Sustainability, Innovation, and Greenhouse Gas Accounting
What I Learned from the Scope 3 GHG Protocol Training on the Corporate Value Chain PLUS Inspiration for Regeneration
Image © Katharine Bierce, 2016 titled: Corporate growth: Still life with plant, conference call speaker, skyscrapers.
My first job in the corporate world was in procurement. Ever since I’ve been intrigued by the business value chain, which means how businesses create value from raw materials to finished products. For months, I spent 12 hours a day in Excel sheets and PowerPoint analyzing a portion of an enterprise-size corporate supply chain and finding savings opportunities. Now, some years later, I’m examining how to reduce our greenhouse gas emissions (GHG) from a company supply chain, and it looks very similar. You could almost say that procurement is becoming cool.
I just completed several GHG Protocol trainings to learn more about this commonly-used corporate standard covering GHG emissions measurements and reporting. While several Harvard professors discuss alternatives to the GHG Protocol in the article Accounting for Climate Change, so far their alternate approach to looking at the corporate value chain or supply chain haven’t caught on. So the GHG Protocol was the next step in my sustainability learning journey.
In today’s world, climate change is a business issue, as lowering emissions can help the bottom line, reduce risk, and find competitive advantage. Additionally, a two-year study by the Business and Sustainable Development Commission found that meeting the UN’s Sustainable Development Goals could unlock trillions in value and create hundreds of millions of jobs this decade. With the rising costs of fossil fuels, reflected in inflation of the price of goods and services, any reduction of the use of fossil fuels (and reducing emissions) means reducing costs. And if you're looking to reduce emissions, look to your supply chain: Scope 3 emissions are usually the majority of a company’s emissions, as the GHG Protocol notes.
GHG Emissions Across the Value Chain or Supply Chain
Image source: Screenshot of Scope 1, Scope 2, and Scope 3 emissions and the 7 greenhouse gases for reporting according to the GHG Protocol Corporate Standard. From the GHG Protocol Corporate Value Chain (Scope 3) Standard Online Course.
Emissions come from different places. Scope 1 emissions are direct emissions of burning fossil fuels from things an organization directly controls. Scope 2 emissions are emissions an organization causes indirectly by using electricity (which may involve burning fossil fuels). Scope 3 emissions cover the indirect emissions from one’s supply chain. This includes emissions that occur as a result of assets or things an organization controls, up and down the value chain. These emissions are things such as business travel, employee commuting, and disposal of products your organization creates. Since supply chains can be global, with some companies having thousands of suppliers, measuring Scope 3 missions can get complex. And, the GHG Protocol standards require that you report not just on carbon dioxide, but also six other greenhouse gases (seven in total) across all these areas!
Because that can be overwhelming, the GHG Protocol Scope 3 training provides suggestions to start a Scope 3 inventory, and has a list of things to keep in mind:
Example Business Goals for Doing a Scope 3 GHG Inventory
Image source: Screenshot of business goals for a Scope 3 GHG supply chain inventory, from the GHG Protocol Corporate Value Chain (Scope 3) Standard Online Course.
GHG Protocol suggests some key guidelines.
Always keep your business goals for doing the Scope 3 inventory in mind! (As Simon Sinek would say, “Start with WHY.”)
You don’t need to collect primary data for every or any category. Refer to your business goals to determine where to focus.
Map your value chain: what are ll the steps it takes to make your goods or services?
Screen all the categories at the start to identify what categories to focus on. That is to say, do a rough estimate of emissions in each of the 15 categories to start.
Estimates calculated during screening can be used in the final inventory. If the initial GHG estimate for a category shows that it is insignificant, this estimated GHG figure can be reported in the final inventory for this category, even if it is a rough estimate.
So what? This means estimates can help! You don’t need to have everything perfect immediately.Setting the boundary of the inventory is an iterative process, so exclude categories that are not relevant. Estimate emissions for all other categories, then focus data collection on categories found to be most significant.
Categories can be excluded as long as you give a justification.
Image source: Screenshot of “Getting Started – Steps” for a Scope 3 Assessment, from the GHG Protocol Corporate Value Chain (Scope 3) Standard Online Course.
ESG Reporting and Types of Assurance, with Caveats
With the SEC proposing to require more reporting of climate-related risks, including greenhouse gas emissions that are part of Scope 3, you can see why PricewaterhouseCoopers is hiring 100,000 people to help companies with their ESG reporting.
