ACCOUNTANCY FUTURES

The carbon
we’re not counting
accounting for Scope 3 carbon emissions
 About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for
professional accountants. We aim to offer business-relevant, first-choice qualifications to
people of application, ability and ambition around the world who seek a rewarding career
in accountancy, finance and management.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity,
innovation, integrity and accountability. We believe that accountants bring value to
economies at all stages of their development. We seek to develop capacity in the
profession and encourage the adoption of global standards. Our values are aligned to
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prepare accountants for business. We seek to open up the profession to people of all
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development. Through our public interest remit, we promote appropriate regulation of
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reputation and influence.

www.accaglobal.com/af

Contributors

Rachel Jackson
As ACCA’s head of sustainability, Rachel champions ACCA’s global sustainability agenda
on reporting and disclosure with specific reference to environmental, economic and social
issues. Rachel represents ACCA on various technical committees and working groups
including FEE and the new EPC Climate Change Adaptation Task Force. She is also
secretary to ACCA’s Sustainability Committee.

Dr Alan Knight
With over 20-years’ experience of sustainability issues, Alan has been involved in many
of the significant sustainability standards development initiatives of the past two decades.
He managed the secretariat for the development of the ISO 14000 series of environmental
management standards, was a member of the technical committee for the GRI
sustainability reporting guidelines, and was a delegate to the ISO 26000 working group.

He is currently actively involved in the development of the Integrated Reporting Framework

as a member of The Prince of Wales’s International Integrated Reporting Committee. He
has authored two books on sustainability standards as well as numerous articles and
reports, including a number of reports on climate change and greenhouse gas emissions.

2
 Contents

Foreword 4
Executive summary 5
Delivering value from carbon 6
The carbon we’re not counting 7
The control approach 12
The influence approach 13
The engaged approach 15
Joining the low-carbon economy 17
Appendix A: practical guidance for Scope 3 accounting
and reporting 19
Appendix B: case studies – ExxonMobil, Wal-Mart, and Bayer 21
Acknowledgments 26

the carbon we’re not counting contents 3

Foreword

The question of carbon emissions – how we

manage, measure and hopefully reduce them – is
central to the issues of climate change and global
warming. The accountancy profession is gradually
recognising that, if not already at the tipping
point beyond which irreversible climate change
will occur, then we are very nearly at that point,
with inevitable costs for business and society.
There is a major part for the profession to play in
developing strategies and solutions in response to
the carbon challenge.
This report highlights that businesses can’t evaluate the nature, extent and value
of greenhouse gas emission-associated risks and opportunities until high-quality
information is available. And this means an investment in credible and complete
carbon accounting.

Credible information on Scope 1 and Scope 2 emissions allow a company to better

understand what is happening inside its fences. But more significant is the carbon
many businesses aren’t counting. Scope 3 emissions look across the full value
chain. Measuring Scope 3 emissions provides the information needed to understand
climate‑related risks and opportunities upstream and downstream from operations,
beyond operational boundaries and in the products and services developed and sold.

Unfortunately, none of the many regulatory or voluntary accounting and reporting

programmes require Scope 3 accounting and reporting. At best they make it optional
and the reasons for this are understandable. There is the fear of double counting when
the Scope 3 emissions for one organisation may be the Scope 1 emissions of another.
There are also methodological difficulties and evidence gathering and quality issues
are also a challenge.

In reality, in 2009, 82% of the Global 500 responded to the Carbon Disclosure
Project’s request for information. Forty-two percent provided information on their
Scope 3 emissions. On the surface this may not sound too bad. But as our findings
reveal, if you look more deeply it quickly becomes evident that some of this Scope
3 reporting is of limited value. The fact that only six of the Global 500 companies
reported on all five of the CDP’s Scope 3 emissions classes indicates that the field is
wide open. There is lots of opportunity for market-leading innovation.

Joining the low-carbon economy doesn’t happen by chance. It happens only when
you have the right information to make the right decisions. Scope 3 is really about
innovation and the future. It is about business remodelling rather than improved
efficiency. It is not about doing what you do better, it is about understanding what and
how to do things differently. Scope 1 and Scope 2 are about better. Scope 3 is about
different. We need Scope 3 reporting if we are going to get beyond the efficiency drive
to business remodelling.

Helen Brand
Chief executive, ACCA

4
Executive summary

Despite widespread concern about climate change, government leaders

have repeatedly failed to negotiate international binding agreements on
policies to reduce greenhouse gas (GHG) emissions. This policy vacuum has
made the role of business and markets increasingly important: the drive for
value creation could be the key trigger for behavioural change leading to
reduced emissions.
Formulating value-creating business This report describes three different ACCA recommends action by all
strategies requires comprehensive and approaches companies are taking to interested parties to encourage
reliable information. If GHG emissions Scope 3 emissions: widespread use of Scope 3 reporting
are to be managed, they must first be and so inspire new business insights
measured and reported. Accountants • The Control Approach: focusing on and behaviours:
therefore have major roles to play in operational efficiencies in areas the
the analysis of GHG data, its reporting business controls. • Governments, intergovernmental
and incorporation into business strategy • The Influence Approach: seeing agencies, standard setters and
formulation. ACCA has a strong interest Scope 3 information as an important policymakers should consider
in enhancing understanding in these guide for improvement in areas making Scope 3 reporting
areas, thus supporting environmental where the business has high mandatory rather than voluntary.
accountability and long-term business influence, such as the supply chain. • Businesses should begin to account
sustainability. Improvements focus on technology for and report on Scope 3 emissions.
and improved efficiency, but include • Businesses should begin to include
Methodologies for measuring and innovations in materials, processes, Scope 3 analysis in strategy
reporting on GHG emissions have products and ways of doing development and in operational
developed significantly, but many business. decision making and actions.
organisations focus only on direct • The Engaged Approach: businesses • Scope 3 information and analysis
emissions (Scope 1) and emissions bring an understanding of Scope 3 should begin to be brought into the
resulting from the generation of emissions into all decision‑making, investment appraisal process.
purchased electricity (Scope 2). Hardly identifying opportunities for
any measure, let alone report, Scope 3 innovation across the full value
emissions generated across the full value chain – internally, upstream and
chain – upstream and downstream, downstream. They look at how
including all elements of the supply their products are made, used and
chain – and emissions associated with a disposed of.
product’s use and end of life.
Interest in Scope 3 emissions is set to
This creates a huge knowledge gap. increase. Formal guidance on Scope 3
Research has suggested that Scope 3 accounting and reporting, developed by
emissions could account for around 75% the World Resources Institute and the
of an entity’s total GHG emissions. World Business Council for Sustainable
Development, is expected to be
Some companies, however, are using published by Q4 2011. This ACCA report
information gained from Scope 3 therefore provides a timely resource for
analysis to develop new business all those with an interest in Scope 3
strategies: not just finding efficiencies, reporting and reducing GHG emissions,
but also identifying opportunities for new including policymakers, regulators and
products or services that create genuine standard setters, as well as business
business value. leaders, CSR, risk and environmental
experts, accountants in business
and practice.

the carbon we’re not counting executive summary 5

Delivering value from carbon

Everyone agrees that we need to reduce greenhouse gas emissions. However, there is less
agreement on how we achieve these reductions and the lack of coordinated public policy
is symptomatic.

The UN Framework Convention on To find and deliver value by reducing

Climate Change (UNFCCC), whose carbon, companies need to take a
role is to coordinate public policy on long‑term view. And they need to look at
climate change internationally, has an increasingly broadening range of GHG
had limited success. Each year the risks and opportunities associated with
UNFCCC convenes a conference of the concerns such as:
parties (COP – all of the countries who
have signed the UN climate change • security of supply and adaptation
convention) to develop and agree on the requirements where there is risk
policies and actions needed to combat of climate impacts such as floods,
climate change. drought, severe weather events and
growing resource scarcity
At the 15th annual conference of the • material and process inputs and
parties held in Copenhagen in December outputs such as electricity, water and
2009, the parties once again failed to waste where the associated GHG
negotiate a binding policy agreement emissions are high
– against a background of increasing • supply chain emissions and supplier
urgency and high expectations. COP 16, produced goods and services
held a year later in Cancun, Mexico, in • waste streams and waste disposal
late 2010 did not break the public policy • the transportation and distribution of
log jam. goods and services
• the use of products and services
In this policy vacuum, the role of • changing customer and consumer
business and markets are becoming demands for products and services
increasingly important. ‘As the dust • changing public policy and market
settles on Copenhagen, we believe dynamics
leadership from business is more critical • reputation.
than ever,’ notes The Carbon Trust.1
A better understanding of the risks and
Given the lack of coherent public policy opportunities (including cost, taxation,
signals, a key element of this leadership regulation and revenue) associated with
will be finding ways to deliver carbon GHG emissions needs to be brought
reductions that also deliver value within into the investment appraisal process to
the context of the marketplace. If enable the development of strategies that
reductions are not going to be driven by will create value for organisations and
regulators, companies need to find the their stakeholders.
business case; they need to find and take
advantage of the value drivers.

Finding these value drivers is not easy. It

takes good information, innovative critical
analysis and the ability to think outside
of the ‘business as usual’ paradigm. It
also requires looking at emissions across
the full value chain.

