Reporting environmental performance is quickly becoming a requirement for any corporation with a “green” initiative worth writing a press release about. According to consulting firm KPMG’s latest International Survey of Corporate Responsibility Reporting, 79 percent of the top 250 companies in the 2007 Fortune 500 issued sustainability reports.
The majority of companies use the indicators crafted by the Global Reporting Initiative (GRI) to come up with a snapshot of their environmental performance, but back in 2004, the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) decided it was necessary to develop a standard specific to greenhouse gas emissions.
The two teamed up to develop a standard called the Greenhouse Gas Protocol. According to WRI, about two-thirds of the S&P 500 now use the protocol to include greenhouse gas emissions in their corporate social responsibility reports. The protocol doesn’t eliminate the need for GRI’s indicators; rather, it augments those indicators, providing another level of detail to reports of environmental performance, focused narrowly on greenhouse gas emissions.
WRI and WBCSD just announced the next phase of their Greenhouse Gas Protocol: standards that cover a company’s products and global supply chain.
The standards help companies figure out first a “functional unit” to measure, such as a loaf of bread for a baker or 1,000 liters of Coke for Coca-Cola, then trace that unit from virgin materials through to consumption. Sticking with the Coca-Cola example, that would mean accounting for the emissions associated with the creation of the company’s various bottles as well as the production of its drinks, the shipping of the bottles to various distributors and then to retailers.
While there is some crossover between a product’s emissions and a company’s supply chain emissions, the protocol will contain both in order to cover the emissions generated by supplier companies as well as the primary company.
The product lifecycle and supply chain standards were released in draft form a year ago and have since been reviewed and revised by stakeholders, including representatives from corporations, consumers, non-governmental associations and governments. Now that public comments have been incorporated into the standards, 60 companies — including Levi Strauss, Coca-Cola and General Electric — have volunteered to road test them.
“If this method becomes widely accepted, it will enable us to better calculate and share the climate change impact of our products,” said Michael Kobori, Levi Strauss & Co.’s vice president of Social and Environmental Sustainability. “Being able to credibly measure and communicate that product impact to consumers can unleash the power of the market to address climate change on a global scale.”
While the 60 companies road testing the standards are some of the largest in the world, according to David Rich, a WRI Associate working on the Greenhouse Gas Protocol Product and Supply Chain Initiative, not everyone was jumping up and down to be part of the road test.
“Some companies want to track emissions, but they are a bit gun-shy about publicly reporting and are waiting for standards to be in place so that they can say ‘These are the internationally accepted standards we’re reporting against,’” he explains.
To that end, the final standards are expected to be published by December 2010. It’s a good step, and one that companies will have to take especially if and when carbon accounting becomes a real thing in this country. Still, Rich himself is quick to own up to the limitations. First, there are numerous industry-specific issues that the Greenhouse Gas Protocol does not take into account.
“We are providing a general framework that works for all industries — the details will have to be hammered out by industry-specific groups,” Rich says.
“The details” in this case means the emissions and supply-chain issues specific to each industry.
The beverage industry, for example, may look at ways to drill down into the details of plastic bottle emissions, and an electronics industry group might want to look more closely at how semiconductor chips are made. Whereas the Greenhouse Gas Protocol will just recommend that companies account for raw materials, manufacturing, transport and use of a product, industry-specific standards would provide more detailed parameters.
The electronics industry has been working on standards for responsible supply chain management for years. The Electronics Industry Code of Conduct (EICC) was formed in 2004 to bring industry leaders together to begin to monitor their supply chains (which often share common suppliers), and it produced a set of standards governing labor practices, health and safety, and environmental issues. Most U.S. electronics companies now adhere to these standards.
Last June, the EICC launched a carbon reporting system for the industry that ties in directly to the Greenhouse Gas Protocol. The EICC’s online system allows companies in the electronics industry to calculate their greenhouse gas emissions and share the data with other companies in the industry. In a statement about the reporting system, EICC announced: “The system was developed to improve measurements and increase understanding of GHG emissions across the electronics industry supply chain. This is a key category of ‘Scope 3’ emissions under the Greenhouse Gas Protocol.”
According to Rich, while industry-specific standards are important and he is happy to see several industries working to develop such standards in tandem with the general Greenhouse Gas Protocol framework, it’s not realistic for WRI and WBCSD to develop standards for everyone, given the limited resources of the groups.
Auditing and reporting are other parts of the puzzle that the Greenhouse Gas Protocol leaves to other parties.
The protocol provides a universal standard, but each company implements the standard in its own way, and reports aren’t always audited. Rich says there are software developers working on reporting programs that integrate Greenhouse Gas Protocol standards, and that the longer the protocol is out, the more third-party groups are being trained to verify reports based on the standards.
Still, auditing of sustainability reports in general is not overly popular. According to KPMG, only 39 percent of companies that produce such reports have them verified by a third party. The lack of verification is the source of most of the skepticism about reporting, which some critics see as little more than elaborate greenwashing.
Nonetheless, the goal of the Greenhouse Gas Protocol, as with all reporting standards, is that companies that track and report their emissions will be compelled to reduce them, either by the public or by internal pressures.
The KPMG report found that more than half the top 250 Fortune 500 companies it surveyed made real steps toward reducing their carbon emissions after reporting. And Rich has high hopes that the general framework could inspire big changes in some industries as well. The product protocol, for example, includes use of the product, and that means automotive companies interested in reporting will have to be taking the fuel efficiency and emissions of their vehicles into account.
“There are big opportunities in this for a lot of emissions reductions that go beyond a company’s own immediate operations,” Rich says. “A lot of companies have suppliers in Asia, for example, that might be looking at their emissions for the first time, so it could have a dramatic effect on not just the companies we’re working with but on supplier companies all over the world.”