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Leading companies are now targeting their supply chain carbon emissions. Change within operational control is considered basic, but ambition requires looking beyond these boundaries. Consumption-based accounting, an economic model to calculate supply chain carbon emissions, is one way to do this.

Every industry has some form of a supply chain, but these can vary in size and complexity. For example, the supply chain of the manufacturing industry is usually simple. Here ‘simple’ refers to how many ‘tiers’ and ‘pathways’ make up a supply chain. Whereas service industries are far more ‘complicated’ in terms of the number and variety of these ‘pathways’.

A ‘tier’ is a layer of a supplier. For example, Company A purchases catering through Company B, creating one supply chain ‘tier’. Company B buys ingredients for catering from Company C, creating another supply chain tier. However, Company B also buys drinks for from Company D. This does not add another tier, but another ‘pathway’ to the 2nd tier. The possible connections are endless and complex. This makes them very difficult to understand.

The different types of supply chain can host different opportunities if they are understood and managed well.

Supply chain tiers by Elementum

 

EXTRACTION

The environmental impact of extraction industries is clearer than any other industrial category. Despite fairly simple supply chain structures, there are limits to how well we can understand their GHG burdens. This is especially true when you consider the impacts of land use change, an area recently raised for development of a standard by GHG Protocol.

Consumption-based carbon accounting surpasses these limits. Understanding 100% of the carbon footprint gives companies a better chance to make real change.

MANUFACTURING

Construction, fashion and food products industries have had historic supply chain controversies (horsemeat in ready meals, labour violations in construction sites, and animal fur on ‘faux fur’ clothing). Their supply chains also share similar GHG emissions patterns. This provides an opportunity to improve the public view of these industries, and a transparent view of the supply chain will play a key role in this.

Supply chains in manufacturing are critically important. Consumption-based carbon accounting gives insight into the industries companies rely on and the associated carbon emissions. Diversity and improved sustainability in supply chains can protect companies from supply chain risks.

DISTRIBUTION

The complexities of Distribution industries are added to by the greatly increased demand for transport compared to other industries. Burning fossil fuels in lorries, ships and planes is one of the most significant GHG emissions sources at every scale. Distribution sectors will have significant transport burdens across supply chain tiers. New connections between tiers will have heavier burdens too.

With such important environmental impacts, consumption-based carbon accounting can bring a clearer focus to carbon emissions reduction efforts in Distribution industries.

SERVICES

Some of the most complex supply chains are within service industries. Examples of these industries include financial, legal and educational services. It is impossible under current methods, within a reasonable time and cost constraints, to measure the entire supply chain carbon emissions of such companies. However, the supply chain can hold 95% of the burden of service companies. The easiest way to map supply chains is through financial spend.

Using consumption-based carbon accounting, the GHG emissions of all supply chain paths can be included in one model. This also increases transparency in the supply chain, environmentally and financially.

WHAT THIS MEANS

Though discussed individually, the critical complexity is that all industries are linked through supply chains. For example, the Distribution industries that supply the Manufacturers, or the Service industries that support Extraction. Understanding these relationships and how they relate to supply chain carbon emissions helps target reduction actions.

More detailed understanding of these relationships through the consumption-based accounting model can accurately identify hot spots of spend and carbon to help you effectively target your emission-reducing initiatives

Your Sustainability Shopping List

We are almost at the end January and there is already a growing list of activities and aspirations for the proactive Sustainability Manager in 2019. It’s now time to focus on the priorities of a Sustainability Manager.

If you are looking for inspiration, and want to freshen up the tired strategy from previous years, read on. Before reading Acclaro’s top 5 sustainability priorities, we should remind you that underpinning all of these areas is the need for good quality data to be captured and interpreted. Without which little can be achieved.

1. Developing a Social Value Approach

Globalisation offers many positives, but the drive for cheaper goods and services has affected not only, supply chains but also the communities that companies work within.

Social Value is currently measured on the value and impact of the corporate, rather than the benefit derived by the community. Some are scrambling to measure a monetary value. Assessing the benefits that supply chains can bring, or engaging with communities we operate within, is surely the first logical step.

We suggest, take a step back. The first stage is to understand what already takes place across the business coupled with assessing the needs of the community in which you operate, (or serve if you are a public-sector body). Capturing this information will help to develop a cohesive programme of engagement. This can be structurally managed across internal, supply chain and community programmes. There are many benefits to gain from a social value programme. This includes an increasing number of tenders requiring some form of disclosure of the value you create, so now is the time assess what your organisation can bring to society.