1 www.carbontrust.co.uk

6
The carbon we’re not counting

‘Those companies today that do measure and report their Scope 3 emissions tend to pick which
activities to include in a piecemeal way (eg air travel but not employee commute), based on
the ease of data capture, relevance to brand, or degree of control. This means that, despite
the advancements in carbon disclosure, investors and others are forced to compare apples to
oranges. While the numerator may look comparable, the hidden denominator (or boundary) varies
drastically between companies.’ Emma Stewart, Environmental Leader, 26 February 2009

The dilemma is that you can’t start

evaluating the nature, extent and GHG emissions types
value of GHG-associated risks and Scope 1: direct GHG emissions
opportunities until you begin measuring Direct GHG emissions occur from sources that are owned or controlled by
your emissions. If businesses are going the company.
to show leadership they must clearly
have the high-quality information Scope 2: electricity indirect GHG emissions
needed to motivate the type and GHG emissions from the generation of purchased electricity consumed by the
scale of action that will show that company. Purchased electricity is defined as electricity that is purchased or
leadership. What this means is an otherwise brought into the organisational boundary of the company. Scope 2
investment in credible and complete emissions physically occur at the facility where electricity is generated.
carbon accounting.
Scope 3: other indirect GHG emissions
The first step to credible and complete All other indirect emissions. Scope 3 emissions are a consequence of the
carbon accounting is identifying and activities of the company, but occur from sources not owned or controlled by
classifying GHG emissions. It is now the company.
accepted practice to classify GHG
emissions as either direct emissions or
indirect emissions.

Direct emissions come from sources Scope 3 information that encompasses ACCOUNTING AND REPORTING
owned or controlled by an organisation the full value chain may well challenge Over the past 10 years the accounting
– including emissions from boilers, companies to look at what they are doing and reporting of Scope 1 and Scope 2
furnaces and production processes. and not just how they are doing it. emissions has improved dramatically.
This has been driven in part by
Indirect emissions are divided into two The value of this information, given the regulatory requirements but also by
classes – those from purchased electricity remaining methodological challenges, the increasing recognition of the risks
and those from all other sources. These is most useful for what it reveals about and opportunities associated with
three different classes are referred to as the trends and scale of indirect carbon these GHG emissions. And while there
Scope 1, 2 and 3 emissions. Credible emissions. Leading companies have remains some concern over the lack of
information on Scope 1 and Scope 2 recognised this and are using Scope harmonisation among regulatory and
emissions allow a company to better 3 information in reaching far more voluntary accounting and reporting
understand what is happening inside its wide‑reaching strategic decisions. requirements (a recent review by PwC
fences. It provides information on what is for the Carbon Disclosure Standards
happening at the plant or factory as well It may result in the decision to develop Board identified 108 different reporting
as how much electricity is being bought new products and services rather than regimes), much has been achieved
to keep the plant or factory operating. simply more efficient ways to deliver in the quest to develop credible and
existing products and services. It may usable GHG accounting and reporting
Scope 3 emissions look at emissions result in the decision to substitute methodologies and standards.2 3
across the full value chain. Measuring materials that are less carbon intensive.
Scope 3 emissions provides the It may result in significant changes in Unfortunately, none of the many
information needed to understand the supply chain and new criteria for regulatory or voluntary accounting and
climate-related risks and opportunities evaluating supply chain performance. reporting programmes require Scope 3
upstream and downstream from It may result in new investments accounting and reporting. At best they
operations, beyond operational in low‑carbon transport and waste make it optional and the reasons for this
boundaries and in the products and management solutions. It will result are understandable.
services developed and sold. in change.

2 High-Impact Sectors: The Challenge of Reporting on Climate Change, ACCA and GRI December, 2009
3 Carbon Accounting, Accountancy Futures, Edition 01, ACCA, 2010

the carbon we’re not counting THE CARBON WE’RE NOT COUNTING 7
The carbon we’re not counting T

First, there is the fear of double Perhaps the best-known public

counting. This may occur when the accounting and reporting programme the carbon disclosure
accounts submitted by individual and therefore the best public source of project
organisations are being aggregated to comparable GHG information is The The Carbon Disclosure Project
develop national or regional accounts. Carbon Disclosure Project (CDP). (CDP) was launched in 2000 to
There is a clear risk of double counting collect and distribute high-quality
when the Scope 3 emissions for one The CDP gathers comprehensive data information to motivate investors,
organisation may be the Scope 1 annually from large corporations and now corporations and governments to
emissions of another. receives information from over 2,500 take action to prevent dangerous
companies. From this information it is climate change.
Second, there are methodological clear that major corporations are now
difficulties. What categories of indirect accounting and reporting on Scope 1 2,500 organisations in some
emissions should be included? How and 2 emissions but not on Scope 3 60 countries around the world
do you draw the boundaries? Should emissions. now measure and disclose their
lifecycle methodologies be adopted, and greenhouse gas emissions and
if so which ones? In 2009, 409 (82%) of the Global climate change strategies through
500 responded to CDP’s request for CDP. This data is made available
Third, there are evidence gathering and information. However, only 209 (42%) for use by a wide audience
quality difficulties. If nobody is actually provided any information on their Scope including institutional investors,
keeping this kind of data where do you 3 emissions. On the surface this may not corporations, policymakers and
start? Are estimates acceptable, and sound too bad. It appears that about half their advisors, public sector
if so what estimation methodologies of those responding are also providing organisations, government bodies,
are acceptable? Are proxy indicators Scope 3 information. However, if you academics and the public.
acceptable? What level of uncertainty look more deeply it quickly becomes CDP acts on behalf of 475
is acceptable? evident that some of this Scope 3 institutional investors, holding
reporting is of limited value. This is $55 trillion in assets under
Many accounting and reporting clearly evident in the CDP data. CDP management and some 60
programmes and requirements now splits Scope 3 accounting and reporting purchasing organisations.
reference a few key standards (see the into five classes:
Appendix for more detail), including the:
• employee business travel
• ISO 14064 series • external distribution and logistics
• WBCSD/WRI GHG protocol • the use and disposal of the company’s
and supplements products and services
• CDSB reporting framework. • the company’s supply chain
• other.

Chart 1: CDP SCOPE 3 REPORTING Chart 2: CDP SCOPE 3 REPORTING:

NUMBER OF CLASSES REPORTED
HOW MANY CLASSES OF SCOPE 3 REPORTING DO
COMPANIES REPORT ON?
Number of classes Number % of global
(291 COMPANIES OUT OF THE GLOBAL 500 COMPANIES
reported on reporting 500
DO NOT REPORT ANY SCOPE 3 EMISSIONS)
5 6 1.2
4 16 3.2
1 CLASS 98
3 40 8
2 49 9.8 2 CLASSES 49
1 98 19.6 3 CLASSES 40
Total reporting on
209 41.8 4 CLASSES 16
Scope 3
Total reporting at 5 CLASSES 6
useful level (three or 62 12.4
more classes
NUMBER OF COMPANIES

8
 TThe carbon we’re not counting

Of the 209 companies that reported While the percentage of the top 14 But perhaps more interesting is that the
Scope 3 emissions, 98 of them reported rated companies reporting on Scope 3 4th best reporting company, Wal‑Mart,
on only one of these five classes of emissions is higher than the percentage did not report Scope 3 data. If the
emission. Another 49 reported on two for the Global 500 (13 of the 14 top purpose of the CDP is ‘to collect and
classes. That leaves only 62 (12.4%) of companies, or 92% as opposed to 209 distribute high-quality information to
the 500 companies reporting on three or 42% of the Global 500), disclosure motivate investors, corporations and
or more of the five classes and therefore among this elite group is not as uniformly governments to take action to prevent
providing information that comes complete. dangerous climate change4’ we then
anywhere close to being complete. In need to understand what has Wal-Mart
fact, only 6 or 1.2% of the Global 500 As Chart 5 shows, only two of the top done to earn a 4th place ranking out
companies reported on all five CDP 14 report on all five classes. Two more of 500?
classes of Scope 3 emissions. report on four, three more report on
three, three more report on two and It is clear that Scope 3 emissions are the
In addition to soliciting and making three more report on one. That means carbon we are not counting. So why does
available information on GHG emissions, that seven (50%) of the top 14 provide it matter that only 12.4% of the global
CDP also scores the quality of the adequate Scope 3 information, which is 500 are reporting any useful Scope 3
information submitted by companies. much better than the 62 (12.4%) for the information?
They publish this as the Carbon full global 500, and is a good indication
Disclosure Leadership Index (CDLI). of why they are at the top of the table. Researchers at Carnegie Mellon
Since full disclosure of carbon emissions University said in a 2008 report that
is the purpose of CDP, one would expect two-thirds of US industries would
that those who score highest on this overlook 75 percent of GHG emissions
index would also be those who disclose if they neglect reporting on tier three
Scope 3 emissions most fully. emissions.

