Mandatory carbon reporting

A slight change in tact this week for this blog away from technology to a topic I want to try and get more immersed in during the course of 2015, that of sustainability. This week I’d like to briefly explore mandatory carbon reporting and the implications and opportunities for procurement.

In October 2013 the UK Government announced that quoted companies would be required to report their annual greenhouse gas (GHG) emissions in their directors’ report. GHG emissions are categorised into three “scopes” by the GHG Protocol. Scope 1 and 2 cover direct emissions sources such as the electricity that a company purchases or fuel that is used in company vehicles. Scope 3 is more in depth and covers all indirect emissions due to the activity of an organisation.

The UK Government have provided a quick helpful summary guide as to what is included in each “scope” level:

Scope 1	Scope 2	Scope 3
Fuel combustion Company vehicles Fugitive emissions	Purchased electricity, heat and steam	Purchased goods and services Business travel Employee commuting Waste disposal Use of sold products Transportation and distribution (up- and downstream) Investments Leased assets and franchises

It is worth noting at this stage that the term ‘procurement emissions’ or ‘supply chain procurement’ is widely used as a shorthand for elements of scope 3 emissions and it is here that I think procurement can probably get most involved and add most value.

Although scope 3 emission reporting is not yet a mandatory requirement (and there is no expectation that it will be for some time) some firms are reporting on them and I expect more will continue to do so for CSR purposes. It is fair to say that at this stage the private sector is behind the public sector but the expectation is that the government will undertake a review and decide in 2016 whether to extend the regulations to all large companies, potentially adding 24,000 organisations to the already c. 1,100 that have to mandatorily report both on both scope 1 and scope 2.

So how can procurement become more occupied in scope 3 reporting and where can they add value? 

Let’s consider some of the activities that would be involved:

1.       Assess the supply chain for emission hotspots

2.       Identify resources and energy risks

3.       Identify energy efficiency and cost reduction opportunities in the supply chain

4.       Engage with suppliers and assist them to implement sustainability initiatives

5.       Purchase more energy efficient products

6.       Help companies reduce emissions from business travel and employee commuting

7.       Help identify leaders and laggards in their supply chains

At present many organisations that are attempting to report to scope 3 are doing so without procurement involvement and, as you can see from the list, the activities involved would suggest that integration with procurement departments would uncover huge benefits.

I would expect a move towards a change in procurement strategy in the coming years to reflect the changing focus in the market, both in terms of legislation and general mood towards sustainability. 

Price will continue to be important, however on-going energy costs including carbon credits, as well as the impact of carbon on CSR and reputational risk, are becoming more and more intertwined in procurement decision making.