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Supply Chain's Carbon Impact: More Than a Footprint

Carbon footprint: What a misleading metaphor that is.

Supply Chain's Carbon Impact: More Than a Footprint

As if a single imprint could encompass the totality of a global supply-chain’s impact on the environment. Consider what actually goes into that measurement: the output of countless partners, of raw-materials producers, factories, transportation providers, warehouses and, yes, the consumer. “Footprint” doesn’t even begin to describe it – unless you’re envisioning something on a larger scale.

Companies have a hard enough time calculating their own emissions, let alone those of multiple suppliers and service providers. How can they possibly get their hands on the necessary data, all the way up and down the chain? How can a self-described “green” business back up its good intentions with hard numbers?

There is hope. This year saw publication of a powerful tool for evaluating the environmental impact of one’s major suppliers: the Supplier Climate Performance Leadership Index.

The benchmarking tool is the product of a partnership between CDP, the non-profit developer of a system for sharing data on environmental impacts, and FirstCarbon Solutions, which is helping to score and evaluate information submitted by CDP members. The latest index includes 79 reporting companies.

CDP and FirstCarbon have been rating suppliers on their environmental disclosures for the last six years, and their performance for four. It was only at the start of 2014, however, that they began publishing the performance results.

The initiative consists of two scores, says Dexter Galvin, head of supply chain with CDP. The first, created back in 2008, examines suppliers’ transparency in disclosing their emissions. The second, launched in 2010, measures efforts to reduce them.

The information this year is contained in a report prepared by Accenture, entitled “Collaborative Action on Climate Risk.” It details the painstaking efforts of CDP members and their suppliers to control and reduce emissions. It also incorporates FirstCarbon’s report card on some 65 companies with combined purchasing spend of $1.15tr. (Their suppliers represent an estimated 14 percent of all global industrial emissions.) Businesses receiving an “A” score included BMW, Cisco Systems, Inc., Hewlett-Packard, Philips Electronics, Samsung and Nestlé.

To be included in either leadership index, companies must agree to make their responses public, and submit them through CDP’s Online Response System. They are then given a questionnaire containing more than 100 questions.

Suppliers are queried on such practices as board-level oversight of climate planning, monetary incentives for cutting emissions, inclusion of climate-change concerns in risk management and corporate strategic planning, and evidence of reductions in Scope 1, 2 and 3 emissions (as defined by the Greenhouse Gas Protocol).

Respondents get points for answering fully, receiving a total score of between 0 and 100. Those scoring above 50 become eligible for a performance evaluation, which is marked on a scale from “A” to “E.” The top 3 percent get listed in the Climate Performance Leadership Index.

It’s taken some time for suppliers to agree on having their environmental performance made public. Galvin says companies “have definitely gotten a lot more forthcoming about what they’re doing in this space, as their own sophistication has developed.” Many CDP members are now providing suppliers with formal compliance targets, and including that behavior in their vendor assessments.

Michele Carchman-Hincks, director of sustainability with FirstCarbon, has seen a growing willingness among suppliers to disclose their environmental behavior. In return, she says, they are better able to benchmark their performance against others. “They are ready to say who’s a leader.”

One of CDP’s most aggressive members in addressing climate change has been BT Group plc, the British telecommunications giant. It debuted on the CDP index with an “A.”

By 2020, BT Group expects to have cut its carbon impact by 80 percent over 1996 levels, says Liz Cross, head of government and sustainability in procurement. Also by that date, as part of its “Net Good” goal, BT plans to have helped customers slash emissions by at least three times the end-to-end carbon impact of its own business. Driving the effort is the company’s Climate Change Procurement Standard for suppliers, dubbed GS20.

From the outset, BT was determined to include energy efficiency as a criterion for engaging with first-tier suppliers. “We wanted them to have a policy on climate change, to be measuring their carbon emissions, to have targets to reduce those emissions, and to be reporting on their progress,” says Cross.

Over the past six years, the company has received more than 600 completed questionnaires from suppliers. The responses, Cross says, “give us a really broad benchmark for what ‘good’ looks like.”

BT takes an active role in helping suppliers to improve their emissions programs. In 2010, it held a series of workshops, aimed especially at “those we thought were a little bit behind the curve.” The sessions offered detailed advice on how to save energy and cut emissions.

The company defines “carbon footprint” as the impact of emissions from “our own operations, the entirety of our supply chain and the customers using our product,” says Cross. “It’s a full spectrum.”

The major challenges, she says, lie in managing the scale of the initiative, dealing with the complexity of carbon measurement and getting suppliers to make progress in their own efforts.

“Once suppliers engage and start to report on emissions, their performance starts to improve,” says Cross. For assistance in measuring carbon levels, BT turns to U.K.-based Small World Consulting.

Much work remains to be done. BT’s efforts are still focused primarily on Tier 1 suppliers. CDP’s index, too, needs to widen its membership and scope. (The organization has undertaken an initiative to measure water usage. And First Carbon and CDP recently expanded their global scoring partnership to include S&P 500 and FTSE 350 companies.) Still, the newly publicized performance index is a crucial step toward figuring out just how much of an impact global supply chains are having on the environment – and what can be done about it.

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