Chart 3: CDP 2009 SCOPE 3 REPORTING: chart 5: Top 14 scorers in the

OVERVIEW 2009 CDP

Company Scope 3
12% CDP
classes
Of the 500 companies: score
reported
12% reported on three
or more classes of Bayer 95 5
Scope 3 emissions
– considered as BASF 94 4
a useful level of
reporting HSBC 92 2
88% do not provide Wal-Mart 89 0
complete information
on Scope 3 Chevron 88 2
emissions.
88% Cisco 88 1
PG&E 88 1
Public Service 88 3
Spectra 88 1
Chart 4: CDP 2009 SCOPE 3 REPORTING:
Bank of Montreal 87 3
THOSE WHO DO REPORT
Boeing 87 2
Carnival 87 3
Rio Tinto 87 5

209 of the 500 companies Samsung 87 4

30%
report Scope 3 emissions,
of which:
43% reported on one class 43%
23% reported on two
classes
30% reported on three or
more classes.

23%

4 CDP CDLI, 2009

the carbon we’re not counting THE CARBON WE’RE NOT COUNTING 9
The carbon we’re not counting T

McKinsey, looking only at the supply GHG emissions in relation to But while we must question it we must
chain side, has stated that ‘for consumer the value chain also acknowledge the reasons why many
goods makers, high-tech players, and It is useful to consider the different companies choose not to account for
other manufacturers, between 40 and classes of GHG emissions in relation to Scope 3 emissions. First there are the
60 percent of a company’s carbon the value chain (see chart 6). methodological challenges mentioned
footprint resides upstream in its supply earlier. These methodological challenges
chain – from raw materials, transport, Scope 1 emissions typically occur in this contribute to the resource issue. It costs
and packaging to the energy consumed middle or operational part of the value money to gather and analyse information
in manufacturing processes. For retailers, chain. that is difficult to gather and analyse.
the figure can be 80 percent5.’ And if the benefit of gathering that
Scope 2 emissions typically occur in the information is not immediately obvious it
If business is going to show carbon supply chain. But Scope 2 emissions can be difficult to justify the investment.
leadership, it is going to have to only represent a small part of supply
understand and develop innovative chain emissions. The larger part of Companies may also consider the sector
strategic responses to a complete carbon supply chain emissions are Scope 3. they are in, their geographical location,
emissions profile. Focusing only on and the maturity of understanding
Scope 1 and Scope 2, which typically Scope 3 emissions occur across all parts in their sector and region in relation
includes only what is inside the factory of the value chain and are especially to the opportunity for using Scope
fence, is no longer going to be enough. prevalent upstream and downstream. 3 information as a way to develop
The companies that succeed in the competitive advantage.
low‑carbon economy will be those with The companies that have not scored
the information they need to move ahead well on the CD Leaders’ Index and that It is also true that different types of
of their competitors. have not reported on Scope 3 emissions companies and different sectors have
have essentially reported on and have very different levels of involvement in
The opposite of this also holds in that strategies only for the middle part of the and influence over different parts of the
a lack of good Scope 3 emissions value chain, that is, operations within value chain. A company that produces
accounting may well represent a their fences. They have not looked at chocolate has high upstream impact but
significant block to innovation for many emissions upstream or downstream. relatively low downstream impact. You
companies. The fact that only six of If we accept that these upstream buy a chocolate bar, you eat it, the life of
the Global 500 companies reported on and downstream emissions represent the product is over. On the other hand, a
all five of the CDPs Scope 3 emissions upwards of 75% of an organisation’s company that produces washing powder
classes indicates that the field is wide carbon emissions then we must question has a much different downstream
open. There is lots of opportunity for how this lack of information has affected profile. A significant source of energy use
market-leading innovation. their strategic and operational decision associated with the product occurs when
making and innovation. the consumer uses it at home. Some
And here there is a role for accountants. companies may logically choose to invest
Accountants do not simply produce in those areas – operations, upstream
reliable information and report on it. or downstream – where their impact
They must also analyse and understand is highest.
the importance of that information
so that it is included in strategic and
operational decision making.

chart 6: GHG emissions in relation to the value chain

Value chain Upstream Operations Downstream

Scope 2
GHG Scope 1 Scope 3
and 3

5 McKinsey Quarterly 1 July 2008

10
 TThe carbon we’re not counting

ExxonMobil, for example, did not report The third approach, the Engaged
on Scope 3 and scored 62 on the CD Approach, requires engagement across
Leaders’ Index. Their position is that the full value chain. It brings an
they have little influence or control over understanding of Scope 3 emissions
the use of their products downstream. into all decision making. It requires
Spectra Energy on the other hand, a the identification of opportunities
young Canadian Oil and Gas company for innovation and taking advantage
that is much more directly involved in of business opportunities in a
downstream activities, did report on carbon‑constrained economy to benefit
Scope 3 emissions and scored 88 on the significantly from understanding Scope 3
CD Leaders’ Index. emissions, not just within their own
operations but across the full value chain
Wal-Mart scored 88 on the CD Leaders’ in the sectors in which it operates.
Index without reporting Scope 3
emissions data. They have, however,
reported on Scope 3 research that they
have done. As a consequence, they have
begun to include Scope 3 concerns in
their upstream supply chain strategy
development and decision making. And
this they did report on.

Bayer leads the CD Leaders’ Index with

a score of 95. We would expect them
to be exemplary. And in many ways
they are. They report on all CDP classes
of Scope 3 emissions and have a core
strategy that is heavily influenced by their
understanding of carbon emissions.
These companies represent different
approaches to carbon strategy. The
difference in each approach is associated
with the way in which they understand
and approach Scope 3 emissions.

The first approach, the Control

Approach, focuses on improved
operational efficiency in areas that it
has control over. This approach focuses
on technological innovation within
operations, where they feel they can
generate the most value.

The second approach, the Influence

Approach, acknowledges the importance
of Scope 3 information as a guide to
areas for improvement where there are
high levels of influence, such as the
supply chain. Improvements focus on
technology and improved efficiency but
also include innovations in materials,
processes, products and ways of doing
business.

the carbon we’re not counting THE CARBON WE’RE NOT COUNTING 11
The Control Approach

The Control Approach focuses on the middle part of the value chain and therefore focuses on
looking for ways to improve operational efficiency. Improved efficiency is a necessary condition
for achieving the progress we need to make against climate change, but is it a sufficient one?

A recent research study by McKinsey6 However, given the demonstrated lack ExxonMobil is a very successful company
looked at what actions would be needed of political leadership, as demonstrated with an excellent record of technological
to get to 450ppm or no more than a at COP 15 in Copenhagen in December innovation. It sets the industry
2oC change – the threshold we need to 2009, this level of coordinated benchmark for operational efficiency.
achieve in order to avoid catastrophic investment and collaborative change is After choosing not to participate
climate change. unlikely to happen. There is no evidence in the CDP for a number of years,
that this scenario can be achieved. when it did decide to do so, it did so
It considers over 200 greenhouse Waiting 10 years to start will make their comprehensively, providing very credible
gas abatement opportunities across scenario highly improbable. Having no data. And yet, in spite of providing a
10 sectors in 21 world regions. And internationally agreed policy and no lengthy and detailed Carbon Disclosure
it concludes that it is just possible to regulatory mechanisms to enforce action report, it has only scored 62 on the CDP
achieve the threshold if we start now across the board will make it impossible. Leaders’ Index.
and if everybody does all of them. But
even for this to happen, the remaining Had Copenhagen worked, depending ExxonMobil does not report Scope
4% of action must come from ill-defined only on efficiency measures was a 3 emissions. Its position is that
behaviour change and not operational doubtful strategy. Post Copenhagen, Scope 3 reporting should be a
efficiencies. focusing only on efficiency measures is conditional question.
a trap that will potentially keep us from
McKinsey concludes that: ‘Capturing achieving the level of change required. ExxonMobil 2009 CDP accounting
enough of this potential to stay below and reporting
the two degrees Celsius threshold will be At the moment many companies – like Scope 1 131,000,000
highly challenging however. Our research ExxonMobil – continue to focus primarily Scope 2 14,000,000
finds not only that all regions and sectors on looking for greater operational Scope 3 0
would have to capture close to the full efficiencies and technological fixes within Total Scope 1 & 2 145,000,000
potential for abatement that is available their fences. This is necessary, but is it
to them; even deep emissions cuts in sufficient? ExxonMobil plays to its existing
some sectors will not be sufficient. Action strengths and focuses on operations and
also needs to be timely. A 10-year delay technology. It does recognise a range of
in taking abatement action would make risks associated with GHG emissions.
it virtually impossible to keep global However, many of these are regulatory
warming below two degrees Celsius’. and political.

