Sustainability consulting firm Quantis launched a first-of-its-kind report: The Tracking Progress in the Supply Chain (TPSC) Report, designed to help companies successfully implement sustainability strategies to create real impact.
“To date, we found that there was a lack of simple and straightforward guidance enabling companies to credibly track their supply chains and avoid greenwashing,” said Charlotte Bande, global food and beverage lead for Quantis, which was recently acquired by Boston Consulting Group. “As more and more companies implement Scope 3 actions, a robust method of measuring and tracking progress is critical to ensure change is taking place, and companies are on track to meet impact goals or can correct course if this isn’t the case.”
The report, hosted on a microsite, provides trending news topics currently affecting the supply chain industry in real-time, guidance on how companies can better calculate and track their supply chain progress, and tools to manage double counting of emission reductions and find the right data to support business goals.
“We work with many companies on their sustainability initiatives and have received numerous questions on these topics,” Bande said. “Many clients have expressed that the lack of existing guidance is a big risk. Without a means to track progress, actions remain stalled. We therefore decided to work on this report in order to provide best practices that would answer some of their most common questions.”
The first chapter, “Recalculating base year emissions,” starts with rebaselining, a process that ensures companies capture the most complete and accurate picture of their actual progress, to be implemented if accounting methodology, Scope or data has changed. A robust, straightforward model will make rebaselining easier. And when coupled with open communication with stakeholders about efforts made, resbaselining can promote transparency and trust.
In the context of sustainability, progress can mean different things to different companies. Quantis defines progress as the actual reduction of a company’s emissions, determined by measuring the difference between two footprints calculated using the same methodology, data granularity and Scope. It’s also worth noting the kind of progress that can be made. Progress can be categorized in two ways—internal or external—as determined by whether internal or external factors trigger it.
Internal factors are company-initiated actions to decrease emissions, such as altering the type or reducing the number of materials used in key products. External drivers are actions taken by others—sectors, countries, peers—that indirectly benefit a company, such as a region improving its energy mix with renewables. Both types of progress count toward goals, such as Science-Based Targets, and should be clearly communicated.
But when to rebaseline? When there’s a significant change in structure or inventory. The Science-Based Target initiative (SBTi) defines the threshold for significance as 5 percent or greater in an organization’s total base-year emissions. But companies don’t have to be at that 5 percent to rebaseline; it could make sense to rebaseline in other contexts, for example, if a subset of a corporation reached the 5 percent threshold of Scope while working on its own reduction strategy independent of the parent corporation.
Rebaselining entails plugging base-year data into an updated model. For companies that determine they need to rebaseline, the SBTi expects baselines and targets to evolve due to changes in activities and methodologies. It lays out a specific process to allow for adjustments to targets when significant changes occur. Depending on the method used to set the target, rebaselining could lead to a notable revision. But it’s important to manage expectations; a robust baseline can take two to three years to develop and will evolve alongside standards, methodologies and data precision changes. Carbon accounting isn’t like financial accounting—it’s not predictable or static.
Next up explores the challenge of double counting—and how to manage it. Is it cheating if a company takes credit for an emissions reduction that another company accounts for in its own inventory? Not necessarily.
“There is a legitimate opportunity for multiple companies to count the same reduction or removal in their Scope 3 if managed the right way,” Jon Dettling, Quantis global director, said.
Double counting is almost impossible to avoid for some emissions, such as Scope 3; another company will inevitably count those emissions as their Scope 1 emissions. That said, some types of double counting can undermine the environmental integrity and credibility of a company’s activities and reporting. Here’s how to avoid that.
While companies along the same value chain can account for the emissions associated with their activities, only one is permitted to count them as their Scope 1 emissions. There are, however, no limitations on how many companies can calculate these emissions in their Scope 3.
For example, a retailer would account for emissions at its store as Scope 1 and 2. Then everything else (extracting raw materials, transforming the raw materials into a finished product, etc.) would count as Scope 3. These same Scope 3 emissions would be Scope 1 and 2 emissions for the raw materials producers or product manufacturers in the retailer’s value chain.
