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.

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!

Efficiency Roadmap Includes Making Money with Metrics

Harvard Business Publishing LogoAndrew Shapiro from GreenOrder had a nice piece in Harvard Business yesterday where he argues that companies don't optimize efficiency and instead only "go after the lowest-hanging fruit and stop." He cites our work with KKR as an example of savings still to be found.

Shapiro offers a four-part strategic roadmap to increase savings:

  • Tap the expertise of your existing manager
  • Go beyond energy
  • Network broadly
  • Involve employees

Two of Andrew's map markers particularly resonate at the EDF Innovation Exchange – "network broadly" and "involve employees." As he points out "Because efficiency is relevant to diverse company responsibilities, these initiatives benefit from innovative thinking from inside and outside an enterprise" and companies should "solicit the ideas of every employee." Engaging across company boundaries and up and down the company hierarchy is central to both innovation and to adoption – two things we care a lot about.

Our own Gwen Ruta, commenting on Andrew's post added another marker – create a system and metric. Gwen argues that "once attention is focused on energy, water, waste and other environmental issues through operational metrics, companies will find ways to cut waste and therefore cut costs."

And that's just money in the bank.