Imagine a river. The Nile. The Yangtze. The Ganges. The Rio Grande. Take your pick. Now, what if you had to map the course of one of these vital tributaries knowing only its depth, width, and velocity of current? What if you had to plot the exact location of the river’s source and mouth based solely on the type of material making up the riverbed?
Like this perplexing introduction, for many businesses seeing the big picture of their total greenhouse gas emissions can be complicated. In addition, the Greenhouse Gas Protocol defines separate standards for product and corporate greenhouse gas reporting.
In this blog, we will examine the different standards of GHG protocols (corporate and product based) and how their relationship to one another is critical to assessing total emissions and achieving all carbon-related impact reporting requirements.
Upstream or Downstream, Direct or Indirect
Let’s begin with the
GHG Corporate Protocol. The GHG Corporate protocol mainly focuses on value chain emissions on a corporate level. This includes Scope 1 emissions (direct emissions, controlled by the company), Scope 2 emissions (indirect emissions from energy-related purchases), and Scope 3 emissions (other indirect emissions from across the entire end-to-end value chain).
Scope 3 emissions can occur from upstream sources like purchased products, inbound transportation, and business travel, or downstream sources like the use of products, investment-related emissions, and leased-asset-related emissions.
Product Standard
The product lifecycle accounting and reporting standard (short Product Standard) (
https://ghgprotocol.org/product-standard) defines a method for reporting the emission of individual products. Although companies might not be required to calculate emission data for individual products, corporate partnerships and the end consumers are now requiring this information in a growing demand for more transparency and sustainable best practices. In addition, new regulations, like the European Carbon Border Adjustment Mechanism (
CBAM ), imposing a tax on imports based on the greenhouse gases emitted in making them, will require companies to report product-specific emission data.
A Bridge of Data
Whether it is direct or indirect, corporate or product-specific emissions, these standards are not independent of one another. In fact, through data, their connection becomes closely interwoven. For example, Corporate Scope 3 reporting for purchased products requires the collection of emission data of the materials used to manufacture a finished product. This information could come directly from suppliers as a primary source or be estimated by using LCA (Life Cycle Assessment) databases. In any case, the data will be used for corporate Scope 3 reporting as well as provide input for calculating the carbon footprint of a finished product through its bill of material and manufacturing cycle. Other Scope 3 categories, like business travel or investments, are relevant only from a corporate level, but not on a product level (so-called non-attributable categories).
Improve Competitiveness, Reduce Financial Liability
The GHG Protocol’s Product Standard defines five life cycle stages: material acquisition and pre-processing, production, distribution and storage, product use, and product end-of-life. Any reporting entity should specify its processes along these stages and report the product-related footprint for each of the stages.
Calculating the product-related carbon footprint allows a company to identify the main sources of the product’s carbon footprint and take action to reduce the footprint by switching materials, changing suppliers, or finding alternative manufacturing locations.
Taking actions like these will improve the competitiveness of their products and ultimately, in the case of the carbon border tax, reduce financial liabilities.
Toothpaste
When calculating the carbon footprint of a finished product, in addition to other contributing factors like transportation or direct emissions, the two main contributing variables are the ingredients and the manufacturing activities required to build the product. Let us take toothpaste as an example.
A toothpaste manufacturer would use a recipe or Bill of Material (BOM) describing all the raw materials (e.g., water, humectants, preservatives, flavorings) included in the product as well as their quantity ratios. Having the carbon emissions equivalents (CO2e) for each of the ingredients, as well as the quantities used, will allow for the calculation of the raw material-related part of the toothpaste's carbon footprint. From a corporate GHG reporting perspective (in this case purchased products, Scope 3 Category 1), the exact composition of the toothpaste is not relevant. Here only the footprint associated with the overall quantity of purchased products per period would be considered. Only when diving deeper into the level of finished product-related footprint, the product composition stored in product recipes or BOMs is essential. In many cases, this calculation can become complex, as the finished product could have thousands of parts coming from many suppliers, in some cases multi-sourced.
Like material-related emissions, the manufacturing activities executed when producing the toothpaste need to be considered. On the corporate level, this is included in the Scope 2 emissions related to the purchase of energy required to keep things running like manufacturing machines. The greenhouse gas protocol encourages a granular emission calculation by using consumption data provided by meters over allocation processes. The granularity of consumption data available might be sufficient for corporate GHG reporting, but not sufficient for product-related GHG evaluation. For example, metering the energy consumption at a site could include non-attributable energy (e.g., lights or HVAC). Furthermore, if multiple products are produced at the site, applying an allocation process for each of the manufactured products is needed. Measuring the energy consumption of a given machine, if available, could help, if the machine is used for a single product only.
Another way to calculate the toothpaste’s related manufacturing emissions is by using the production activities defined in the production routing information. The GHG protocol allows for the use of actual consumption data on activity level or the use of average data for a specific production activity. Rolling this up, like the material rolls up through the BOM will provide the total emissions associated with the production activities of a product. This is remarkably similar to calculating the costs associated with the production of a finished product.
The SAP Product Footprint Management tool supports these exact calculations in a scalable, repeatable, and auditable way. It uses the detailed BOM and routing information already stored in the backend ERP systems.
Data Can Help You Tell the Whole Story
For companies to be compliant today, corporate, as well as product-related calculations are required to satisfy all carbon-related impact reporting requirements. The corporate value chain GHG reporting defined in the GHG Protocol can be used to feed external impact reporting framework requirements such as GRI, SASB, or others. The product-related GHG emission impact reporting, required by customers and regulators in the form of border taxes, will push for an even higher level of detail and a more granular data evaluation and collection. Therefore, using detailed product and production information such as Bill of Materials and routings is critical to this type of reporting.
How will you chart the course of your company’s corporate and product carbon footprint management?
How can SAP help you use data to mitigate the twists, turns, and potential risks to the flow of materials and resources across your value chain?
Imagine a river. Then, imagine the possibilities. Data can help you to tell the whole story.