2. More accurate GHG Supply Chain Emissions

The reporting of greenhouse gases provides an ever-greater understanding of how our organisations impact climate change. However, when it comes to affecting change, it can be difficult to understand which areas of a business to target that will yield the most effective results. Carbon emissions from the supply chain is being increasingly scrutinised. Therefore, understanding these burdens and your ability to target them effectively is critical.

Using economic models based on annually updated economic data can map supply chains and associated emissions. The data from industrial Supply and Use tables is combined with emissions factors to create a model that maps national emissions linked with the spend of an organisation. This maps the entire organisations economy using matrix algebra to link environmental and economic data. Save yourself time and move away from the bottom up approach that sees us plot only a small proportion of supply chain emissions very inaccurately. There are other ways of doing it, and you can have a greater impact on climate targets by using correct data to being with.

3. Energy Audits and Reporting

Carbon emissions and energy consumption remain some of the biggest risks and contributors to climate change. The move towards nearly zero carbon buildings is accelerating with standards being developed as part of the wedges associated with science based targets.

The first stage should always be to minimise emissions and the energy being consumed through an effective understanding of how and why energy is used the way it is. Regulations are asking for public disclosure allowing for greater scrutiny and the need for verified and accurate information to be disclosed.

Significant quantities of information exist, but translating this into usable data and tangible outcomes from dynamic systems is the challenge – but can yield significant savings in excess of 15% energy reduction.

4. Environmental Risk Management

Whilst often initiated and implemented as part of management systems, the recent driver for climate and biodiversity related risk evaluation has come from the investor community. The premise is simple and equates to understanding the environment’s impact on you. These disclosures are targeted at mainstream investors and are intended to help them assess whether climate risk is appropriately priced in to their valuation of your company, enabling investors to make more informed decisions

Techniques and approaches for the scenario testing are still in development, but this year will see an increase in the understanding of the risks and early stages of validating the implications. Early movers will benefit from the opportunities available.

5. Building a Responsible Business Culture

Finally, this is the piece that joins the dots together. Business culture is changing and the expectations of new employees and our major consumers are dictating different terms – we now have a language of Purpose.

Responding to the societal pressures, the increased level of data, reporting pressures and investor requirements will necessitate a different response from organisations. And that culture needs to extend beyond the four walls of the sustainability team, into business and towards supplier management and sales programmes.

This is a long journey, that connects together forward risks, social benefits and environmental impacts, a develops a long-term strategy. Ultimately it will mainstream your role, but a concept we need to grapple with is, will it make it redundant? In time, perhaps some day-to-day operational parts. But there will always a need for strategic thinking and forward planning.

Acclaro Advisory wishes you a belated Happy New Year, and we hope to see you at many an event to discuss the direction you are taking for a sustainable future.

Good luck with putting  your priorities as a Sustainability Manager into action.

What are you talking about?

So what is Consumption -Based GHG Reporting?  ‘Consumption-based’ carbon accounting, as the name suggests, calculates carbon footprints based on your consumption of goods and services. It is based on input-output analysis, a robust method of modelling economies. It maps nationally published data on the flow of money, into, around and out of a country via industry sectors. Originally used to study economics, it can be adapted to environmental needs by assigning ‘environmental burdens’ such as kilograms of carbon emissions to each industry. This gives you a value for kilograms of carbon emitted per pound sterling (or any other currency) spent in any industry or on any product. This can be combined to describe whole companies.

And we don’t do this already?

The method used by the majority of people to calculate carbon emissions at the moment is called ‘process-based’ carbon accounting. It is essentially a shopping list of items and activities which get assigned a carbon factor, combined to find the total carbon footprint. This could describe your energy or waste processes, for example.

There are a number of problems with this method. The data provided is often incomplete leaving gaps and underestimating the footprint, by as much as 87% in some studies. This means your reporting is inaccurate and you cannot reduce your carbon footprint because you can’t see that it’s there. It is also a very time-consuming method with lots of individual calculations that make mistakes easy to make.

How is this new approach any better?

Where ‘process-based’ methods take a long time, varied data, and huge amounts of it, ‘consumption-based’ is much simpler. Once the model is constructed your data is fed into the model and – after some fancy matrix algebra – get your entire carbon footprint. Because it uses both client data and national data sets it always calculates 100% of your carbon footprint

There is also more you can do with an input-output carbon footprint. As well as the usual detail, the final figure can be picked apart to show hot-spots for carbon in your supply chains down through 5 tiers of spending. For complex companies this allows unrivaled access to your carbon burdens and how to mitigate them. It also expands your influence and capacity for change beyond your company, and to top it off tells a great do-good story.

