This year’s topic -”The Management Challenge of Ethics, Citizenship, and Sustainability: A New Business Model”

June 20-21, 2012 - The Fairfax at Embassy Row, Washington D.C.

“Catherine will send you back to your organization with a clear understanding of employee engagement starting with your employee’s own values and building to action items that will not only improve morale, but save you money, along the way. Well-known locally and backed by years of experience nationally, her conversation on culture is going to be insightful and a lot of fun.”

This complexity means that Scope 3 inventory development can be challenging for many companies. IBM, for example, has gone so far as to post its Position on Scope 3 GHG Emissions on its website where it cites various reasons as to why it does not plan to account for its Scope 3 emissions. IBM argues that due to the fact that it has thousands of suppliers all around the world, estimating the correct assumptions and variability surrounding them would be prohibitive and would not allow for accurate calculations. Simply put, the biggest hurdle companies see in accounting for their Scope 3 emissions is the perception that the process complexity is so high as to make it cost prohibitive. It’s understandable that a company’s quick assessment of this newly released, complex accounting standard can make Scope 3 emissions seem daunting and that valuable time and effort might better be spent elsewhere.

While there are real challenges in accounting for Scope 3 emissions, the initial investment in the process of developing a rigorous, comprehensive GHG inventory including relevant Scope 3 emissions will pay back in terms of insights gained leading to higher impact emissions reductions and efficiencies in future reporting years. Though the initial inventory development process will indeed require a significant investment of time and resources, one of the primary intents of the Scope 3 Standard is to help companies realize supply chain insights that can offset these upfront costs. Scope 3 inventory management provides an analytical tool that allows companies to identify supply chain inefficiencies and opportunities in the form of materials, processes, suppliers, or logistics pathways that could be better optimized, and in many cases drive down both costs and GHG emissions.

In addition to the complexity/cost argument, IBM “believes real results in GHG emissions reduction are best achieved when each enterprise takes responsibility to address its own emissions and improve its energy efficiency.”[1] While this is true and CGA agrees with the principle that all companies need to take responsibility for their own impacts, ultimately IBM does have control over its procurement and can make a real impact through its purchasing and supply chain choices. Scope 3 information can be used as a catalyst for supply chain efficiency which can be much more substantial than the impact that can be managed within a company’s own walls.

This was the realization behind Walmart’s 2010 reduction commitment of 20,000,000 metric tons. The retail giant is strongly committed to reducing its direct Scope 1 and 2 emissions but it realized that these impacts are dwarfed by the impact of their supply chain. In response to this, the company set a five year reduction target across its supply chain which is equal in magnitude to 1.5 times the company’s anticipated emissions growth (Scope 1 and 2) over the same time period. They would never have been able to achieve anything close to this magnitude of reductions on their own but by leveraging their supply chain impacts this became an achievable target.

Less frequent but perhaps more problematic is the concern that Scope 3 information may be used for comparisons that project poorly on the reporting company. This concern is however misplaced, as Scope 3 data is specifically not intended as a consumer comparison tool. Instead, the primary goal of the standard is “to help companies understand their full value chain emissions impact in order to focus company efforts on the greatest GHG reduction opportunities, leading to more sustainable decisions about companies’ activities and the products they buy, sell, and produce.”[2] In short, comprehensive GHG accounting (including Scope 3 emissions) provides a depth of insight that is not possible when accounting for only Scope 1 and 2 emissions. A comprehensive GHG emissions inventory is an extremely valuable management tool, full of business intelligence and actionable information that can guide and support organizational decision-making.

While IBM has turned its back on efforts to understand and manage its value chain emissions, other large companies have managed to begin the process of Scope 3 accounting and rightly see it is the best way to understand and leverage the highest value GHG reduction opportunities. The nonprofit Environmental Investment Organization (EIO) lists 35 companies that publicly report at least three Scope 3 categories. The Scope 3 Standard includes 15 Scope 3 emissions categories that are divided into upstream and downstream activities (see table 5.3).

Only one company, BASF, reported on all 15 scope 3 emissions categories, which shows that accounting for all scope 3 emissions is challenging. But this isn’t necessarily a problem. Not all Scope 3 categories are relevant to all companies and in fact for most companies, only a subset of these categories is truly material to their business.

The Scope 3 Standard acknowledges this reality and encourages companies to balance comprehensiveness in reporting with business realities and resource constraints. This idea is reflected in the Accounting and Reporting Principles, which provide guidance to companies trying to understand the level of depth they need to bring to their inventory. The five principles articulated in the guidance are relevance, completeness, consistency, transparency, and accuracy and its no coincidence that relevance is listed first.

The fact that relevance is the first principle listed in the Scope 3 standard reinforces the point that the purpose of the inventory development process is to help companies understand their value chain impacts and use this information to make informed decisions in choosing the most impactful emissions reduction opportunities. Despite the inherent complexity in the process, the Scope 3 standard is designed for usability with the intent to provide a tool to help companies understand and act upon what matters (what is most relevant) from a GHG perspective.

