At Business for Social Responsibility (BSR), we are seeing increased interest among companies in expanding their thinking about climate change beyond the impact of their own operations and energy purchases.

There are a few reasons for this, such as their desire to communicate with customers, investors, and others about the environmental impacts of their products and relationships. Additionally, a focus on value chains -- the entire chain of events from raw material generation through product use and disposal -- offers a holistic way to address the most significant greenhouse gas (GHG) sources, while reducing costs and other business risks associated with such efforts.

Companies face significant challenges when moving from addressing GHG sources in their operations -- where they can usually apply standard practices to evaluate these impacts -- to addressing sources in their value chains. Questions about data, lack of reporting standards, and which actions will be most effective are enough to discourage companies from exploring how to reduce GHG emissions or energy use outside their own walls.

But the process of identifying the value chain’s GHG emissions is easier than it seems. In fact, the steps are similar to those for tackling emissions on-site:  

There are a few complementary approaches to this process: the direct relationship approach and the greatest impact approach. The former focuses on where companies have the most influence -- their direct relationships (for more on that approach, see “Whose Carbon Is It? ABCs of Counting Carbon in Your Supply Chain”).

The second approach -- and the focus of this article -- emphasizes where impacts are the greatest, regardless of where those impacts reside in the value chain.

Identify and Understand
For companies with large, complex value chains -- or those with little influence over their suppliers -- identifying the greatest carbon impacts in them is daunting. The best way to start is by examining existing lifecycle assessment (LCA) studies and related databases.

While some of the respected proprietary databases are also costly (particularly when paired with highly customized modeling packages), free or low-cost studies and data sets are available through Carnegie Mellon’s Green Design Institute, the Danish LCA Food Database, and others, enabling an initial assessment of value chain GHG emissions and other environmental impacts.

BSR, for example, is working with apparel company H&M and a graduate sustainable business research team from the University of Michigan to gather and analyze existing public data about GHG emissions in the apparel industry. There are limits to the data: They do not capture the actual emissions of a company’s own suppliers or customers, some of it is outdated or imprecise, and various data sources place different values on (or do not include) emissions sources such as land-use change.

The information, however, provides a starting point for evaluating key climate change risks and opportunities. Over time, additional resources can (and should) be devoted to collecting better data, but widely available resources enable a company to take the next step.

Prioritize
With a basic data set in hand, companies can gain a sense of the most significant climate impacts in their value chain. However, to prioritize opportunities for action, companies should take into account factors that go beyond the emissions data, such as the cost per unit of reduction, the ability of the company to influence emissions, and the alignment of taking these actions with business objectives, such as marketing or risk reduction.

For instance, the apparel industry data suggest the most significant GHG emissions for cotton or linen clothing are generated during consumer use. But is this the area where a company should focus most of its emissions reduction efforts?

Unlike supplier relationships, where an apparel manufacturer may insist on emissions reductions or switch to a supplier with lower emissions, it would be difficult to force consumers to wash their clothing less frequently, use cold water, and dry it on a line.

Despite this, behavior change through consumer education is possible, such as changing care labels, and the potential climate change benefits are significant. There are also benefits for the company, regardless of the difficulty in quantifying emissions reductions. For instance, if climate change issues are important for a target consumer group, engagement and communication may be a helpful marketing tool. This kind of communication may also demonstrate to investors that the company understands the issue and is likely to deal with it effectively.

Ultimately, every company is likely to prioritize GHG sources differently, based on a unique set of factors. The important point is that it can be done. Once a company chooses areas on which to focus, it can take action.

Take Action
A company can establish a course of action once they have basic data and priorities in place. Depending on the opportunity in question, that may mean the company acts alone, perhaps by changing source materials from synthetic to natural fibers, or by increasing the percentage of organic cotton it uses.

Alternatively, it may mean the company chooses to work with select suppliers to modify processes like fabric manufacturing. The company may also decide to act as part of an industry peer group, such as the Electronic Industry Citizenship Coalition’s De-Carbonizing the Supply Chain effort, or apparel companies working with BSR on carbon management (see sidebar).

Each option has its own set of potential benefits. Collaborative approaches offer opportunities to share costs, data collection, and best practices, whereas an individual approach may offer opportunities for industry leadership and product differentiation.

Review, Refine, and Repeat
A company’s carbon “hot-spotting” effort should be seen as an ongoing process in learning from initial hypotheses, identifying areas where better understanding is required, and fine-tuning priorities and further action. Ultimately, data collection and action should happen simultaneously, so that the benefits of emissions reduction projects are effectively quantified and the data are used to make future decisions. Here again, working with peers and suppliers to collect data provides an opportunity to reduce costs and improve understanding.

Ultimately, the challenges of data collection and value chain complexity should be understood and addressed, but they should not prevent action, particularly given both the scientific consensus (see, for example, IPCC and RealClimate) and economic consensus (as described in Slate and Real Climate Economics) on the importance of tackling climate change now.

Basic analysis and early action is critical. It can be done through the carbon hot-spotting process described here, allowing companies to improve their information collection and action over time, while increasing their impact on GHG reduction.

Marshall Chase is associate of advisory services, and Ryan Schuchard is manager of environmental research and innovation at Business for Social Responsibility.

Image licensed by stock.xchng user riyono .