Value Chain Assessments and Engagement: UK Businesses’ Preparation for International Climate Change Impacts

The Industrial Revolution originated with Britain in the late 19^th century.Through the nation’s massive reserves of coal and iron ore, the British created the world’s first large-scale machinery that led to establishing factories, facilitating mass production, and propagating economic growth. 

With almost 200 years’ experience in handling continuous modernization and industrialization, businesses, governments, and citizens of the United Kingdom (UK) are now working to ensure that economic growth is sustainable and securely meets the needs of future generations. Such is the impetus of all of CDP’s (formerly known as the Carbon Disclosure Project) efforts to establish one of the world’s first (and largest) repository of environmental disclosure and performance data in 2000, as well as its service as a collaboration platform for companies, cities, investors, and policymakers.

CDP, a non-profit organization based in the UK, released the 2013 edition of the FTSE 350 Climate Change Report, asking the question “Are UK companies prepared for the international impacts of climate change?” CDP requested the top 350 companies (based upon market capitalization or market value of their outstanding shares) listed in the London Stock Exchange to disclose information pertaining to their businesses’ greenhouse gas (GHG) emissions and climate resiliency.

Based on the response of the 260 FTSE 350 companies that responded, CDP found that UK businesses are largely exposed to climate change risks due to their international operations. UK businesses with factories, offices, customers, and suppliers abroad may be largely affected by the physical and regulatory risks in countries where they have operations. It may also be more challenging to control emissions and environmental impacts in locations outside the UK.

The largest percentages of FTSE 350 companies’ carbon footprints were traced from overseas sources. In general, FTSE 350 companies report that 77% of their Scope 1 GHGs come from abroad, while their Scope 2 gases amount to 83%. This may affect UK companies’ participation in emissions trading and may result to heftier carbon taxes.     

To fortify UK businesses’ climate resiliency, CDP included a five-point plan that companies can implement. This includes:

1. engaging businesses’ executive team
2. engaging the value chain
3. identifying and assessing risks
4. evaluating options for managing risks and capitalizing on opportunities
5. implementing decisions while monitoring effectiveness and planning for the future

Looking at CDP’s five-point action plan, the value chain is at the core of ensuring climate resiliency. The value chain provides the view to climate risks and opportunities; the evaluation and management of both serves as the foundation of strong climate change action and programs.

Addressing Data Gaps in Value Chain Emissions with the Help of Assessment Tools

CDP notes that UK businesses have a limited understanding of their value chains. This is evident in the data gaps present in their emissions inventories;  FTSE 350 companies have calculated Scope 3 gases from only half (51%) of the relevant emissions sources, while 34% of the UK businesses in the CDP report have not been able to report any Scope 3 emissions.

Calculating Scope 3 emissions is important as it allows companies to trace emissions throughout their supply chain. Combined, Scope 1 and 2 emissions only trace GHGs from company vehicles, purchased energy, heating, and cooling, and company facilities—a very miniscule part of total emissions from doing business. By measuring Scope 3 emissions, businesses can find out how much GHG they emit while they purchase raw materials, and from the raw materials themselves. They can also compute emissions from the entire lifecycle of their products, and measure emissions from up to 15 major sources downstream and upstream. Hence, value chain assessments enable the measurement of GHG emissions and climate change information, even from operations outside the UK.

The FTSE 350 Climate Change Report suggests that UK businesses without Scope 3 emissions in their inventories and/or those who lack insight about their value chain emissions utilize the free materials and support from the following organizations:

• Defra (Department for Environment, Food and Rural Affairs)

Defra is the department of the UK government dedicated to improve the state of the environment. Defra has a collection of guides for GHG calculation and measurement and reporting of environmental impacts for local governments and companies. In 2012, Defra released its guide on greenhouse gas conversion factors for company reporting. This guide contains information on updating GHG inventories, conversion factors for calculating emissions from Scopes 1, 2, and 3, and color-coded cells for tabulation of emissions data. A methodology paper that can be used in conjunction with the conversion factor guide is also available as a complimentary download from the UK government website.

