Former Associate Director, Climate Change, BSR
The art and science of carbon footprinting is about to take a step forward: The long-awaited launch of the Scope 3 standard for value chains and the Product standard for life-cycle analysis is just around the corner.
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, which 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.
While widely recognized as important, Scope 3 has incited many debates over its definition. And as reporting on Scope 3 emissions increases, more and more companies are 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—like the Clean Cargo Working Group and the Electronics Industry Citizenship Coalition—have started developing shared approaches for industry-specific issues. 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 (see links for current versions of the draft). This will be the result of a three-year project involving more than 1,500 diverse stakeholders including governments, research institutions, businesses, and civil society, all contributing to various discussions and drafts. BSR and many of our member companies have been represented in a technical working group.
What led us to this final chapter? Brian Glazebrook, senior manager of social responsibility at Cisco Systems, has been involved with Scope 3 efforts from the start. He says that life-cycle and supply chain information is becoming more ubiquitous and therefore less expensive, while at the same time there is more demand for transparency. Today, Scope 3 management is undeniably more attractive to companies—and the case to do more will only grow stronger.
The following are highlights of a recent discussion I had with Pankaj Bhatia (who spoke at the BSR conference on the Supply Chain Energy Innovation panel), director of the GHG Protocol at WRI, offering a preview of what’s to come.
Schuchard: How will the Scope 3 standard help companies?
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, Scope 3 will help companies find GHG reduction opportunities, set reduction targets, and track 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.
Schuchard: What kinds of companies should utilize it?
Bhatia: 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.
Schuchard: Will Scope 3 provide a good tool to compare companies’ performance against each other?
Bhatia: No and yes. First, it is important to understand the limits. The categories companies choose to report on 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 a 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 among companies, it will let a company measure performance against its own baseline, which potentially could be compared among companies.
As companies take up this type of reporting, there will be opportunities to develop more specific norms and benchmarking for better comparability. 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 the development of sector-specific rules.
Schuchard: What kind of data will companies need to gather to measure Scope 3?
Bhatia: 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 actual activities.
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. 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.
Schuchard: How does the Scope 3 standard relate to the Product standard?
Bhatia: 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 life cycle of individual products. These two standards, which have been developed in parallel, share many common features: 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 life cycle of a product, like processing and recycling. These two different tool sets reflect two different needs: on the one hand, characterizing products’ life cycles, 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.
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