Environmental Responsibility: Paul Dickinson Explains Why the Carbon Disclosure Project Has Widened in Scope to Cover Greenhouse Gas Emissions in Companies' Supply Chains
Dickinson, Paul, Financial Management (UK)
The Carbon Disclosure Project (CDP), a collaboration of more than 385 institutional investors managing assets totalling 29trn [pounds sterling], has been working for the past eight years to encourage companies in the members' equities portfolios to measure and report on their greenhouse gas (GHG) emissions.
The CDP has extended this tried and tested system to work with large procuring organisations with the aim of finding out what their suppliers are doing to manage issues associated with climate change. It has launched the supply-chain leadership collaboration (SCLC), in which firms including Cadbury Schweppes, Dell, Hewlett-Packard, L'Oreal, Procter & Gamble, Tesco and Unilever have come together to work through the CDP process and analyse emissions throughout their supply chains.
The CDP process allows companies to report through a transparent, independent system. Many of the procuring organisations involved in the SCLC also respond to the CDP themselves and recognise the benefits of doing so. Wal-Mart is one such company.
"Over the past two years Wal-Mart has gained a new appreciation of the CDP process and decided to file its 2006 submission," says Jim Stanway, the supermarket giant's director of project development. "This process gave the company valuable insights, including data showing that the refrigerants used in stores made up a larger percentage of the company's GHG output than its truck fleet."
Companies interested in reducing their carbon footprint must increasingly look way beyond their own back yards. For example, if a food manufacturer is trying to cut the emissions associated with a particular product, it has to focus on what's generated throughout the supply chain in the making of that product. Most emissions are likely be generated on the farm where the milk is produced for chocolate bars, the potatoes are grown for crisps or the cattle are raised for burgers.
It's not only the procuring organisations asking the questions that can gain from the process. It engages suppliers, often for the first time, on issues relating to climate change and its implications for their businesses, which leads to improvements. Some suppliers have already identified areas--the manufacture of packaging, for example--where their emissions can be cut by using more energy-efficient systems.
If an SCLC questionnaire arrives at your chief executive's office, it may be the first time that your firm has ever been asked to measure its emissions. The GHG protocol, which divides emissions into three categories--scope one, scope two and scope three--serves as a useful starting point for doing this. Scope-one GHG emissions occur from sources that are owned or controlled by your company, such as combustion facilities (eg, boilers); transport (eg, company cars); and its physical or chemical manufacturing processes. The company's fuel bills can be used to help assess such emissions.
Scope-two emissions result from the activities of other entities, but as a result of your firm's consumption. They include indirect emissions from the generation of electricity, steam, heating or cooling used by your company. Your firm's electricity bills can be used to assess scope-two emissions.
Scope three covers other indirect emissions that are a consequence of your company's activities but which arise from GHG sources that are controlled by other parties. Among other things, scope three covers emissions resulting from the manufacture of goods supplied to you (other than electricity, steam, heating or cooling). Supply-chain emissions fall into this category.
As the world becomes more "carbon-constrained", it's becoming increasingly important for companies to manage not only their own carbon emissions but also their carbon-related risks. These risks, which can affect both a company and its suppliers, cannot be managed effectively without information on the following areas:
* Reputational risks associated with the public's perception of a company's actions, policies and products. …