In July 2013, Defra launched a free web-based tool for calculating GHG emissions, which can be used both by small- and large-scale UK-based organizations, as well as by international organizations that need to report emissions to their UK locations.

• CEMARS (Certified Emissions Measurement and Reduction Scheme) and carboNZero certification

The carboNZero programme is the world’s first ISO-certified (International Organization for Standardization) GHG-certifying organization. carboNZero offers CEMARS certifications for authenticating organizations’ GHG measurement and reduction. Organizations and businesses aiming to substantiate their carbon neutral status, can achieve a carboNZero certificate by measuring their emissions using the web-based inventory tool, E-manage. carboNZero offers tools and guidelines for large businesses and organizations, as well as free GHG calculators for measuring household and personal travel emissions.

• World Resources Institute’s Greenhouse Gas Protocol

Most of the disclosures submitted to CDP follow use the Greenhouse Gas Protocol’s Corporate Accounting and Reporting Standard. Its supplement, Corporate Value Chain (Scope 3) Reporting Standard, serves as a helpful and comprehensive guide for tracing GHG emissions from companies’ value chains. Greenhouse Gas Protocol’s Scope 3 Standard helps companies go beyond Scope 1 and 2 emissions reporting. UK companies can be guided to trace emissions from upstream sources (purchasing of goods and services, business travel, employee commuting, etc.) to downstream activities such as the use of sold products, end-of-life treatment of sold products, franchising, etc).

Increasing Stakeholder Engagement Throughout the Value Chain

More than half (52%) of FTSE 350 companies engage with their suppliers, while almost half (44%) of the responding FTSE companies report that they engage with their customers to help minimize GHG emissions. 21% report engaging with other partners such as non-profit and government organizations. Perhaps most staggering is that more than 1/3 (37%) of FTSE companies report that they do not engage with any organizations at all to reduce GHG emissions.

Engagement with suppliers, customers and all stakeholders facilitates emissions reduction and climate change mitigation as a collaborative effort. Engaging with government organizations broadens companies’ awareness and understanding of climate change regulation, and helps businesses minimize their regulatory risks. 

Involving suppliers opens the dialogue for initiating emission reduction endeavors. Suppliers can develop ways to transport their goods with fewer carbon footprints, such as utilizing reusable crates. Allowing for a customer feedback mechanism in engaging consumers, informs companies of what they are doing right (and what they are doing wrong) in terms of minimizing their carbon footprint. For example, is it a good decision to use sustainably-sourced raw materials even if it means that their products may cost more? Likewise, is it okay to reduce the packaging materials for their products? Questions such as these can be answered through a dialogue with customers, and they can be a source of new ideas for helping reduce companies’ carbon footprints.

The Prince of Wales’ May Day Network and the Business in the Community (BITC) are organizations that UK businesses can join to obtain practical advice for establishing sustainable businesses and the latest information on the landscape of sustainable businesses in the UK.

UK businesses can also participate in the CDP Supply Chain Program to collaborate with investors and suppliers in creating climate-resiliency plans and strategies. By engaging with suppliers, UK businesses can implement plans to sidestep problems such as supply chain disruptions caused by extreme weather events, or achieve responsible sourcing, circumventing possible regulatory risks.

Value Chain Assessment and Engagement Go Hand-in-Hand

Value chain engagement supplements the effect of value chain assessment. The information obtained from value chain assessments serve as the foundation of effective value chain engagement. Value chain assessments indicate emission levels, enable the setting of emission reduction targets, and ascertain the largest emission sources. Using this information, businesses (from the UK and globally) can effectively engage with stakeholders by collaborating with them in the planning, implementation, monitoring, and evaluation of climate-resilient business practices.

FirstCarbon Solutions (FCS) provides reliable carbon calculation services, supplier scorecards, and lifecycle assessment support to help you create informative value chain assessments. As a Gold Consultancy partner for CDP’s Supply Chain program, FCS can provide helpful consultations that can improve stakeholder engagement throughout your value chain.