The report also concludes that the level

of investment required, approximately
five to six percent BAU investment in
fixed assets, is possible.

chart 7: the control approach

Value chain Upstream Operations Downstream

Scope 2
GHG Scope 1 Scope 3
and 3

6 Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve, McKinsey & Company, 2009

12
 TThe Control Approach

In addition they look at two types of Exxon is very good at what it does. ExxonMobil also recognises that risks
environmental risk. First, the potential It has systematically worked to to society and ecosystems could be
risk to their operations caused by improve efficiency and environmental significant. They do accept that any
changes in climate. Second, the risks to performance throughout its facilities approach to meeting the world’s growing
society and ecosystems. worldwide. Since 2000, it has identified energy needs will incorporate strategies
ways to improve energy efficiency at its to address the risk of climate change.
The environmental risks to operations refineries and chemical plants by 15 to They recognise that there are two
that they identify are limited to severe 20 percent. It has invested more than things that need to be done: to stabilise
weather events that may disrupt supplies $5 billion in natural gas utilisation and emissions at a level that will reduce the
or interrupt the operations of ExxonMobil commercialisation projects that will help risk of severe climate change, and to
facilities. Their approach to managing reduce the routine flaring of natural gas invest in adaptation strategies – those
these risks is the business as usual that is a by-product of oil production. strategies that will allow us to respond
strategy that they have been following effectively to climate changes.
for years. Innovation is management
systems and technology-based and has Exxon’s strategy is based on their view
little to do with their business model, the that oil and gas will be part of the energy
products they produce, or how they are mix for a long time to come – even as
used – the upstream and downstream its share of the energy market declines.
parts of the value chain. Their strategy is to be the leading player
in a declining market. For ExxonMobil,
the conclusion behind their existing
strategy is that Scope 3 emissions
information is not material.

The Influence Approach

Scope 3 emissions look at emissions across the full value chain – upstream and downstream.
This can be a daunting and potentially expensive task. So it is natural to ask: ‘where can I get
the best leverage, quickly?’ For many companies this means looking upstream at the supply
chain where, because of financially based business relations, they have significant influence.

Chart 8 on page 14 illustrates the Many companies also have a long history Choosing to focus upstream also has an
Influence Approach, acknowledging the of working with suppliers to achieve unquestionable multiplier effect. This is
importance of Scope 3 information as a improvements in a wide range of areas. especially important when the task ahead
guide to areas for improvement where So there are existing relationships of us is so great and the need to go to
there are high levels of influence, such and mechanisms in place that lend scale so urgent. Wal-Mart for example
as the supply chain. Improvements focus themselves to jointly addressing GHG has more than 100,000 suppliers. The
on technology and improved efficiency emissions. In fact, much work on immediate impact of influencing the
but also include innovations in materials, sustainability or CSR issues in general actions of this many other companies
processes, products and ways of has, over the past 20 years, focused can be enormous.
doing business. on supply chain performance. There is
a deep understanding of supply chain
dynamics and mechanisms and systems.

the carbon we’re not counting the control approach 13

The Influence Approach T

Wal-Mart’s ranking in CDP 2009 raises Although Wal-Mart has not reported on This strategy of concentrating on the
questions since they have not reported its Scope 3 emissions it has qualified supply chain has resulted in a number
on Scope 3 emissions. At 89, Wal‑Mart this. It states that it recognises the of successes.
had the 4th highest score of the Global importance of supply chain carbon
500 and yet it did not report any management and has been engaging Wal-Mart first began following this
Scope 3 emissions data. its suppliers on sustainability since pathway when it began to look at
2005. It further states that although the packaging. It was motivated by the need
The explanation comes through an company is not reporting supply chain to reduce cost and reducing packaging
analysis of their work on GHG emissions emissions for 2008, using preliminary was a way to reduce cost. In the process
in their supply chain. They have reported macro-economic assessments, it believes it found it was easier to talk about
significant activity with their supply that its supply chain is likely to have an sustainability than about cost reductions.
chain. One would expect that in order to annual carbon footprint that is at least There were sustainability benefits as
make the decision to invest in this way 100 times greater than its total Scope 1 well as cost benefits. It had found a
they would have supporting data and and 2 emissions. market driver and began to look for more
analyses. They may well have. But they sustainability benefits.
have chosen not to report it at this time. Wal-Mart recognises the significance
of Scope 3 emissions. It has studied Much of the strategy is focused on
They are making decisions about them in some detail but does not yet improved efficiency within its supply
upstream GHG-associated risks and feel it is in a position to report credible chain. To an extent this simply pushes
opportunities as if they had Scope 3 data data. It is, however, willing to state an the improved efficiency strategy down
and yet, if they have it, they have chosen estimate of the scale of the emissions. the chain. Is it really a strategy that
not to report it. The table below outlines This is very important because this addresses the fundamental changes
what Wal-Mart has accounted for and information has begun to influence the demanded by the low-carbon economy?
reported on. decisions it makes. Wal-Mart’s strategy At the beginning, perhaps not. But the
is using its market position to influence process that Wal-Mart has initiated in its
Wal-Mart 2009 CDP accounting the product innovation and better supply chain appears to have created a
and reporting environmental performance up and down sense of partnership that has now moved
Scope 1 5,566,006 its supply system. into more interesting areas of product
Scope 2 15,500,950 suitability and design. As lifecycle
Scope 3 0 Wal-Mart also states that in future it analysis begins to penetrate this process
Total Scope 1 & 2 21,066,956 will account for and report on Scope 3 of product analysis we can hope to see
emissions for the up and downstream more significant innovation.
components of its business, since they
are, as they say, critical elements of
the retail value chain and represent
additional opportunities to manage
carbon emissions.

chart 8: the influence approach

Value chain Upstream Operations Downstream

Scope 2
GHG Scope 1 Scope 3
and 3

14
The Engaged Approach

Looking upstream and using influence where it exists is better than only looking at operations
and those things you can control, but it is still only part of the picture. A company that seeks to
fully understand its impact will begin to engage downstream.

How a company looks both upstream Earlier is this report we discussed Spectra’s strategy is very different to
and downstream is illustrated in Chart 9. ExxonMobil. It is an extractive industry ExxonMobil’s. In the context of the
A company will look at how its products and part of the old economy. But we energy sector as a whole and not just
are used and how they are disposed of. should not accept that these older sectors from the point of view of exploiting
In short, it will look at its full lifecycle. of the economy cannot innovate as well. the opportunities associated with oil
This is where significant innovation and Spectra Energy is a young Canadian Oil and gas, it has built a strategy and
new opportunity begins to appear. and Gas company that operates very business model that actively pursues
differently than ExxonMobil. It scored 88 downstream opportunities. It addresses
Focusing upstream on your suppliers on the Carbon Disclosure Leaders’ Index. consumer demand risks by investing in
can simply be a process of transferring It is a different type of energy company. and providing innovative energy services
operational efficiencies from your that complement its core operations,
factory to your suppliers’ factories. But Spectra has begun to account for and generate supplemental sources of
when you begin to look more closely at report on its Scope 3 emissions and revenue, and help make customers more
how products are used, how long they plans to do this more systematically in competitive while reducing greenhouse
are used for, what energy and other the future. Its future strategy is to fully gas emissions. And it is improving
resources are required for their continued define Scope 3 emissions associated with its understanding of how its existing
use, how they are disposed of and the Spectra Energy. It will: skills and facilities can contribute to
impact of the materials they contain at the success of its customers in three
the time of disposal, you begin to get a • identify and prioritise key Scope 3 main areas:
truer and fuller picture of the impact of emission areas – where the scale of
your organisation and its products and emissions is material, areas of Scope • providing demand-side management
services. This fuller picture will typically 3 emissions that are important to the programmes that help retail,
make significant opportunities for business (for example consumption commercial and industrial customers
impact-reducing innovations apparent. of natural gas by customers), areas use energy more efficiently
And very often these innovations are step of emissions that are important to • selling operating services and
changes and not incremental changes customers and other stakeholders supplying waste heat from existing
such as those typically achieved through • identify where access to information facilities to customers so they can
efficiency gains. is available, and begin calculation generate and sell near zero-emission
of emissions (eg demand-side electricity
management, employee travel) • capturing and sequestering naturally
• identify areas where information is occurring carbon dioxide contained
required, formulate an action plan and in customers’ natural gas, enabling
timeline to gather information them to sell gas that could not be sold
• evaluate areas where there is potential unprocessed.
to influence emission reductions.

