Mandatory GHG Reporting: Why Supply Chain is Key

Nick Martin, is Managing Director, EMEA, Hara Software, a leader in energy and environmental management.

Why Scope 3?

Mandatory greenhouse gas reporting (GHG) is in the news once again. Recently, the UK Department for Environment, Food and Rural Affairs (Defra), opened a consultation on mandatory greenhouse gas (GHG) reporting for UK organisations.

Large UK firms already report GHG emissions within the business review of directors' reports, mandatory reporting under the CCA, CRC, EU ETS and voluntary reporting to the CDP. The consultation proposes one voluntary and three mandatory reporting options, aiming to drive additional disclosure and meet government obligations under the Climate Change Act 2008.

At Hara we welcome this as a positive step forward and were encouraged by Defra's research which highlighted that reporting emissions has helped companies achieve reductions and cost savings, increase interest at board level of environmental issues and improve their environmental image with clients and investors.

However, we believe that this is only part of the story and would have liked to see Scope 3 emissions referenced by Defra. Scope 3 emissions are indirect emissions that are not controlled by an organisation such as travel, transport of goods and outsourced activities which form part of an organisations supply chain.

Certainly, according to our customers Scope 3 emissions is a real area of focus for them and one where they regularly ask for guidance.

So why is the supply chain important? According to the Carbon Disclosure Project, Supply Chain Report 2011, over 50% of an average corporation's carbon emissions are from the supply chain rather than within its own four walls.

Managing supply chain emissions is therefore critical if we are going to address emissions management effectively.

Current State of Play

For those companies wishing to address emissions management among their supply chain it is often a confused and challenging picture.

For most companies, monitoring seems a sensible way to start but it has traditionally been very difficult to get an accurate picture of their supply chain. Companies are often unsure of the best way to work with their suppliers but keen to move ahead they often commission an audit of suppliers.

Unfortunately, this audit does not always glean useful information and despite good intentions can often result in a drain on time and resources.

Despite this, there is a real desire from companies to focus on their supply chain, this is being driven not by legislation but companies own emission targets and the opportunity in these difficult economic times to reduce their costs.

Another factor at play (as seen by BT's recent sustainability report) is a real demand for companies to integrate their energy management with their broader corporate responsibility activities across their supply chain such as labour issues and diversity.

This is part of an increasing focus on developing sustainable business models and as companies seek to achieve this they are looking for what we at Hara call a "single system of record" for their energy and emissions management.

Large retailers such as Tesco and Walmart play a key role in driving change by placing the emphasis on suppliers to provide emissions information, sometimes at the product level.
The Way Ahead

One of the questions we're asked most often by our customers, is where do we start?

The World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) are currently developing standards for scope 3 reporting as part of the GHG Protocol Initiative, but companies don't need to wait for this to get started.

Scope 3 protocols, as they mature, will all certainly include basic reporting on direct energy use by suppliers up the supply chain. And the tools exist today to start inventorying that using advanced, enterprise scale tools like Hara.

Our advice to those organisations wishing to get started and make a difference is to develop a consistent and pragmatic approach to collecting energy and emissions information using such tools. Those companies that are successful start by providing their suppliers with something of value in return - a set of best practices and expectations around measurement and performance.

The same tools that collect the quantitative data can be used to educate up the supply chain as a precursor to data-driven engagement. Best practices can be aggregated and shared between and amongst suppliers, and the ripple effect is to help them develop their own sustainable business models.

Don't just rely on a procurement based approach of surveys and spread-sheets to give you answers, as this provides a limited picture of activity. For example, most surveys have at best a 30% response rate.

The way ahead here lies in working together with suppliers in a collaborative way supported by software solutions that will provide the information you need to focus on delivering emission and cost reductions across your business.

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