliminated the toxicity of materials used) to a product input, but your levels of production are far too low for it to be cost efficient. Keeping this information proprietary would result in the innovation rotting on the shelf, without benefit to your company, the workers who manufacture your goods, or the planet at large. Imagine setting that patent free, where demand for such a solution would increase the scale and drive down the price. Now we're all better off and you've created a much safer product for your customers.

Without question, there are still some major issues to work through in order to reduce fear among managers and eliminate obstacles to effective collaboration – and these are no small hurdles. Genuine concerns about what is fair use, who gets credit for a particular innovation, and how the market will reward first-movers remain open and unresolved. However, there are efforts underway to hash out the specifics and foster a healthy community of collaborative environmental innovators based on the Creative Commons platform used by artists, musicians and writers – allowing designers to build on the work of others in way consistent with copyright laws. (The Nike-led Green Exchange is probably the most well-known of such efforts).

As Irving Wladawsky-Berger, IBM's former VP of technical strategy famously told Thomas Friedman, "[t]he emerging era is characterized by the collaborative innovation of many people working in gifted communities, just as innovation in the industrial era was characterized by individual genius." Wouldn't it be great if those gifted communities also happened to solve the world's most pressing environmental problems as well? I believe they can, they just need the freedom, and courage, to do so.

"Greening" corporate compensation

While it's standard practice to tie annual bonuses to whether or not a company "hits its numbers," what if those numbers relate to "less electricity used" or "reduced carbon dioxide emissions?"

An exciting trend emerging on the HR frontier links a company's environmental performance to employee compensation—a clear indicator that said company has embraced its sustainability commitments. This is one of the intriguing concepts EDF is exploring for our next issue of the Innovations Review.

Do you know companies that have taken this step? If so, we want to hear about them. Leave a comment below or email innovations@edf.org.

We’re especially interested in results: How well have these companies achieved their environmental goals? How are they linking their environmental goals to their financial success?

And stay tuned for more: EDF's 2009 Innovations Review, our annual report on the latest and most compelling practices for corporate sustainability will be released April 21.