chart 9: the ENGAGED approach

Value chain Upstream Operations Downstream

Scope 2
GHG Scope 1 Scope 3
and 3

the carbon we’re not counting the engaged approach 15

The Engaged Approach T

Bayer is right at the top of the CD Bayer has made a huge investment in The industry sector contributes 34%
Leaders’ Index with a score of 95. This carbon-related R&D. It has set aside to global GHG emissions. Bayer offers
successful company has reported on €1bn in its budget for investment in products that reduce emissions of
all CDP areas of Scope 3 emissions climate-related R&D and other projects production processes (eg ultraviolet
and has built the reduction of carbon between 2008 and 2010. coatings) and that contribute towards
emissions into the very core of its a ‘greener’ supply chain (eg natural
business strategy. Bayer goes well Bayer has positioned itself over the past oil polyols).
beyond risk identification and mitigation. few years as a ‘climate solution provider’,
To a large extent its strategy is built on while at the same time delivering a The power sector contributes 24% to
climate‑related opportunities. It knows contribution to the reduction of GHG global GHG emissions. Bayer is actively
what the numbers are and have a sound emissions. The climate change-related supporting the expansion of renewable
foundation for innovation and strategic business opportunities have particularly energies, including the development of
decision making. been identified in Bayer subgroups carbon nanotubes for wind power and
and service companies: Bayer Material polyurethanes for photovoltaic modules
Bayer 2009 CDP accounting Science, Bayer Crop Science and Bayer and mounting systems.
and reporting Technology Services are able to benefit
Scope 1 4,000,000 the most from the mitigation and The agriculture/forestry sector contributes
Scope 2 3,570,000 adaptation requirements that arise in 31% to global GHG emissions. Bayer is
Scope 3 21,900,000 the market. currently working on new products and
Total Scope 1 & 2 7,570,000 services in the fields of stress tolerance
Scope 3 as % of total 74.3 Across all GHG-emitting sectors and carbon sequestration.
(buildings, transport, power, industry
These numbers are consistent with the and agriculture/forestry), Bayer provides Beyond these examples, Bayer has
example of typical emissions published ‘climate solutions’ that reduce GHG a pipeline of products at different
in the Scope 3 supplement to the GHG emissions and thus help to mitigate stages of development, all providing
protocol published by WBCSD and the impact of climate change. For solutions to help customers increase
WRI (see Appendix B). Close to 75% of example, about 20% of Bayer Material their energy efficiency or reduce their
emissions are Scope 3 (see Chart 10). Science revenue comes from climate carbon footprint.
change‑related business (ie about €2bn
In its CDP report, Bayer has stated that in 2008).
it: ‘considers climate change one of
today’s megatrends. The identification of The building sector contributes 21% to
opportunities arising from this trend is an global GHG emissions (including energy
integral part of Bayer’s strategy process. supplied by power sector). Bayer has
Climate change-related opportunities developed ‘climate solutions’ bundled in
are identified and substantiated at the Bayer’s project ‘EcoCommercial Building’
subgroup and business unit level and (ECB), which is a global concept
then assessed from the perspective for climate-friendly commercial and
of the Bayer Group as a whole. In industrial buildings.
parallel, the Bayer Climate Programme
Steering Committee identifies business The transport sector contributes 14%
opportunities and connects different to global GHG emissions. With its
subgroups and business units in case products, Bayer addresses two major
of opportunities that apply to several abatement levers in the transport
organisational units in the Bayer group. sector: ‘lightweighting’ and biofuels.
The Bayer Climate Programme Steering Bayer products include: lighweighting
Committee is led by Dr Wolfgang materials in car manufacturing, plant
Plischke, the member of the Board of protection products for energy crops, and
Management responsible for Innovation, high‑yielding varieties for the production
Technology and Environment.’ of biofuels.

chart 10: Example GHG emissions across a product’s lifecycle

Raw material
acquisition and
pre‑processing
Production
Distribution and retail
Use
0 20 40 60 80 100
End of life

16
Joining the low-carbon economy

When we combine the lack of political leadership with the clear evidence provided by McKinsey
that the technological fix is not going to get us where we need to go it is clear that business
must take the lead in inventing the low-carbon economy and that a credible and complete
carbon accounting that includes a full Scope 3 inventory is an essential ingredient in the
business decision making and innovation process. It is equally clear that the people with the
skills to account for and analyse carbon emissions have an important role to play.

A low-carbon economy (also called ‘A Green Economy is characterised by ‘We now face a similar game changing
a ‘green economy’) is an economy substantially increased investments challenge. We need to unleash a new
that has a minimal output of GHG in economic sectors that build on and revolution that fast tracks the deployment
emissions. The aim of a low-carbon enhance the earth’s natural capital of a new set of technologies – low-carbon
economy is to integrate all aspects, or reduce ecological scarcities and ones. This requires a faster acceleration
from manufacturing, agriculture, environmental risks. These sectors in innovation and technological
transportation and power-generation, include renewable energy, low-carbon development than we witnessed 300
around processes and approaches that transport, energy-efficient buildings, years ago. This new low-carbon economy
use and produce energy and materials clean technologies, improved waste is poised to be the mother of all markets
with little GHG emission. The low-carbon management, improved freshwater and will be as transformative in its
economy typically has a number of provision, sustainable agriculture and impact as the first industrial revolution. It
principles underlying it7: forest management, and sustainable offers a huge commercial opportunity.’
fisheries. These investments are driven by
• All waste should be minimised – or supported by national policy reforms An understanding of Scope 3 emissions
reduce, reuse, recycle. and the development of international is essential to this new revolution. We
• Energy should be produced using policy and market infrastructure.’ need to invent not just the technology
no or low-carbon energy sources but the business models that will get us
and methods – renewable and What is needed is the: ‘reconfiguration there. Bruno Berthon, managing director
alternative energy sources, fuels and of businesses, infrastructure and of Accenture’s Sustainability Services
sequestration. institutions, and the adoption of Group, recently suggested some potential
• All resources (in particular energy) sustainable consumption and production new business models in an article in
should be used efficiently – more processes. Such reconfiguration leads Business Week9. He has suggested that
efficient energy conversion devices, to a higher share of green sectors four interesting business models are
combined heat and power. contributing to GDP, greener jobs, being explored, and that a low-carbon
• Wherever practical, local needs should lower energy and resource-intensive future probably requires a combination
be served by local production – food, production, lower waste and pollution, all of them.
materials, energy. and significantly lower greenhouse
• There is high awareness and gas emissions. It can also assist in The clean energy model
compliance with environmental and the reduction of persistent poverty Replacing fossil fuels with clean energy
social responsibility initiatives – through targeted wealth transfers, new at a scale that supports economic
industry, commerce and individuals. employment, as well as improvements growth. Combined with more energy
in access and the flow of ecosystem efficiency, this model will certainly
The UN Green Economy Initiative (GEI) goods and services to the bottom of the contribute to the journey towards
– designed to assist governments in economic pyramid.’8 low-carbon heaven, but will hardly
‘greening’ their economies by reshaping be sufficient.
and refocusing policies, investments and In an article in the Guardian on 2 July
spending says that: 2009, Tom Delay, CEO of Carbon Trust The ecological industry model
summed up the challenge well when Reinventing industry based on a set
he wrote that: ‘This year is the 300th of low-carbon constraints, through a
anniversary of the first industrial revolution combination of energy efficiency and
which brought in the age of fossil fuels. product/process innovation. This model is
In 1709 Abraham Darby successfully capable of integrating renewable energy
smelted iron with coke near Ironbridge, into the design of new industrial capacity.
an innovation which led to iron-making
on a massive scale, changing the lives of
millions of people and helping to create
the modern industrial world.

7 www.lowcarboneconomy.com/LCE/AboutALowCarbonEconomy
8 Green Economy Report: A Preview, UNEP, 2010
9 www.businessweek.com/careers/managementiq/archives/2009/12/new_business_mo.html

the carbon we’re not counting joining the low-carbon economy 17

Joining the low-carbon economy T

The services model Recommendations

A services economy, where ownership For governments and standards setters
of the product ideal is replaced by a Governments, intergovernmental
combination of new uses and service agencies and other standards and policy
offerings: car sharing for example or setters should consider making Scope 3
industrial models sell a service without mandatory.
the product, like a decontamination
process instead of chemical solvents. Standards setters and others who
contribute to public policy should
The functional model consider making Scope 3 reporting
Where the function is what matters and mandatory rather than voluntary as it
can be fulfilled as long as it provides the currently is in most schemes.
intended needs: from functional foods to
virtual travel, from digital communities For business
to functional clothing. It aims to provide Business should begin to account for and
the same sensations and fulfil the same report on Scope 3 emissions.
consumer needs without the recourse to Scope 3 information and analysis
a physical structure or media. should begin to be included in strategy
development and in operational decisions
What is particularly interesting about the and actions.
last three models is that they propose
a joint transformation of the supply Scope 3 information and analysis should
and demand side instead of a cleaner begin to be brought into the investment
‘business as usual’ state in the first appraisal process.
instance.

The clean energy model is what I have

referred to as the efficiency approach. It
is necessary but not sufficient. At the end
of the day it is simply a cleaner version
of business as usual. To develop business
models that also address the need for
change on the supply and demand side
– in other words across the value chain
– you need the Scope 3 information that
can support that transformation.

Joining the low-carbon economy doesn’t

happen by chance. It happens only when
you have the right information to make
the right decisions.

Scope 3 is really about innovation

and the future. It is about business
remodelling rather than improved
efficiency. It is not about doing what
you do better, it is about understanding
what and how to do things differently.
Scope 1 and Scope 2 are about better.
Scope 3 is about different. And that
is because by looking at the full value
chain it challenges you in relation to
a much broader context. We need
Scope 3 reporting if we are going to get
beyond the efficiency drive to business
remodelling.

