Insight
The climate is calling all companies: Remember the entire value chain
Companies should focus on emissions from the entire value chain and not merely from their own sites.
Companies must become much better at recognizing the climate impact of suppliers in other countries. Merely focusing on activities within the company’s borders is far from accurate - and only a few are taking the possible measures to create an overview of the entire value chain.
November 27, 2017
Far too often, companies invest in climate improvements without having a comprehensive overview of their climate impact. The consequence of which is that companies unintentionally pick the small battles. It could be switching to LED and circulation pumps. It could be accounts of electricity and heat consumption at the offices. Or it could be setting up wind turbines or solar panels.
These are all good and sustainable measures. However, they are only a minor part of a much bigger picture, when considering the climate impact companies have outside their own sites.
The bulk of the greenhouse gases that have been emitted before the Danish companies and service providers have delivered their goods and services, actually occurs at suppliers, domestically and abroad. According to the Greenhouse Gas Protocol, which sets out international accounting standards for greenhouse gases, nearly 80% of emissions from an average Danish company emanate from outside of the company’s own sites in the value chain.
Examples of emissions include deforestation in South America, use of fossil fuels in the extraction of raw materials in Africa or from energy production of chemical plants in Asia. It is absolutely crucial to consider these emissions, in order to truly make a difference.
Necessary to know one’s carbon footprint
In Norway, they have decided to go all the way. An example of this is infrastructure development, where sustainability is a decisive factor. In the preparatory work for the development of ten stretches of road, the suppliers’ carbon footprints are decisive for the tender process, and thereby who is assigned to build the new roads.
"With the current accounting methods, Danish companies’ CSR profiles are simply being kept artificially alive."
Christian Eriksen
In Denmark, few companies are aware of the scope of their full carbon footprint – the total climate impact they inflict on the environment. Both through direct and indirect impacts.
This must change now. An informed basis for the entire value chain should form the basis for companies’ CSR profiles going forward, in order to live up to their social responsibility – especially in relation to the climate targets in the Paris Agreement and the UN Sustainable Development Goals.
With the current accounting methods, Danish companies’ CSR profiles are simply being kept artificially alive.
The bill is already being paid
The effects of climate change can no longer be overlooked, even when seen through financial glasses. There are rising costs related to compensation payments for increasing numbers of natural disasters and necessary construction costs for climate adaptation.
Climate scientists agree that we have only seen the beginning. One does not need to be a climate scientist to work out that the sooner we act, the sooner we can address the adverse effects of climate change. With faster action, we can also expect that the delayed effects of climate change will be less costly at their peak.
Despite the warning signs, many companies have struggled to respond to the international climate debate in their own daily operations.
Complex chains complicate action
Due to the great distances and the complex chains of suppliers, sub-contractors and their manufacturers, it can be difficult for companies to know how to act. However, the consequence is that the climate bill is passed down the value chain, usually out of the country. It is therefore often misleading when Danish companies only account for the emissions that occur within the company’s own organization.
But this is not because Danish companies are not becoming more sustainable. Figures from the reporting body CDP, show that approx. 25 medium-sized companies voluntarily report their emissions of greenhouse gasses from their own sites. But it can be difficult to convert the climate debate and international sustainability programs like the UN’s Sustainable Development Goals and Science Based Targets into action.
As mentioned, the bulk of climate impact is often in the value chain, as an indirect effect of companies’ activities, and this is complex. For many products and services, the value chain is long and consists of a large number of processes and purchases in international markets. Here it can be difficult to trace the origin an item, and it can seem both chaotic and costly to create an overview of the emissions along the way.
New possibilities for value chain analysis
Although it is complex, there are recognized methods that can give companies an overview of greenhouse gas emissions throughout the entire value chain. By applying typical corporate data, e.g. accounting data, it is possible to create a so-called Corporate Carbon Footprint. This estimates the company’s climate impact all the way back to the beginning of the value chain. This way, companies can work quantitatively on the reduction of greenhouse gases on an informed basis.
However, these methods have a weakness, in that they work with a large amount of statistical data, which is not necessarily fully representative for the individual company. However, as more companies make use of the method, it can be refined by replacing national statistics with corporate and supplier data.
With a Corporate Carbon Footprint, the company gets an overview of whether it is the consumption of materials and intermediate products for manufacturing, purchases of products, materials for sale, office operations and marketing or distribution which contributes the most to the company’s annual CO2 emissions.
Revive the CSR profile
Several large and medium-sized Danish companies recognize their responsibilities related to the challenges of climate change and wish to raise the green CSR flag as a sign that they act sustainably. Unfortunately, there are very few – only some of the largest players in Denmark - who choose to have a Corporate Carbon Footprint drawn up to see the climate impact across the entire value chain.
With such an overview, companies could create operational visions, strategies and specific actions and go a step further than mere compliance with international standards such as the UN’s Sustainable Development Goals.
For example, a textile company can actively work to reduce waste throughout the value chain, improve agricultural methods of cotton farmers and choose climate-friendly materials.
When a company is aware of what parts of the value chain contribute the most to the climate impact, it can focus the climate efforts in cooperation with its suppliers. This is no longer just an option – it is a necessity and a significant factor to remain competitive in the near future.
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Christian Eriksen
Expertise Director
Allerød, Denmark
Christian Eriksen is Expertise Director for climate and sustainable development at NIRAS. As an engineer and M.Sc., Christian has worked with projects within climate and sustainable development for more than a decade – nationally as well as internationally. In recent years, he has provide consultancy for a large number of companies and organizations on how to reduce CO2 emissions and climate impact. Christian has been project lead in projects across Nigeria, Thailand and Kenya implementing sustainable development and green transition.
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