Beyond the Four Walls: Carbon Accounting 2.0

by Renaud des Rosiers
Today is an exciting day in the world of accounting (I’m sure there’s a joke here somewhere). Culminating an exhaustive three year multi-stakeholder process, the WBCSD and WRI today launched  the Greenhouse Gas Protocol Scope 3 Corporate  Value Chain and Product accounting standards—a monumental step in the development of our ability to account for global Greenhouse Gas (GHG) emissions. I was a participant in the development process as one of a few dozen actively involved Technical Working Group members and felt a real sense of satisfaction and optimism for the future of our planet this morning at the launch event in NYC.
How can something as mundane (or is dreadfully boring a better characterization?) as accounting standards be a source of optimism in a world of melting icecaps and spiking extreme weather events?
Glad you asked!
Prior to today, when companies spoke of their “carbon footprint” they were simply referring to the direct emissions (their Scope 1 and Scope 2 emissions in the parlance of our industry) related to the operations of their owned assets. While at first glance this might seem like the important leverage point, in most cases (extractive industries are perhaps the sole exception to this rule) it actually accounts for only a small percentage of the emissions associated with a company’s operations—anywhere from maybe 1% to at most about 25%.
The real bulk of the emissions associated with a company’s operations, that is, the remaining 75-99%, come from outside the company’s four walls; what industry calls the value chain. These value chain emissions make up the category of Scope 3 emissions that, until today, had no globally accepted accounting standard. For a typical manufacturing company—anyone who makes things for sale to customers—these Scope 3 emissions include everything from extraction of raw materials that go into the product, transportation of those raw materials to the manufacturer, transportation to market, outsourced sales and marketing efforts, leased assets, and consumer use of the product to name a few. For any given company, an exhaustive version of this list can get very long and we won’t dwell on the details here. Suffice to say that these Scope 3 emissions make up the vast majority of emissions associated with the operations of most companies and until today, they were outside the realm of what companies were reporting.
So what’s the big deal? Well, most importantly, the transparency that will be provided by the hot spot acuity in Scope 3 emissions will allow business leaders to focus on where the most significant impacts lie (what matters most) in making decisions about product design, material makeup, sourcing, and transport. In short, Scope 3 accounting provides a visibility into the supply chain that will facilitate the appropriate allocation of resources towards the most impactful GHG management strategies.
Like all GHG accounting, the new Scope 3 standard is voluntary so adoption will be gradual. Furthermore, Scope 3 emissions are complicated and although CGA and a few of our peers have been helping companies account for them for years, this complexity will make uptake of the new standards by users even more gradual and will also slow understanding among consumers. Still, this is an important development in the field of GHG management and one that will take us one giant step forward on the path to solving our climate crisis.
The new standards are free and can be downloaded at http://www.ghgprotocol.org/