18
 T APPENDIX A: PRACTICAL GUIDANCE FOR SCOPE 3 ACCOUNTING AND REPORTING

Companies, investors and other stakeholders have called for standard The commitment to report publicly and participation in GHG markets
approaches to accounting and reporting of Scope 3 emissions due to are mechanisms to help motivate companies to understand and
the wide variety of emissions sources, calculation methods and lack of improve performance. But the most important thing for the ongoing
consistency of approach in Scope 3 accounting. success of the company is understanding the risks and opportunities
associated with their GHG emissions.
The primary voluntary accounting and reporting standards are the:
• ISO 14064 series The most comprehensive guidance on Scope 3 accounting and
• WBCSD/WRI GHG protocol reporting is a new document developed by WBCSD and WRI as a
• CBSD reporting framework. complement to the GHG protocol: Scope 3 Accounting and Reporting
Standard: Supplement to the GHG Protocol Corporate Accounting and
In addition, the Carbon Disclosure Project (CDP) provides guidance on Reporting Standard.
how to report on Scope 3 emissions in order to respond to its annual
questionnaire. This document provides for the first time a detailed presentation
of Scope 3 accounting and reporting. It covers all the aspects of
In all of these, accounting for and reporting on Scope 3 emissions is accounting and reporting that are covered for Scope 1 and Scope 2 in
optional. the GHG Protocol as well as providing a comprehensive categorisation
of Scope 3 emission types and detailed guidance on how to account
ISO 14064 and report on each category. The categories are:
The ISO 14064 standards for greenhouse gas accounting and
verification published on 1 March 2006 by ISO (International Indirect emissions from purchased products (upstream)
Organization for Standardization) provide government and industry 1. Purchased goods and services (cradle-to-gate emissions) (not
with an integrated set of tools for programmes aimed at reducing otherwise included in categories 2 to 10)
greenhouse gas emissions, as well as for emissions trading. 2. Energy-related emissions (not included in Scope 2)
3. Capital equipment
ISO 14064 comprises three standards, respectively detailing 4. Transportation and distribution
specifications and guidance for the organisational and project levels, 5. Waste generated in operations
and for validation and verification. They can be used independently, 6. Business travel
or as an integrated set of tools to meet the varied needs of GHG 7. Franchises (not included in Scope 1 or 2) – reported by
accounting and verification. They are: franchisee
8. Leased assets (not included in Scope 1 or 2) – reported by
• ISO 14064-1:2006, Greenhouse gases – Part 1: Specification Lessee
with guidance at the organization level for the quantification and 9. Investments (not included in Scope 1 or 2)
reporting of greenhouse gas emissions and removals. 10. Other
• ISO 14064-2:2006, Greenhouse gases – Part 2: Specification
with guidance at the project level for the quantification, monitoring Indirect emissions from sold products (downstream)
and reporting of greenhouse gas emission reductions and removal 1. Franchises (not included in Scope 1 or 2 – reported by
enhancements. franchisor)
• ISO 14064-3:2006, Greenhouse gases – Part 3: Specification 2. Leased assets (not included in Scope 1 or 2 – reported by
with guidance for the validation and verification of greenhouse gas lessor)
assertions. 3. Distribution of sold products
4. Use of sold products
ISO 14064-1 provides no guidance on the categories for Scope 3 5. Disposal of sold products at the end of life
accounting and reporting. 6. Other

www.iso.org/iso Other indirect emissions

1. Employee commuting
GHG Protocol 2. Other
The World Business Council for Sustainable Development (WBCSD)
and the World Resources Institute (WRI) have pioneered the This new Scope 3 standard provides accounting and reporting
development of GHG accounting and reporting standards. In their guidance according to the following process:
GHG protocol they identify a number of reasons for developing a GHG
inventory:
Review Define Map the Set the Collect Calculate Report
principles business value boundary data emissions emissions
• to manage GHG risks and identify opportunities
goals chain
• to enable public reporting and participation in GHG programmes
(voluntary, mandatory, registries, eco-labelling, GHG certifications) Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 13
• to enable participation in GHG markets (cap and trade
programmes, carbon taxes).
This new standard makes it possible to account and report on
Scope 3 emissions in a comprehensive, consistent and comparable
manner. However, while it addresses the difficulties of information
gathering and the uncertainties associated with Scope 3 data, it does
not provide definitive solutions to these issues.

the carbonvalue
Delivering we’rein
not
the
counting
low-carbon economy appendix a 19
APPENDIX A: PRACTICAL GUIDANCE FOR SCOPE 3 ACCOUNTING AND REPORTING T

More than 60 companies have completed the road testing of new CDSB Reporting Framework
global standards designed to help measure the greenhouse gas (GHG) The Climate Disclosure Standards Board (CDSB) was formed in
emissions of their products and supply chains. The 62 companies 2007 in response to increasing demands for standardised reporting
from multiple sectors and 17 countries started road testing the guidelines on the inclusion of climate change information in
standards in January 2010. In June, they submitted written feedback mainstream reports.
on their usability along with final GHG inventory reports. A summary
of the feedback is posted on the GHG Protocol website. CDSB works to develop a globally accepted framework, based on
existing standards, for corporate reporting on climate change.
The companies that road tested the Scope 3 accounting and reporting
standard found it achievable to complete a Scope 3 inventory and As it is to be used for the disclosure of information in mainstream
many companies believe it practical to complete one on an annual reports, the CDSB framework aims as far as possible to adopt and
basis. The road testers shared similar views on the business value reflect principles established for financial reporting. CDSB endorses
of using the standards. Most road testers agree that the standards and shares the International Accounting Standard Board’s (IASB) aim
help in identifying GHG reduction opportunities and prioritising of establishing, advancing, maintaining and improving standards of
reduction efforts, engaging suppliers and enabling supply chain GHG financial and related reporting in the public interest.
management, understanding risks and opportunities associated with
emissions in the supply chain, creating competitive advantage and CDSB’s framework:
product differentiation, and improving credibility and transparency in
GHG reporting. • states that preparation of greenhouse gas emissions disclosures
should be based on the Greenhouse Gas Protocol: A Corporate
The publications will be published in 2011. Accounting and Reporting Standard (Revised Edition) developed
by WBCSD and WRI and/or any Regional or National Program
Companies that participated in the road testing exercise include: Protocol based on the Greenhouse Gas Protocol and/or the
3M, Abengoa, Acer Inc, Airbus S.A.S, AkzoNobel, Alcoa, Amcor, International Organisation for Standardisation’s ISO 14064‑1
Ampacet, Anvil Knitwear, Inc., Autodesk, Inc., Baoshan Iron & ‘Specification with guidance at the organisational level for
Steel Co. Ltd, BASF SE, Belron International, Bloomberg LP, BT plc, quantification and reporting of greenhouse gas emissions and
Coca-Cola Erfrischungsgetränke AG, Danisco A/S, Deutsche Post removals’
DHL, Deutsche Telekom AG, DuPont, Ecolab, Ford Motor Company, • aligns as far as possible with relevant aspects of International
General Electric, Gold’n Plump Poultry, LLC, Herman Miller, Inc, Financial Reporting Standards.
IKEA, Intertek, Italcementi Group, JohnsonDiversey, Kraft Foods, Kun • is being developed with organisations leading work in mainstream
Shan Tai Ying Paint Co, Ltd., Lenovo, Levi Strauss & Co., Mitsubishi reporting and climate change-related disclosure.
Chemical Corporation, National Grid, New Belgium Brewing¸ Ocean
Spray Cranberries, Otarian, PE International, PepsiCo, Inc., Pfizer, The CDSB Climate Change Reporting Framework (CCRF) 1.0 will be
Pinchin Environmental Ltd., PricewaterhouseCoopers (Hong Kong), published at the end of August 2010.
Procter & Gamble Eurocor, Public Service Enterprise Group, Inc.,
Rogers Communications, SAP AG, SC Johnson, Shanghai Zidan www.cdsb-global.org
Food Packaging and Printing Co., Ltd., Shell International Petroleum
Company Ltd., Siemens AG, Suzano Pulp and Paper, Swire Beverages,
TAL Apparel Limited, Tech-Front (Shanghai) Computer Co., Ltd. /
Quanta Shanghai Manufacturing City, Veolia Water, Verso Paper Corp.,
Webcor Builders, WorldAutoSteel.

DNV, KPMG, and PwC provided support to road test the 3rd party
assurance guidance.

http://www.ghgprotocol.org

20
 T APPENDIX B: CASE STUDIES

ExxonMobil is a very successful company with an excellent record In addition they look at two types of environmental risk, first the
of technological innovation. It sets the industry benchmark for potential risk to their operations caused by changes in climate and
operational efficiency. After choosing not to participate in the second the risks to society and ecosystems. The environmental risks to
CDP for a number of years, when it did decide to do so, it did operations that they identify are limited to severe weather events that
so comprehensively, providing credible data. And yet, in spite of may disrupt supplies or interrupt the operations of ExxonMobil facilities.
providing a lengthy and detailed Carbon Disclosure report, it has only Its approach to managing these risks are the business as usual
scored 62 on the CDP Leaders’ Index. strategies that they have been following for years and include:

