The 4-step plan for cutting value-chain emissions

I was recently at the New York Stock Exchange for the Carbon Disclosure Project’s (CDP) Spring Workshop, where I moderated a panel discussion with representatives from Walmart, Microsoft and Coca-Cola on Smart Thinking in Delivering Significant Supply Chain Emissions Reductions (PDF). We had a lively discussion about how to drive greenhouse gas (GHG) reductions in the supply chain, and I left the event encouraged, but also aware of the challenges companies face when assessing emissions across their value chains.

The 200 or so companies at the workshop generally seemed aware that value chains can offer the largest opportunities for emission reductions. Some have already set reduction targets, such as Walmart’s goal to eliminate 20 million metric tons of GHG emissions from its supply chain by 2015, but others were unsure even where to start.

Assessing GHG emissions across the entire value chain is becoming essential for any business serious about reducing its impact on climate change. As I boarded the train back to Washington, D.C., I began to wonder what actions companies should be taking to address this challenge.

Here are four ways that businesses can advance their GHG management goals:

1. Assess the entire value chain
Companies are increasingly aware that their emissions stretch well beyond their own operations, but measuring emissions across the value chain is still new territory. In October 2011, the GHG Protocol, led by the World Resources Institute and the World Business Council on Sustainable Development, released the Corporate Value Chain (Scope 3) Standard, the first comprehensive standard for measuring and reporting emissions for an entire corporate value chain. This new standard separates emissions into 15 different categories (e.g., purchased goods and services, emissions from the use of sold products, etc.), which provides a helpful framework for companies to manage emissions, engage suppliers, and communicate results.

Categorizing emissions in this way enables companies to focus on the activities in the value chain that offer the biggest opportunities for GHG reductions. More than 30 companies have already road-tested the new standard, and we found that on average scope 3 emissions account for 80% of a company’s total emissions. A good example can be seen in the software company SAP’s sustainability report that showed that more than 80% of SAP’s emissions occur during the use of their products. The company is now developing strategies to reduce emissions from their software by designing it to run on fewer servers and with less energy; working closely with hardware providers to help increase hardware efficiency; and working with customers to optimize the running of their data centers. (Note that SAP has already released a new version of its software, which can run up to 60% more efficiently than previous versions.)

2. Move beyond disclosure to set targets and achieve GHG reductions
Assessing GHG emissions through the entire value chain is not about measuring for the sake of measuring– it’s about measuring GHG emissions in order to manage and reduce them. A full assessment of a company’s value chain is an essential first step in reducing emissions, as it identifies the areas with highest emissions and enables a company to target efforts where there is the most opportunity for reductions.

The second step is arguably more difficult: How do companies use this information to set targets and achieve actual reductions in GHG emissions? There is no single answer to the question, but we hope that as companies use the scope 3 standard, more ideas can proliferate and more disclosure programs can begin pushing their members toward this important next step.

Some companies have already sets themselves ambitious targets, such as Unilever’s goal to halve the GHG impact of its products across the lifecycle by 2020, on a ‘per consumer use’ basis. By looking at the value chain, Unilever could identify areas of focus, such as reducing emissions from the use of their washing detergents and from refrigeration of their ice cream. 

3. Increase supply chain engagement and cooperation
For companies that procure a lot of products, engaging with suppliers is one of the best ways to achieve GHG reductions. These are relatively early days for supplier engagement but some companies are already seeing benefits. In 2011, the Carbon Disclosure Project (CDP) Supply Chain program collected data from 1,864 suppliers on behalf of 49 large companies. Of the participating companies, a third said they have benefited from new revenue streams or financial savings as a result of their suppliers’ carbon reduction activities.

Companies that develop the most effective methods to engage with their suppliers can benefit from improved supply chain efficiency; reduced risk from suppliers passing on higher energy or emissions-related costs; reduced risk of supply chain business interruption; improved relationships with suppliers; and identification of new revenue streams.

4. Innovation
This one is a bit of a cheat – it’s the equivalent to wishing for four more wishes. In all of the above, taking that next step beyond best practice to next practice involves innovation. As companies come to grips with GHG emissions and their relevance for the whole value chain, there is opportunity for creative thinking around the best ways to realign business models to a low-carbon economy.

A good example is SC Johnson. The company carried out a full assessment of GHG emissions across their entire value chain  and found that the most significant category of emissions was the use of products, including energy consumption from its Glade plug-in air fresheners. Following this finding, SC Johnson has developed a Glade product that is more energy efficient and can be used without having to plug it in.

Leadership and innovation from business is vital to making progress on combating climate change but equally, corporate action in this arena makes good business sense as companies can identify opportunities to bolster their bottom line, reduce risk, and discover competitive advantage.