Get in touch

The Acclaro approach is to take its clients on a journey that provides long term solutions and stream lines burden. We have experience of developing long lasting relationships that continues to save clients time and money whilst delivering results. If you are interested in setting up the consumption based model, or hearing how we work, get in contact and we can discuss whether this approach is right for you.

This blog forms part of a series of articles on consumption-based GHG reporting. Stay in touch for further guidance and information.

Through the Making Policy Clear Series, Acclaro Advisory informs clients of policy and regulatory changes around energy, environmental and social issues. Series 1 is focused on the energy and carbon regulatory schemes which impact business energy cost and reporting responsibilities.

Increased Climate Change Levy – Why is CCL increasing?

At end of July 2019, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is set to be closed.

The CRC is one of the two energy taxes that target large energy-intensive organisations. This tax is levied to encourage energy efficiency in business. The end of CRC will result in a significant increase to the Climate Change Levy (CCL) to recover the loss of the CRC energy taxation revenue.

Who pays CCL?

The second energy tax is to encourage energy efficiency in business is the CCL.
Exempt from CCL are organisations using less than 1,000kWh electricity and less than 4,397kWh gas, per month.

The end to CRC will simplify the various levels of compliance and reporting regimes for many organisations. While energy and carbon reporting will remain, the additional administrative burden of CRC will be significantly reduced, as it is likely that the organisations affected will also be compliant to mandatory greenhouse gas reporting.

How will the increase to CCL Affect Me?

  1.  For organisations where energy consumption is not a major component of business expenditure, the increase in CCL rates may not create a major impact on overall business costs. However, energy cost will increase from 1st April 2019.
  2.  If you are covered under the Climate Change Agreement (CCA) scheme, the CCL rate increase will have little to no impact on business energy cost, with the increase more significant to natural gas and LPG costs in comparison to the previous years’ costs.
  3.  If you are currently part of the CRC scheme, the energy tax is ultimately transferred to the increased CCL rates. From April 2019 energy bills will increase. Organisations will be required to submit their last CRC report by the 31 July 2019 and surrender allowances for the last time by the end of October 2019. The new Streamlined Energy and Carbon Reporting (SECR)1 framework will require organisations to continue to calculate and report the total annual energy consumption and carbon emissions.
  4.  Typically, this change will add between 2 – 4% to the business energy bill.

More on the impacts of SECR can be read in part one of this series here.

How can I prepare for this change?

CCL is added to energy bills by energy suppliers, therefore there are no changes necessary for consumers to accommodate the increased taxes. However, these organisations should consider ways to reducing business energy cost to minimise the impact of the increased tax.  Energy efficiency is widely recognised as the most effective way to reduce energy consumption and costs. The CRC scheme was designed with an aim to incentivise improving energy efficiency and reducing carbon emissions in large energy intensive organisations.  Well run energy audits can uncover several opportunities for energy efficiency. However, if not combined with effective implementation, the true value of these opportunities can be lost.

How Acclaro Can Help?

The Acclaro Energy Programme is an end-to-end energy management package that helps your business to get to grips with its energy consumption from all angles. Our programme helps you adapt and address responsibilities of energy efficiency as a business, whether cultural, technical or financial.  At Acclaro, we possess vast experience in CRC, CCA, energy efficiency and reporting with a variety of clients. Our Energy Team assists clients through expert advice and detailed energy audits, providing opportunity for further energy reduction when in-house teams can no longer identify. Our energy programme is designed to support you through a series of phases forming parts of your energy efficiency journey; from understanding energy consumption to embedding energy efficient practices into day-to-day business.

As organisations portfolios, data collection, emissions methodologies and reporting procedures vary significantly, it is important to plan before the change occurs. We are setting up discussions with a range of clients to further understand how the closure of CRC will impact their organisation. If you are keen to learn more, please contact us.

Our team can create a detailed action plan utilising your current processes to help streamline and reduce the impact of this transition. For a breakdown on the full extent of the impact to your organisation, steps to comply and where Acclaro’s expertise can support, email us now at info@acclaro-advisory.com to arrange a consultation.

Through the ‘Making Policy Clear’ Series, Acclaro Advisory will inform clients of policy and regulatory changes around energy, environmental and social issues; bringing clarity to governance, compliance and targets so you can get on with regular business activities. We dismantle the complexities of new and amended legislation and standards in a way that will help you meet your requirements today and be ready for new ones tomorrow.

This first series is focused on the energy and carbon regulatory schemes which impact business energy cost and reporting responsibilities. Our team has pulled together key information and insight on what is expected to occur and how organisations can prepare. Part one of this series will focus on the Streamline Energy and Carbon Reporting (SECR).