ExxonMobil states its position as follows: • incorporation of understanding of risk into design, construction and
operation of exposed facilities
• We do not report Scope 3 emissions. This should be a • early and coordinated action to respond rapidly and effectively
conditional question. • business continuity and emergency response plans to protect the
• Calculating GHG emissions from specific petroleum products safety of our employees and operations
is straightforward. However, identifying which fuel sales are • worse-case scenario emergency response exercises to practice
attributed to which member of the petroleum industry is difficult coordination and logistical response, and propose upgrades to
because the supply system for crude and petroleum products is standard processes and contingency plans.
complex, with multiple changes of ownership.
• We believe that there is no simple way to account for these All of this is good, sound risk management practice. However,
business transfers to estimate emissions from ‘ExxonMobil’ innovation is essentially management systems and technology based
products. ExxonMobil believes that producers, refiners, and has little to do with their business model, the products they
distributors, and end-users should each be responsible for produce or how they are used – the upstream and downstream parts of
managing and reporting the emissions generated from activities the value chain. As ExxonMobil says in their CDP disclosure:
under their control. To this end, we are taking actions to
reduce emissions from our own operations and are working on ‘Technological, political, and regulatory risks have been inherent in
technologies to help consumers reduce their emissions. the oil and gas industry since its earliest beginnings. ExxonMobil will
respond to these uncertainties and developments using our traditional
ExxonMobil 2009 CDP accounting and reporting approach: disciplined planning and investment, financial strength,
Scope 1 131,000,000 efficient and reliable operations, and research and development...
Scope 2 14,000,000 ExxonMobil’s strength in management systems provides us an ongoing
Scope 3 0 opportunity to comply with emerging regulations in a manner that is
Total Scope 1 & 2 145,000,000 more efficient and provides an economic advantage with respect to
competitors.’
ExxonMobil plays to its existing strengths and focuses on operations
and technology. It does recognise a range of risks associated with GHG Exxon is very good at what it does. It has systematically worked to
emissions. However, many of these are regulatory and political. It is improve efficiency and environmental performance throughout its
concerned about: facilities worldwide. Since 2000, it has identified ways to improve
energy efficiency at its refineries and chemical plants by 15 to 20
• political instability or lack of well-established and reliable legal percent. It has invested more than $5bn in natural gas utilisation and
systems in areas where the corporation operates commercialisation projects that will help reduce the routine flaring
• other political developments and laws and regulations, such as of natural gas that is a by-product of oil production. Its technological
expropriation or forced divestiture of assets, unilateral cancellation innovation gives it the ability to deliver new solutions and to invest in
or modification of contract terms, and regulation of certain energy unconventional resources.
markets
• laws and regulations related to environmental or energy security Exxon’s strategy is based on their view that oil and gas will be part
matters, including those addressing alternative energy sources, of the energy mix for a long time to come – even as its share of the
technology standards and the risks of global climate change energy market declines. Their strategy is to be the leading player in a
• restrictions on exploration, production, imports and exports declining market.
• restrictions on the Corporation’s ability to do business with certain
countries, or to engage in certain areas of business within a country ExxonMobil also recognises that risks to society and ecosystems could
• price controls be significant. They do accept that any approach to meeting the world’s
• tax or royalty increases, including retroactive claims growing energy need will incorporate strategies to address the risk of
• war or other international conflicts climate change. They recognise that there are two things that need to
• civil unrest. be done: stabilise emissions at a level that will reduce the risk of severe
climate change and invest in adaptation strategies, those strategies that
All of these are valid and require appropriate response. But they are will allow us to respond effectively to climate changes.
also regulatory and political risks associated with their core operations
and not with how their products are used or the fact that their business
is based on a non-renewable resource.

Delivering
the carbonvalue
we’rein the
not low-carbon economy
counting appendix B 21
APPENDIX B: CASE STUDIES T

In Exxon’s view ‘international and national attention has turned to focus Suggested earlier in this study is that Wal-Mart’s ranking in CDP
on adaptation as a strategy to mitigate risk’. What it is saying is that in 2009 seems somewhat anomalous in relation to Scope 3 emissions
its view it is too expensive and economically disruptive to put in place accounting and reporting. At 89, Wal-Mart had the 4th highest score of
policies and strategies to reduce emissions levels to 450ppm so let’s the Global 500 and yet it did not report any Scope 3 emissions data.
accept that we will not reach this target and instead invest in measures How do we explain this?
that respond to the severe changes when they happen. Its primary
concern is for the implications for economic growth and quality of life. The explanation comes through an analysis of its work on GHG
emissions in their supply chain. It has reported significant activity with
Still, it has a reputational risk to consider and so it accepts the its supply chain. One would expect that in order to make the decision to
risks to society and ecosystems from increases in GHG emissions invest in this way it would have supporting data and analyses. It may
are significant. It therefore accepts that it is prudent to develop and well have. But it has chosen not to report it at this time.
implement strategies that address these risks, keeping in mind the
central importance of energy to the economies of the world. The anomaly is that it is making decisions about upstream GHG
associated risks and opportunities as if it had Scope 3 data and yet, if
ExxonMobil has therefore decided to invest in the development of it has it, it has chosen not to report it. Let’s look at what Wal-Mart has
new technologies to the extent that covers its reputational risk. So accounted for and reported on.
ExxonMobil was the founding sponsor of the Global Climate and Energy
Project (GCEP) at Stanford University. GCEP is looking at a range of Wal-Mart 2009 CDP accounting and reporting
alternative energy sources including solar photovoltaic devices, fuel Scope 1 5,566,006
cells and bioelectric conversion of energy, lithium-ion batteries for Scope 2 15,500,950
applications in vehicles, engines that produce higher efficiency and Scope 3 0
lower emissions, producing biodiesel fuel from bacteria to achieve a Total Scope 1 & 2 21,066,956
twentyfold increase in energy yield, and strategies for using hydrogen to
power vehicles. Although Wal-Mart has not reported on its Scope 3 emissions it has
qualified this. It states that it recognises the importance of supply
For ExxonMobil the conclusion behind their existing strategy is that chain carbon management and has been engaging its suppliers on
Scope 3 emissions information is not material. They have a strategy in sustainability since 2005. It further states that although the company
place that does not require that information. is not reporting supply chain emissions for 2008, using preliminary
macro-economic assessments, it believes that its supply chain is likely
to have an annual carbon footprint that is at least 100 times greater
than its total Scope 1 and 2 emissions.

Wal-Mart recognises the significance of Scope 3 emissions. It has

studied them in some detail but does not yet feel it is in a position to
report credible data. It is, however, willing to state an estimate of the
scale of the emissions. This is very important because this information
has begun to influence the decision it makes.

Wal-Mart has developed what it calls its ‘Sustainability 360’ platform.

This approach takes into account its supply chain, the products it sells,
their associates, and the communities where it operates and sources.
It enables it to establish new ways of doing everyday business, build
innovative solutions to some of the greatest issues facing our global
supply chain and continue to save our customers around the world
money on quality products.

Given the scale of supply chain emissions Wal-Mart has chosen to

concentrate there. It is working with suppliers to make its products
more sustainable, as well as helping them become more sustainable
businesses. Wal-Mart’s strategy is using its market position to influence
the product innovation and better environmental performance up and
down its supply system.

22
 T APPENDIX B: CASE STUDIES

In September 2007, it conducted a pilot project with the Carbon In addition, Wal-Mart has broadened supply chain work beyond carbon
Disclosure Project (CDP) and seven Wal-Mart supplier sectors to emissions. In July 2009 it announced a supply chain sustainability
measure energy use and emissions up and down the supply chain. index programme. Working with a group called the Sustainability
Through the pilot, which included DVDs, toothpaste, soap, beer, Consortium, it has developed a 15-question tool that will be sent to
milk, vacuum cleaners and soda product categories, suppliers every one of their more than 100,000 suppliers. Suppliers must provide
measured carbon emissions throughout each product’s lifecycle which information on and be ranked on their performance in four areas:
produced significant learnings. During 2008, Wal-Mart, CDP and
other stakeholders evaluated the pilot results and are now preparing • energy and climate
for the next phase that will incorporate more product categories into • natural resources
the analysis. • material efficiency
• people and community.
Wal-Mart also states that in future it will account for and report on
Scope 3 emissions for the up and downstream components of its Work in the area of energy and climate has now influenced work in
business, since it is, as it says, critical elements of the retail value chain other social and environmental areas and has become a driver of
and represents additional opportunities to manage carbon emissions. innovation.

This strategy of concentrating on the supply chain has resulted in a Wal-Mart first began following this pathway when it began to look at
number of successes. packaging. It was motivated by the need to reduce cost and reducing
packaging was a way to reduce cost. In the process it found that it was
Wal-Mart has developed a Supplier Energy Efficiency Program (SEEP) easier to talk about sustainability than about cost reductions. There
that enables low-cost technology transfer throughout its supply network. were sustainability benefits as well as cost benefits. It found a market
driver and began to look for more sustainability benefits.
It made a commitment to sell 100 million compact fluorescent light
bulbs (CFLs) at Wal-Mart and Sam’s Club locations by the end of Much of the strategy is focused on improved efficiency within its supply
2007 but in fact sold 137 million. As of 2009 it had sold more than chain. To an extent, this simply pushes the improved efficiency strategy
260 million CFLs. Wal-Mart claims that the avoided emissions from down the chain. Is it really a strategy that addresses the fundamental
this initiative alone are approximately four times greater than its entire changes demanded by the low-carbon economy? At the beginning,
annual global footprint. perhaps not. But the process that Wal-Mart has initiated in its supply
chain appears to have created a sense of partnership that has now
Every air conditioner Wal-Mart sells in the US will be ENERGY moved into more interesting areas of product suitability and design. As
STAR®‑rated by 2010. As of January 31, 2009, 75 percent of air lifecycle analysis begins to penetrate this process of product analysis
conditioners were ENERGY STAR®-rated. we can hope to see more significant innovation.

