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Carbon accounting standards

In a recent blog post, Tom Raftery praises BT for unilaterally introducing carbon footprint assessment for its suppliers. Tom initially notes that:

They will be auditing suppliers on a scale of 0-3 where 0 means the supplier hasn’t started working on their carbon footprint yet and 3 indicates that they have auditable results. Further, BT will be using this scale to rule companies into or out of tender processes. Excellent.

but then concludes:

There is still a dearth of agreed standards around carbon accounting and energy efficiency. It is interesting to see, in the absence of such standards, companies coming up with their own and starting to use these measures as part of their purchasing process. Increasingly your company’s carbon footprint will not alone affect your energy costs but will also start to affect your sales.

More reasons for agreed standards and lower carbon footprints!

I am dismayed. While I appreciate the efforts being made by companies like BT to promote the notion of solving sustainability issues, imposition of what are arbitrary standards and methods is not the way to go about it. In looking at BT’s approach I note they are attempting to apply a model that can be summarized from this reporting in Computing:

Developed by BT director of sustainable development Dr Chris Tuppen, the Climate Stabilisation Intensity (CSI) model links data on a firm’s carbon emissions and EBITDA (earnings before interest, taxes, depreciation and amortisation), to global emission reduction goals recommended by the UN, to work out an appropriate emission reduction target for the firm.

The rational behind the model is relatively straightforward. Simply tying emission reduction standards to top line sales (on oft used measure) gives rise to distortions. This is implicitly correct in global economies where M&A is an everyday feature. Companies are acquired or divested for all kinds of reasons. Acquisition for example might be triggered by a perceived opportunity to improve financial performance combined with the potential to enter new markets. However, as we know, future outcomes are not guaranteed and the acquired company may not have a defined carbon emissions policy that can be compared to that of the acquirer. Tuppen was quoted as saying: “Currently, if you grow organically or acquire a new company it is very difficult to adjust your absolute emission reduction target,” she explained. ” This model allows you to work out what the new target should be and also allows you to compare different companies’ relative performance in cutting emissions, even when they are growing at different rates.”

I don’t have a problem with the initial premise upon which the model has been developed. If it becomes something that can be readily adopted across a broad swathe of industries then so much the better. One problem is that BT’s model is based upon work it is doing with the Carbon Disclosure Project. CDC recently produced the results of a CDC Supply Chain Leadership Collaboration survey (link leads to PDF download.) In its executive summary, it states (my emphasis added):

The SCLC survey is a successful first stepin creating a consistent approach for suppliers to report their climate change efforts to their customers and other stakeholders.  The number of companies becoming a part of SCLC demonstrates that there is a growing interestfrom businesses to gain a better understanding of the climate impacts of their supply chain.  The survey responses are useful as a baseline for members to understand the preparedness of suppliers to address climate change issues and to increase their knowledge of supply chain greenhouse gas emissions.

In other words, participants are barely across the first hurdle in understanding how to report let alone reduce carbon emissions. It seems to me therefore that BT is somewhat jumping the gun in developing an initiative for its own suppliers that may (or may not) be flawed. Nonetheless, it is important to take such initiatives at face value and assess the business implications.

There are clear business process issues that cut across GRC initiatives that might affect the supply chain. It is fair to say that we are in the very early stages of understanding how collaboration across complex supply chains on issues of this kind might usefully be pursued. In an effort led by Accountability, SAP people, along with others interested in the general area of sustainability are participating in a wiki(invitation required) that serves as a starting point for opening up some of the general sustainability debates. Offering a wiki seems an eminently sensible way forward to open the kind of transparent dialogue needed to make such initiatives workable. Here are some questions that business process experts might wish to consider:

  • What processes might be involved in providing an assessment capability for companies choosing to follow the BT example?
  • What will the documentation look like?
  • How might documentation processes be embedded in supply chain contract negotiation processes?
  • What are the risks that attend such documentation processes?
  • What exceptions might need to be considered?
  • Is it possible to develop industry specific templates?
  • How will audit procedures be created?
  • Who will create those procedures and how might they be enforced?

These are all discussion areas that business process experts should be considering because as Steve Rochlin, head of AccountAbility North America told me last month, carbon emissions is the single biggest item on boardroom corporate risk agendas.

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