At Expo West, as it’s known, about 50,000 or so vendors, retailers, buyers and product seekers descended on Anaheim, CA, to learn what is emerging and exciting in these high growth businesses, which encompass everything from raw organic energy bars to shampoo made from beer. I took the opportunity to listen to legends like Gary Hirschberg of Stoneyfield Farm, meet authors including Paul Greenberg (Four Fish: The Future of the Last Wild Food) and enjoy a beer with Adam Lowry, Co-founder of Method Products, who is a leader of a new wave of young entrepreneurs.

Expo West overwhelms the senses. The vast convention center is filled with organic chocolate that will stop you in your tracks, essential oils, raw vitamin drinks, gluten-free grilled cheese sandwiches— and something even for the eyes—the chance to be photographed with Fabio.

I attend Expo West to see trends. This year’s product trends were easy to spot; raw, GMO-free, gluten-free (and delicious) and Chia, which is not just for “pets” anymore.

But the most interesting trend at Expo West had nothing to do with products; it had to do with the companies that were exhibiting–the emergence of the Benefit Corporation, or “B-Corp”.

Certified B Corporations are a new type of corporation. The designation identifies companies that are redefining what success means in business. To earn the B-Corp designation and display the logo, a business must meet transparent social and environmental performance standards. These companies are part of a new business community that stands for much more than just corporate profits: They are committed to doing good for the world while doing well for their shareholders.

King Author Flour proudly displayed their B-Corp logo next to their other 3^rd-party certifications.  Why should this matter? Shouldn’t only the quality of the product matter to the shopper? “Consumers are interested in the type of company that you are just as much as the kind and quality of the product that you make”, explains Tom Payne, Director of Marketing, King Arthur Flour.

I may be going out on a limb, but it feels like a movement is growing here. Companies that are good for the world want to “occupy your cart, refrigerator or cupboard.” And shoppers seem ready to listen.

Consumers want to know more–not just about what they are buying, but who they are buying from. They want to know if there is pink slime in their kid’s lunch, or if their cans have BPA in the liner, and, if so, why a company felt the need to use it there. If a company can assumer its customers that it is providing them with the most natural and healthy product possible, and that it cares about the community and the planet, and that it embraces a new way of doing business, it can build a powerful brand around transparency, authenticity and trust. 

I look forward to Expo West 2013. As for trends, I think we are going to see even more Certified B Corps. It’s the right marketplace. It’s the right message. 

I just returned from a Canadian Summit on Sustainability, where I had the opportunity to explore the connections between Lean manufacturing methods, Total Quality Management (TQM) and sustainability.

 All the speakers had to take the time and define what we meant by ‘sustainability’. The definitions ranged from the Bruntland Definition to an elegant and simply personal interpretation, “[All species] Live Well, Forever”.

Seen from the perspective of Lean and TQM, however, sustainability wouldn’t be defined as a new field of study at all, but a twist on what we already know. It might simply be about creating great, fully-considered products desired by our customers. Is sustainability just another take on quality?

The evolution of ‘quality’ bears some semblance to the journey of sustainability. Quality was not always as easily understood as it is today. Back in the 1980’s (big hair, Flock of Seagulls, Yuppies, and leggings) the Total Quality Movement was just gaining momentum. Companies found it hard to define, asked for ‘the business case’ when pursuing a Quality Management System and waited for customers to demand a certain level of conformance to specifications, like ISO 9000, or other standards to help mold the appropriate level of company response to this new business imperative. Deja Vu?

In 1987, David Gavin published a pivotal piece in Harvard Business Review informing readers that quality in fact did not have one definition, but it actually had 8: Performance, Features, Reliability, Conformance (to specifications), Durability, Serviceability, Aesthetics and finally (Customer) Perception. The first 7 actually build up to the final customer perception. You know quality when you see, smell, touch or experience it. The customer has final say in defining what is a quality product and what is not.

Is sustainability just an extension of quality?

There are sustainable products that easily meet all 8 dimensions of Gavin’s quality definition. LED light bulbs, using significant less energy while emitting lumens meet the extended performance definition, The ‘bells and whistles’ on a hybrid or EV provide a customer with new features. Improved reliability is a result of many energy saving technologies and software. LEED buildings, designed for longer periods of time demonstrate the value of durability.

Sustainable products can conform to, at last count, over 400 different types of third-party and customer specifications. But at the end of the day, sustainability comes down to the customer’s definition of ‘better’. Bite into an organic apple at the farmer’s market on a crisp fall day. Is a sustainable product just a better product?

To understand better, understand worse

When defining what a quality product is, sometimes it is more important to understand what a poor quality product is.  It is often easier to understand what something isn’t. What did not work? What did not resonate with the customer? What missed in the marketplace? What are the missing functions or characteristics that contribute to poor quality?  Poor quality is often called a defect or a failure mode.  Once the failure modes are understood, writing the quality specifications becomes easier.