We would be happy to provide a detailed breakdown on the full extent of the impact to your organisation, steps to comply and where Acclaro’s expertise can support. Email us now at info@acclaro-advisory.com to arrange a consultation.

Streamline Energy and Carbon Reporting (SECR)

What is SECR?

The Streamlined Energy and Carbon Reporting (SECR) framework will be in effect from April 2019 as part of a new policy landscape. The framework has been designed to streamline and reduce complexity in the carbon and energy reporting regimes while broadening the scope for reporting compliance. This is set to impact approximately 11,900 companies (PCL) and 230 Limited Liability Partnerships, up from the approximately 1,200 required to report carbon emissions.

SECR will require large companies to report their annual energy consumption and carbon emissions in Annual Director Reports alongside financial data.  The new framework comes ahead of the closure of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, set for the end of July 2019. The Climate Change Levy (CCL) and CRC are two energy consumption taxes on large energy-intensive organisations currently levied to encourage the businesses to consume energy more efficiently. The end of CRC includes an increase on the Climate Change Levy (CCL) rates as a re-balance measure to recover the loss of the CRC energy taxation revenue.

At Acclaro, we feel that the new requirements can have a significant impact on many organisations and can ultimately increase their administrative burden. This can be said mainly for the many organisations which did not participate in similar schemes but are now captured in the new compliance scope. Moreover, the accompanying changes to the energy tax regime will have a significant impact on energy costs. On the other hand, increased energy cost and increased transparency for investors and other stakeholders will encourage more companies to be accountable and responsive to the need for effective energy management and carbon reduction to meet UK climate change targets.

Who needs to Comply?

The compliance structure of SECR is very similar to the compliance criteria of ESOS. The need to comply with the new framework will be based primarily on financial or employee thresholds.

An organisation falling near to these thresholds will need to clearly explain why they do or don’t need to comply with the regulations. They will also need to maintain an evidence pack which could be subject to audit by the Environment Agency. Additional specific exemption conditions apply under limitations of data and prejudicial disclosure concerns; only expected in exceptional circumstances.

How will SECR Affect Me?

There are a series of minimum reporting requirements that must be met. For example:

1. If you are already reporting under mandatory Greenhouse Gas (GHG) reporting there is little change except for the inclusion of annual energy use and energy efficiency action in your company annual reports.
2. If you are reporting and purchasing credits in the Carbon Reduction Commitment (CRC EES). The new SECR regulation will replace the CRC reporting framework with much of the direct costs of CRC shifted to the increase on Climate Change Levy¹.
3. If you comply with ESOS. It’s likely that most organisations who have had to comply with the Energy Saving Opportunities Scheme (ESOS) will be required to report additional information under the new scheme. This will introduce annual public disclosure of energy use, energy efficiency action and scope 1 & 2 carbon emissions.
4. If you don’t fall into either of the current reporting schemes. It is likely that some organisations, such as public authorities and charities, normally exempt from mandatory energy and carbon reporting requirements, will fall into the broadened scope of this new framework. It is critical for such organisations to act now in preparation for the 2019 reporting requirements.

¹More on the impacts of increased CCL rates can be found in part two of our Making Policy Clear – Energy and Carbon Series here.

How Do I Comply?

Compliance varies by organisation and its current reporting regime. Reporting will be based on the company’s annual reporting cycle and is required through the company Annual Reports. Typically, Director Annual Reports must include:

1. Annual UK energy use covering all UK sites, including business travel.

2. Annual scope 1 and 2 greenhouse gas emissions, including an intensity metric and methodology. Scope 3 emissions can be reported voluntarily.

3. An overview of annual energy efficiency action taken in the financial year. Companies can voluntarily disclose ESOS action as a part of this report.

4. Where practical, annual global energy use and greenhouse gas emissions (if applicable).

How Acclaro Can Help?

We expect to see more details on the framework and updated to legislation in the coming months, with an impact to reporting in 2019. As organisations portfolios, data collection, emissions methodologies and reporting procedures vary significantly, it is important to plan before the roll out of the framework occurs.

The Acclaro team has a breadth of experience in ESOS, GHG and sustainability assessments with a variety of clients from IT technology companies to Opera theatres and public bodies. Our clear structured approach supports compliance regimes and we help to validate and back up your results, so you have a solid sounding board for your sustainability reporting. Our team has assisted many companies to adapt for and address responsibilities that sit within energy efficiency. Our clients have benefited from investor interest, improved recruitment and client retention. We can help you turn compliance risk into opportunity.

We are setting up discussions with a range of clients to further understand how SECR will impact their organisation.

If you are keen to learn more, please contact us. Our team can create a detailed action plan utilising your current reporting regime to help streamline your transition into this new framework.