Rigorously following standards and being clear about what is counted for each Scope is vital to provide clarity to stakeholders about what emissions are included in which Scope and why.
This also applies to the target level. Suppose one company’s target is to reduce direct emissions from generating its product and another has a target to reduce indirect emissions from buying that product. In that case, they will mutually benefit from one another’s reductions. For example, suppose a supplier reduces its emissions. In that case, both the processor and the retailer can claim that their Scope 3 emissions have decreased if the supplier’s reduction is kept in that value chain.
A supplier cannot, however, allocate reduced emissions from a given “low-emission” product or service to more than one customer at a time. The reduction can only be claimed by companies in the same value chain in which the reduction occurred. Let’s say a supplier has implemented an intervention in agreement with a manufacturer in value chain A. The manufacturer in value chain A is the only entity that can account for this reduction in its inventory, which can then be transferred to a retailer in value chain A. If both the manufacturer and retailer in value chain A claim these reductions, they can’t be claimed by actors in value chain B. Those in value chain B will have to claim the full impact of the product they buy from the supplier.
There may, however, be instances where actors in two different value chains work collectively to improve the activities of a shared supplier. In such a case, the value chain actors involved in the intervention can claim the resulting reduction. However, other actors in their value chains cannot. For example, a manufacturer in value chain A and a retailer in value chain B implement a joint intervention to transform a shared supplier’s activities. The resulting emissions reductions can be claimed by both the manufacturer in value chain A and the retailer in value chain B, but not by the manufacturer in value chain B or the retailer in value chain A.
It’s also important to note that there are limits as to what a company can claim.
Companies can only claim reductions for the products they’ve actually purchased. If a supplier carries out an intervention without the support of the other value chain actors, the supplier may allocate the reduction to its customers. This can be done by allocating reductions to a single customer or splitting benefits across many (or all) customers.
Suppliers must report emissions factors for improved and unimproved commodities separately to prevent a customer that isn’t authorized to claim a reduction—or part of one—from doing so. Doing so allows companies that can’t claim the reduction to use the non-improved emissions factor and avoid double-counting improvements already claimed by an industry peer.
Sometimes emissions reductions resulting from interventions are captured under a carbon credit, which can be sold to a company outside the value chain in which the intervention took place (defined as an offset). In this case, the impact reduction can no longer be claimed by the company that implemented the intervention nor by any other company within the original value chain. It’s also worth noting that companies purchasing carbon credits can only claim reductions as offsets — they cannot be claimed as value chain reductions.
Companies should aim to keep reductions in their value chains rather than sell them as carbon credits outside of their value chains so they can be co-claimed as reductions. However, this requires value chain actors to support supplier interventions financially, lowering costs for suppliers and making it less advantageous or attractive to sell reductions as offset credits.
The complex structure of value chains can make tracking the impact of sustainability-related interventions challenging. Supplier-specific information is often lacking or hard to come by. But a lack of traceability shouldn’t deter companies from efforts to drive progress. The Value Change Initiative introduced the supply shed concept to help organizations overcome this barrier and mitigate their supply chain emissions in line with their Science-Based Targets, even when supplier information is limited.
As defined by the Value Chain Interventions Guidance, a supply shed is “a group of suppliers in a specifically defined geography and/or market (e.g., at a national or sub-national level) providing similar goods and services that can be demonstrated to be associated with the company’s value chain.”
A value chain intervention is “any action that introduces a change to a Scope 3 activity,” such as a new technology, practice or supply change to reduce or remove emissions. Interventions drive sustainability and reduce impacts throughout the value chain. They can occur within markets, supply sheds or direct suppliers in a company’s supply chain.