Poor quality comes at a cost. Striving to eliminate all the defects in the system is a foundation of TQM called Zero-Defects. Logically, waste – in all its forms – could be regarded as defects. 

So can we understand sustainability by understanding un-sustainability? Excess waste, excess energy use, toxicity, human rights violations, deforestation, contamination – the list goes on. Once we understand the un-sustainability associated with our products, it then becomes much easier to write the sustainability specification. Just as with the goal of zero-defects, can we have a zero sustainability defect be our goal? Not just less-bad, but truly sustainable?

But, perhaps we are really students and subject matter experts in the field of Unsustainability. It doesn’t look very good on a business card (Chief Fixer-of-Un-Sustainability Officer?). Do we have ‘sustainable products’? Or, do we really have products that are less-unsustainable?

Which brings me back to the customer. Can a product that is un-sustainable be a quality product? If, as a shopper I care about the health of my family, access to clean water, effective use of our God given resources, responsible supply chains, etc., wouldn’t I indirectly or directly associate these characteristics with the quality of product and the quality of the company providing me that product? 

Quality and Sustainability share a lot of characteristics. If we blend them into one field, it will be a strong discipline, and perhaps one we can wrap our heads around. If we do, we need to quickly become like the quality six-sigma black belts where we solve the pressing problems and rapidly move on to continuously improve the system. And in doing so, understand how to radically use less of our resources, improve the lives of all impacted by our products and dream of a future where all live well, forever. 

 http://www.sustainablebrands.com/news_and_views/mar2012/maybe-there-no-such-thing-sustainability

Now in its seventh year, the Summit is the oldest and largest business sustainability conference in the Rocky Mountain region. Attendees from business, higher education, and the public sector will have the opportunity to absorb strategies and tools for achieving measurable results. 

This standard provides usable, specific guidance and it will certainly contribute to an even greater number of businesses measuring, reporting, and acting on the GHG emissions across their value chains. Companies are now able to move forward, confident in the knowledge that a well vetted and internationally recognized measurement standard is in place to help guide the entire GHG inventory process.

There are a number of important takeaways from the new Value Chain Standard each deserving attention and we will use this series to explore these in greater detail. As a starting point we will review three basic concepts that together form the foundation of the standard:

1. GHG emissions inventories
2. Scope 3 emissions
3. The value chain

GHG Emissions Inventory

As is often the case, what gets measured gets managed, and this certainly holds true for greenhouse gases. The emissions inventory is the tool that allows us to measure, understand, and help manage the GHG emissions of an organization. An organization wouldn’t attempt to manage its finances without financial statements and it shouldn’t try to manage its GHG impacts without an emissions inventory.

How do companies create emissions inventories? It’s an accounting process. An emissions inventory is the outcome of following the process and guidance presented in the GHG Protocol standard.

Upon completion of the scope 3 inventory process, a company will have measured and understood the GHG emissions across its entire value chain. This is important as scope 3 emissions often account for 75-90% of all the emissions associated with the manufacture, distribution, and use of a company’s products or services. The GHG emissions inventory is an extremely valuable management tool, full of business intelligence and actionable information that can guide and support organizational decision making.

Scope 3 Emissions

 The GHG Protocol released its first standard, the Corporate Standard, in 2001 (revised in 2004), which divided GHG emissions into three scopes. Figure 1.1 is a graphical representation of the three scopes and where each scope occurs within the value chain.

Scope 1:  Direct emissions from a company’s operations (owned or controlled) such as those resulting from the burning of fuels in company owned facilities

Scope 2:  Indirect emissions resulting from the generation of purchased electricity, steam, heating, or cooling by the reporting company

Scope 3:  All other indirect emissions that occur within the reporting company’s value chain (not already included in scope 2)

While the measurement of scope 3 emissions within the Corporate Standard was optional the Value Chain Standard lays out the process whereby a company is able to account for and report on its scope 3 emissions.

Value Chain 

In practice, “value chain” can have different meanings and boundaries depending on an organization’s definition or use of the term. Therefore, it is important to have a clear picture of what is meant by value chain as it is used in the GHG Protocol Value Chain Standard.

Within the context of this standard a value chain includes upstream and downstream activities associated with the reporting company’s operations. Upstream activities include not only inbound logistics, but also business travel, waste generated in operations, and purchased goods and services, to name a few. Downstream activities include the customer use phase of products and end-of-life treatment of sold products, among others.

By defining the value chain in this way, a company is able to measure the GHG emissions across the entire range of activities associated with its goods or services. Armed with this information an organization is able to take action where it makes the most sense in terms of cost effective GHG reductions.

Next Up—What Drives the Creation of GHG Emissions Inventories?

We will continue our series on scope 3 emissions in the coming weeks by looking in greater detail at why organizations are measuring the emissions across their value chains.

 
Written by: David Tomasula and Karina Hilton Spiegel