There are two types of assurances to know about: Limited and Reasonable. This Stanford Social Innovation Review article looked at a number of corporate ESG statements and found some issues; the article’s authors recommend “reasonable” as a standard and avoiding confusion by saying something has assurance when only some subset of data actually has assurance.
The authors write: “Companies can aid the credibility of sustainability assurance by providing more complete and consistent information. At minimum, each company that undergoes assurance should disclose four things: 1) what framework and methodology are being used to prepare and disclose the information, 2) what specific information and metrics are independently assured, and by whom, 3) whether the assurance is limited or reasonable, and 4) any supplementary information that will help to place the above information in context.” This also aligns to the GHG Protocol’s five goals reporting: Relevance, Completeness, Consistency, Transparency and Accuracy.
Once you’ve set a business goal for your Scope 3 emissions inventory and mapped your value chain, getting data from suppliers is a big chunk of work.
Which brings us back to procurement. Procurement is the process by which organizations procure, or buy, things they need to run their organization. This includes both goods and services. It typically involves legal contracts saying what a company is buying and for how much and when it will be delivered.
Understanding procurement processes is important for Scope 3 greenhouse gas accounting because it involves working with suppliers to figure out who is emitting what and when, related to the products or services that you buy. With global supply chains for things we use daily, from food to computers and more, procurement has become a more complex and interesting endeavor.
Keep these things in mind for a GHG Inventory
If you don’t have a contract with a supplier where they are required to provide you greenhouse gas emissions information as part of the contract, consider updating the contract when you renew it. Salesforce’s Sustainability Exhibit is a great example; here’s how Salesforce is giving suppliers the tools and support to reduce emissions. Alternatively, reduce the supplier’s work by asking them for their utility bills. Then use their electricity/gas usage as a starting point so they don’t have to calculate their emissions themselves.
It’s important to look at emissions based both on spend and on estimating emissions themselves. For example, for a tea leaf company, emissions from using its products could include customers boiling water for tea. Whether customers are using a gas, electric, or induction stove, and how clean the grid is to provide electricity in a customer’s area, could be significant factors of the larger emissions picture.
Want to learn more about this? The GHG Protocol training on the Corporate Standard for Scope 1 and 2 emissions measurement is free. The Scope 3 training is normally $325, but if you work at a nonprofit, you can get a 60% discount. Students and group registrations also qualify for discounts. See the GHG Protocol (WRI) website for their course info. Additionally, there are many new climate tech companies trying to make this easier with technology to help companies understand their carbon emissions and take action, if your organization doesn't have a person dedicated to GHG data management.
Photo of the book “Regeneration” by Paul Hawken with a nature based background, taken by Katharine Bierce.
Thinking More Broadly: Beyond GHG Accounting to the Circular Economy
What can be measured can be managed, so measuring greenhouse gas emissions across the value chain is a useful start. But ESG statements aren’t everything: this company had an ESG report and then decided to pollute in a very big way. What was missing?
One issue with measuring GHG emissions alone is that it might be attempting to use the same mindset of the linear economy to solve the problems of “more is better” thinking. Instead, consider donut economics and the circular economy to identify all the impacts of emissions.
To take your supply chain knowledge to the next level, consider companies as part of the larger ecosystem of the planet. Accounting for GHG emissions is a good first step in understanding an individual company’s impact, but deeper work is needed to address the root causes of climate change.
“Part of the deepest problem is that we are still thinking about business and its impacts on the planet mechanistically. The planet is not a machine. Neither are humans. Neither should a business be, yet that’s how we are creating. If we can reach net zero, everything will be okay, not really. That’s not how it works. To paraphrase Albert Einstein, that’s attempting to use the same level of consciousness to solve a problem that this level of consciousness created. So, put another way, technology alone will not solve the climate crisis, despite the massive investments in climate tech. Deeper shifts are required for us to align what we create with an ecological awareness and relationship that doesn’t live within a binary of human and nature.”
– Ra James
If you want a book to learn more about this, I recommend Paul Hawken’s book Regeneration.
If you want an interactive learning experience, there is a 31-day course called (re)Biz for business leaders who want to completely redesign business for regeneration. The course’s tagline is “(re)defining business as usual by (re)connecting business to Earth.”
The course redefines business using a cross-cultural deep dive with indigenous wisdom as the base, and then moves into internal shifts that mirror how we can create organizations and systems that align with the Earth. (Get $100 off when you apply and mention that Katharine Bierce referred you.)
This group at Stanford says we’ll run out of fossil fuels sometime this century. We need to reduce our emissions, ASAP, everywhere. How are you reimagining ways your organization can operate, not just this quarter, but this century?