While the supply shed concept can help companies track progress when they cannot trace it back to their end suppliers, some situations may complicate the process and have implications for how progress is tracked. This could be if a company has cut ties with a supplier. Even if the two no longer do business together, the supplier still exists and will likely find another company to do work with instead. So while the emissions generated by this supplier are no longer associated with said company, they didn’t go away. They’ve shifted elsewhere. Thus, working with suppliers to improve their environmental performance is the best way to ensure that progress is truly being made. Companies should explore this route before considering a supply shift.
The supply shed concept can significantly help companies with a lack of traceability in the supply chain, allowing them to take meaningful action in the value chain by enabling them to set a more transparent supply base with which they can develop and deploy interventions. That said, working closely with suppliers within that supply shed is critical for guaranteeing the credibility of calculations and maintaining a physical connection to the intervention. Companies must pay close attention to how and why changes occur to understand what may have caused a reduction. Complying with a set of verification requirements helps ensure that real progress is taking place and making the accounting process easier.
The right data can make tracking progress easier and more accurate. However, what constitutes the correct data depends on the company and circumstances.
Two types of data are used for tracking progress: primary and secondary. Primary data is collected directly by a company or its partners along the value chain. It can be obtained in several ways, most commonly through field measurement, using remote sensing tools or various sampling approaches. Examples of primary data include the exact amount of energy consumed by a supplier or the amount of fertilizer a farmer uses. Secondary data, on the other hand, isn’t company or value-chain-specific. Obtained from databases, it’s derived from regional, country or global-level practices and trends or statistical information and is typically used to model emissions in databases like Ecoinvent or GaBi. Examples of secondary data include energy grid mixes, average fertilizer use in a given region, deforestation at the country level, or average truck fuel consumption for a certain model. Secondary data is efficient for assessing high-level emissions and is widely used in footprinting.
Primary and secondary data should be distinct from emissions factors. Primary and secondary data refer to the input data used to model emissions factors. Emissions factors, by contrast, are coefficients that convert activity data into GHG emissions data (i.e., kg CO2 emitted per liter of fuel consumed or per kilometer traveled). Primary emissions factors are often built using a mix of primary and secondary data, whereas secondary emissions factors, sometimes referred to as generic emissions factors, don’t rely on primary data.
Companies should outline best practices and processes for collecting data to avoid inconsistent and unusable data. The report recommends taking the time to develop clear, concise guidelines that include information on identifying and clarifying data sources, standard operating procedures for data collection, data quality requirements and third-party quality assurance requirements.
Ultimately, the ability of a company to access—and benefit from—primary data is directly related to the level of transparency it has over the supply chain. Working to improve supply chain traceability and maintaining an up-to-date map of suppliers will put companies in better positions to identify and assess the impact of their sourcing activities as well as to switch progressively from secondary to primary data as suppliers start implementing emission reduction initiatives.
Companies have a wide range of tools at their disposal for capturing or modeling primary data and measuring the progress they and their value chain are making to reduce Scope 3 emissions. These tools provide helpful insight into the reality of what’s happening in the supply chain and increase visibility on the changes that need to happen. Despite their numerous benefits, many of the measurement tools present significant challenges for tracking progress.
But the accuracy and effectiveness of data largely depend on the tool and the underlying methodology used to collect and process it. First, companies should determine when it’s appropriate to use a tool and then choose the most relevant tool for their activity. Different tools will yield different numbers, and it’s important to understand what they mean and why they vary. Users obtain input data or emission factors when tracking progress with a primary data collection tool. How to use this information to track progress hinges on the type of data it’s built on.
“Push for simplicity, whether considering the tool or the data to collect,” Sebastien Humbert, Quantis co-founder and scientific director, said. “The more complex a tool is, the more opportunities for mistakes there will be and the more difficult the quality control will be.”
In the end, measuring, managing and acting on uncertainty in emissions can keep companies focused on priority areas and protect their credibility.
“By publishing this report, we hope that companies will feel confident making informed decisions about their supply chains and showcasing actual progress on their emissions reduction journey,” Bande said. “With greater clarity, businesses can focus resources towards accelerating change.”