Manufacturing process
I graduated from an economics university 24 years ago and earned a Ph.D. in the same field 21 years ago. During my eight years of education, I read many books, but one that stood out was "Balanced Scorecard: Translating Strategy into Action" by Robert Kaplan and David P. Norton. Little did I know then that one day I would meet Professor ‘Bob’ Kaplan in person, but a month ago it happened!
Our Global CPO Think Tank Community includes a highly valued service offering called the ‘Lecture Series’. It's an online meeting where our members and occasionally guest experts share their experiences and ideas. Professor Kaplan graciously agreed to introduce our community to his latest big innovation: E-liability accounting. This new approach to CO2 emissions accounting and reduction has the potential to radically improve how organizations globally measure, manage, and reduce their carbon footprint.
Most current efforts and disclosures use the Greenhouse Gas Protocol ‘top-down’ entity-level method of Scope 1-3, which allows companies to hide behind ‘secondary’ industry-average estimates. It also includes double-(ac)counting for the same emissions across a value chain, each organization seeks to estimate the emissions from every other company in its supply chain – a huge duplication of effort.
E-liability accounting takes a bottoms-up, recursive and common-sense approach, and uses standard accounting principles to assign cradle-to-gate carbon emissions to each product or service unit sold, thereby enabling companies to confidently put CO2e labels on their products or services. By giving a more accurate picture of an entire value chain’s carbon impact, and allocating emissions to each unit of output, E-liability accounting helps organizations and consumers make better more informed decisions to reduce their environmental footprint.
So how does it work in practice?
Two steps. First, each period, each company in a value chain measures and records its purchased GHG emissions from immediate (Tier-1) suppliers, and adds that to its own Scope 1 GHG emissions – this is known as ‘cradle-to-gate’. Second, each company assigns or allocates a portion of these emissions to each of its products and services, in the same way that activity-based cost accounting assigns expenses to products.
You might spot a challenge here, and you'd be right – how to get supplier adoption. But don't worry, Professor Kaplan and his team at the E-liability Institute are there to help and explain how others have done it already, and with great success.
During the lecture, Bob offered our members the opportunity to work with him and his team at the E-liability Institute in 'piloting' the E-liability approach with a few key suppliers. How many pilots have you run that include free-of-charge support from a world-famous Harvard Professor?
Successful ‘pilot’ programs across a number of different industry value chains have successfully accounted for CO2e emissions from raw material production, through manufacturing, processing, and transportation, to the end customer. Pilots have also delivered unexpected benefits for participants. By engaging with suppliers on this topic some have proposed new innovations that drive reduced CO2 emissions, provide customers with greater choice, and as a result, deliver new competitive advantages.
Already we have some Think Tank members starting Pilots. Typically they take three to four months and include:
- Plan and work with a few suppliers to implement the E-liability method and collect data (typically a three to four-month project).
- Gain hands-on experience in using this simple but groundbreaking method to address the big Scope 3 challenges.
- (Optional) Offer valuable feedback to the SAP Product team to support the development of the SAP Green Ledger product, which complements large-scale E-Liability deployment.
If you're interested in this unique opportunity, please get in touch. Send please request to artem.sherekh@sap.com. I believe this innovative approach to carbon emissions accounting holds great promise in our fight against climate change. I feel a collective responsibility to work with governments, businesses, and communities to implement E-liability accounting and create a more sustainable future for everyone.
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