Wal-Mart worked with its suppliers to make the most energy intensive
products in its stores, anywhere in the world, 25 percent more
energy‑efficient by January 2011. It is focusing on personal computers,
video game consoles, air conditioners and televisions, among others.

It has committed to doubling the sale of products in the US that help

make homes more energy-efficient by 2011. Products falling under this
category include caulk, weather stripping, air filters, programmable
thermostats, expanding foam and power strips. Between the beginning
of 2008 and the beginning of 2009 it had increased sales by more
than 25 percent.

It has committed to reducing packaging by five percent globally by

2013. It has collected packaging information on approximately 90
percent of the products carried in Sam’s Club and 300,000 items sold
at Wal-Mart stores.

It is partnering with the top-200 supplier factories in China to improve

energy efficiency by 20 percent per unit of production by the end of
2012. By the end of 2008 Wal-Mart China was on track with its first
energy-efficiency pilot with more than 100 factories.

Delivering
the carbonvalue
we’rein the
not low-carbon economy
counting appendix b 23
APPENDIX B: CASE STUDIES T

Bayer is right at the top of the CD Leaders’ Index with a score of 95. It makes efforts to reduce business travel where feasible, in particular
This successful company has reported on all CDP areas of Scope 3 flights by substituting business travel if possible with phone calls,
emissions and has built the reduction of carbon emissions into the very video, or internet conferencing. With its ‘EcoFleet’ initiative, Bayer has
core of its business strategy. launched a campaign to significantly reduce CO2 emissions caused by
company vehicles, ensured by a group-wide Bayer car policy.
Bayer goes well beyond risk identification and mitigation. To a large
extent, its strategy is built on climate-related opportunities. It knows For cost and environmental reasons, Bayer focuses on energy efficiency
what the numbers are and has a sound foundation for innovation and in both external and internal distribution/logistics, by transporting
strategic decision making. bulk material by pipeline, water or rail when feasible. These means of
transport are economical and cause relatively low GHG emissions.
Bayer 2009 CDP accounting and reporting
Scope 1 4,000,000 The emissions within Bayer’s supply chain are caused by the extraction,
Scope 2 3,570,000 production and transportation of materials/goods before they are
Scope 3 21,900,000 supplied to Bayer. Feedstock based on crude oil as well as natural
Total Scope 1 & 2 7,570,000 gas and coal for electricity and steam generation contribute by far the
Total with Scope 3 29,470,000 largest share to Bayer’s total supply chain emissions.
Scope 3 as % of total 74.3%
Beyond the regular monitoring of emissions using BaySIS, Bayer has
These numbers are consistent with the example of typical emissions developed the ‘Bayer Climate Check’. With this tool, it has become
published in the Scope 3 supplement to the GHG protocol published possible for the first time to evaluate not only the production plant
by WBCSD and WRI (see Appendix B). Close to 75% of emissions are itself but also all the raw materials and energy needed for production
Scope 3. together with logistics up to the factory gate.

In its CDP report, Bayer has stated: ‘Bayer considers climate change The Bayer Climate Check is complemented by Bayer’s innovative
one of today’s megatrends. The identification of opportunities arising energy management system STRUCTese that Bayer developed in 2008
from this trend is an integral part of Bayer’s strategy process. and is currently rolling out at all major production sites. STRUCTese is
Climate-change-related opportunities are identified and substantiated a real-time controlling instrument that creates transparency on energy
at the subgroup and business unit level and then assessed from losses, enables a performance dialogue on energy consumption on all
the perspective of the Bayer Group as a whole. In parallel, the levels within the company and therefore ensures a focus on increasing
Bayer Climate Programme Steering Committee identifies business energy efficiency.
opportunities and connects different subgroups and business units in
case of opportunities that apply to several organisational units in the Bayer has positioned itself over the past few years as a ‘climate
Bayer group. The Bayer Climate Programme Steering Committee is led solution provider’, while at the same time delivering a contribution to
by Dr Wolfgang Plischke, the member of the Board of Management the reduction of GHG emissions. The climate-change-related business
responsible for Innovation, Technology and Environment.’ opportunities have particularly been identified in Bayer subgroups
and service companies: Bayer Material Science, Bayer Crop Science
Bayer has made a huge investment in carbon-related R&D. It has set and Bayer Technology Services are able to benefit the most from the
aside €1bn in its budget for investment in climate-related R&D and mitigation and adaptation requirements that arise in the market.
other projects between 2008 and 2010.
Across all GHG-emitting sectors (buildings, transport, power, industry
While Bayer has been very successful in the reduction of its and agriculture/forestry), Bayer provides ‘climate solutions’ that reduce
production‑related Scope 1 and 2 GHG emissions and will continue on GHG emissions and thus help to mitigate the impact of climate change.
this path under the umbrella of its Bayer Climate Programme, Bayer For example, about 20% of Bayer Material Science revenue comes from
recognises the risks that could result from GHG emissions beyond the climate-change-related business (ie about €2bn in 2008).
scope of its own operations. It is also continuously looking for ways to
reduce Scope 3 emissions.

chart 11: Example GHG emissions across a product’s lifecycle

Raw material
acquisition and
pre‑processing
Production
Distribution and retail
Use
0 20 40 60 80 100
End of life

24
 T APPENDIX B: CASE STUDIES

The building sector contributes 21% to global GHG emissions (including The agriculture/forestry sector contributes 31% to global GHG
energy supplied by power sector). Major sources of emissions are emissions (including land use change). Major sources of GHG
heating, hot water, appliances (eg refrigerators) and lighting. The emissions include deforestation and livestock. An important abatement
single most important lever to reduce GHG emissions is improved lever is the creation of additional carbon sinks. Bayer is currently
insulation. Also, more efficient cooling units and lighting can contribute working on new products/services in the fields of stress tolerance and
significantly to GHG reduction. Bayer has ‘climate solutions’ in place carbon sequestration.
that address all of the above-mentioned abatement levers. These
solutions are also bundled in Bayer’s project ‘EcoCommercial Building’ Beyond these examples, Bayer has a pipeline of products at different
(ECB), which is a global concept for climate-friendly commercial and stages of development, all providing solutions to help customers
industrial buildings. increase their energy efficiency or reduce their carbon footprint.

Within the building sector, Bayer contributes to three main applications When we combine the lack of political leadership with the clear
that address the GHG-abatement levers insulation, cooling and lighting. evidence provided by McKinsey that the technological fix is not going to
get us where we need to go it is clear that business must take the lead
Polyurethane insulation in buildings in inventing the low-carbon economy and that a credible and complete
With its polyurethane raw materials Baymer® and Desmodur®, Bayer carbon accounting that includes a full Scope 3 inventory is an essential
is optimally positioned to benefit from the trend towards increased ingredient in the business decision making and innovation process. It is
insulation in construction. equally clear that the people with the skills to account for and analyse
carbon emissions have an important role to play.
Insulation for refrigeration
With its polyurethane raw materials optimised for use in refrigeration,
Bayer supports the manufacturers of household refrigerators and cooling
devices for retail stores. With its brands Baytherm®, Baydur®, and
Desmodur®, Bayer is able to provide products with excellent insulation
and physical properties for use in cooling devices.

Transparent materials for LED technology

The increasing demand for energy-efficient solutions is driving the
development of LED technology. Because of its superior performance
properties and energy efficiency, LED technology is increasingly used in
several applications.

The transport sector contributes 14% to global GHG emissions. Major

sources of emissions are passenger cars and trucks. With its products,
Bayer addresses two major abatement levers in the transport sector:
‘lightweighting’ and biofuels. Bayer products include:

• lightweighting materials in car manufacturing

• plant protection products for energy crops
• high-yielding varieties for the production of biofuels.

The industry sector contributes 34% to global GHG emissions

(including energy supplied by power sector). Major sources of emissions
are production processes in the chemicals, steel, cement and mineral
oil industries. Bayer offers products that reduce emissions of production
processes (eg ultraviolet coatings) and that contribute towards a
‘greener’ supply chain (eg natural oil polyols).

The power sector contributes 24% to global GHG emissions. Sources

of GHG emissions are the generation of electricity and steam from
fossil fuels (eg lignite and hard coal). The use of renewable energies
is a key lever to reduce the GHG footprint of the power sector. Bayer
is supporting the expansion of renewable energies. Examples of Bayer
products in this context are:

• carbon nanotubes for wind power

• polyurethanes for photovoltaic modules and mounting systems.

Delivering
the carbonvalue
we’rein the
not low-carbon economy
counting appendix b 25
Acknowledgments

ACCA would like to thank the following people

for reviewing drafts of this paper and providing
insights and comments:

Tom Beagent, PwC

Lois Guthrie, Climate Disclosure Standards Board
Michael Kentish, Shell
Dr Alan Knight OBE, Single Planet Living
John Lelliott FCCA, The Crown Estate
Vicky McAllister, Two Tomorrows
Karen McCulloch, A4S
Richard Mattison, Trucost.

26
 The information contained in this publication is provided for general purposes only. While every effort has been made to ensure that the information is accurate and up to

28
date at the time of going to press, ACCA accepts no responsibility for any loss which may arise from information contained in this publication. No part of this publication may
be reproduced, in any format, without prior written permission of ACCA. © ACCA April 2011.

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