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Leveraging Supply Chains for Impactful GHG Reductions
October 23rd, 2012
Mainstream media outlets are focusing on other things for the moment and regulatory momentum ebbs and flows, but greenhouse gas (GHG) emissions are still important in the long term, and remain high among corporate sustainability priorities.
As efforts to account for and reduce corporate GHG emissions have broadened over the last decade, companies have increased the financial scrutiny, rigor, and justification of these efforts — just like they would for any other investment. While some companies are still content to purchase carbon offsets or swap out a few light bulbs, those with more sophisticated GHG-management systems now use increasingly advanced methods of evaluating reduction opportunities. These companies don’t just want incremental reductions, they want smart reductions that improve their business while delivering GHG savings at the lowest cost.
At the same time, stakeholders increasingly expect companies to justify reduction projects and demonstrate their worthiness. In response, our clients are increasingly taking this more nuanced approach to the identification of worthwhile GHG reductions. This push for quality and depth has led many of our clients to looking beyond their four walls and into their supply chains for high-quality, low total cost improvement opportunities.
The still relatively new GHG Protocol Scope 3 Standard gives companies a framework to look beyond their direct operations and into the supply chain. This life cycle perspective acknowledges that direct manufacturing is not the only contributor to the total GHG emissions associated with bringing a product or service to market. Material sourcing, upstream processing, transport, consumer use, and end-of-life impacts also play a key role. This perspective resonates with forward-thinking companies because it’s a more holistic, long-term way to think about things. It represents the reality of doing business in a complex globalized economy. Companies that use this more comprehensive approach realize that anywhere from 75-95% of the GHG emissions associated with their products or services typically come from Scope 3 sources — i.e. those outside their four walls. In most industries, the common but outdated approach of managing only Scope 1 and 2 (S 1&2) emissions gets at only a sliver of the emissions associated with bringing a product to market — not a very good lever for companies looking to drive substantial GHG reductions and to be a catalyst for wider systemic change emanating beyond their immediate circumstances.
The practice of accounting for and addressing only S 1&2 emissions made sense when GHG management was a fledgling field. At that time, information gaps, lack of institutional capacity, undeveloped accounting tools, and amorphous reporting standards made supply chain GHG management impractical if not downright impossible. That changed with the release of the GHG Protocol Scope 3 Standard and smart companies are adapting quickly, in anticipation of an increasingly GHG-constrained future. These companies understand that the question is not whether more expansive GHG accounting and mitigation will be required, but when.
Case Study: High-Impact Reductions Through Paper Sourcing at Macmillan
We helped Macmillan, one of the very early adopters of this broader lifecycle perspective to GHG management, apply this approach to identify and tackle its most substantial impacts. Bill Barry, head of Macmillan’s sustainability initiatives, wanted to ensure he was driving reductions for maximum impact so we worked with him to quantify life cycle GHG emissions associated with Macmillan’s books rather than artificially limiting our analysis to Macmillan’s internal emissions. As expected, purchased paper was by far the largest emissions generator in the system. In response to this finding, Bill and his team worked with both existing and new (via an RFP process) suppliers to re-evaluate sourcing standards, in some cases transforming longstanding business practices to better complement Macmillan’s sustainability criteria.
In Bill’s words, “Our approach was to disassemble the processes of an integrated paper mill and then rank the most volatile drivers of harvest, production, and transport in terms of a mill’s S 1&2 emissions together with other factors such as sustainable forestry practices. Not surprisingly — given the intense energy demands of paper production — those mills generating the highest percentage of their energy requirements through renewable sources had a distinct advantage. Surprisingly, even the use of recycled fiber did not offset this advantage; in one case, a 100% recycled sheet delivered to our printer had S 1&2 emissions that were 14 times that of a 100% virgin fiber sheet of the same specifications.”
The results of Macmillan’s paper sourcing efforts are impressive: The company decreased the emissions profile of its total supply chain by 20%. Put another way, the emissions reductions associated with this paper sourcing optimization are more than 150% of Macmillan’s direct S 1&2 emissions. Reductions of this magnitude would have been impossible without leveraging the high reduction potential opportunities in the supply chain. Simply put, Macmillan would not have been able to meet the ambitious sustainability goals it set for itself without pursuing supply chain emissions reductions.
Bill noted that Macmillan’s CEO, John Sargent, who drives the company’s commitment to sustainability, quickly and intuitively gravitated to the idea that driving reductions throughout the supply chain is the most impactful way to reduce Macmillan’s emissions. “The books we publish are not disposable consumer goods, but rather the medium through which the world of ideas and compelling stories resonate with readers and make a monumental contribution to society. It would be unseemly to curate such publishing assets and not be sensitive stewards of the natural resources that allow for their diffusion. From an emissions perspective, ‘it’s all about the paper.’ While we have many sustainability initiatives underway such as our recent migration to an all-hybrid vehicle fleet, the impact of strictly internal efforts is far less dramatic than what we have accomplished through our direct paper purchasing project. Impacting areas where we have influence can have more dramatic results than where we have direct control.”
It is certainly easier — and simpler — to focus on internal GHG-emissions reductions than to look into the supply chain for higher leverage opportunities that require working hand-in-hand with suppliers and customers. Internal emission reductions are familiar, tangible and easy to control. But while they are a good starting point for companies that are just beginning to tackle GHG-emissions reductions, they ultimately offer a very limited view — one that does not represent the full picture of the emissions associated with the sourcing, production, distribution and use of products and services. Supply chain emissions are much more complex, involving multiple stakeholders, jurisdictions, information sources, and data formats. But in this complexity lies real opportunity for those who pursue this approach. Companies that have the imagination, stamina, leadership and long-term perspective to tackle this challenge open themselves up to reduction innovations that dwarf what can be achieved through solely internal measures.