How can we tell which companies are really green?

Green handshake
Whose green claims can we trust, and how do we measure them?
Green claims are everywhere: surely there must be some simple way of measuring exactly what impact a company is having on the climate?

While the past months may have seen fears of financial apocalypse push climate change out of the headlines, the impact of business on the environment remains firmly embedded in both government regulation and customer and shareholder awareness.

In short, companies that can demonstrate genuine action in improving the sustainability of their products and processes will be more successful in the future.

They will, however, have to be able convince increasingly knowledgeable and sceptical observers. Specialist sustainability PR firm Futerra has felt the need to issue its own greenwash guide, aimed at curbing the over-enthusiastic eco-friendliness of communications officers.

Futerra believes that confidence in companies’ sustainability claims is at an all-time low: only 10 per cent of consumers say that they trust green information from business and government. Comprehensible, trustworthy metrics have never been more in demand.

What gets measured...

Basic principles are simple - a business wanting to reassure its customers and shareholders needs to understand the contribution of its activities to climate change by measuring its carbon footprint. Complication sets in almost immediately, however.

There are a number of ways that a carbon footprint can be calculated, using different tools and methodologies. One company might include in its calculations only those things for which it is directly responsible, such as energy used during the manufacturing process, while another may decide to consider the impact of indirect emissions - sourcing raw materials, transport, or waste disposal. This can make it difficult to make useful comparisons between businesses, even within the same sector.

Despite sustainability’s prominent position in many companies’ business plans and mission statements, robust methodologies for carbon footprinting are still not yet fully driven by regulation - it's up to you if you choose to count your carbon. Mechanisms for monitoring and coordination are still lacking, and the debate continues as to whether the scope of such mechanisms should be global, regional or domestic.

Last week, the UK Government released guidance on how a firm should measure its greenhouse gas emissions - a long awaited clarification. But even this was greeted with furrowed brows.
'To avoid confusion, the Government needs to ensure businesses understand how this latest guidance will fit in with other low-carbon reporting regulations, including the EU Emissions Trading Scheme and the forthcoming Carbon Reduction Commitment,' said Neil Bentley, the CBI’s director of business environment.

Why bother?

The need to 'go it alone' not only places a heavy cost burden on individual businesses, it also creates the risk that some businesses will not publish measurements, whether intentionally or otherwise. Without support and clear guidelines, the complexity of the process can be a disincentive for companies to embrace voluntary initiatives, particularly in times when budgets are under pressure.

Although we’re still a long way from standardised global measurement, the last ten years has seen the development of a number of systems designed to compare and highlight businesses’ green performance. The Dow Jones Sustainability Index (DJSI) was launched in 1999, and was the first attempt to provide worldwide sustainability benchmarking – its scope goes beyond merely calculating a carbon footprint, however. For a business to become part of the DJSI it has to withstand scrutiny against three criteria – economic performance, what the DJSI calls 'relationship with the environment', and social impact.

This year’s results, released in September saw the number of companies on the index remain unchanged, while 33 were added and 33 deleted. The list of those added included Johnson and Johnson, Coca-Cola and Samsung Electronics. The biggest deletions were National Grid, Mitsubishi Estate and SABMiller.

According to the DJSI, the last ten years has seen a shift in attitude of participating businesses. In the 1990s, companies’ efforts to integrate sustainability into their processes was driven largely by regulation, and a significant number of even the best performers had only vague processes in place to hit sustainability targets. The DJSI believes that, over time, companies have grasped the fact that corporate sustainability brings with it real competitive advantage – being green is, quite simply, good for business.

Green is good

There’s little doubt also that businesses have begun to realise that good practice when it comes to sustainability can lead to improved efficiency. Joanna Lee, director of communications and corporate partnership at the Carbon Disclosure Project, (CDP) says: 'A lot of companies tell us that once they’ve started measuring areas where there’s waste from an energy perspective it gives them a framework to address the areas where there is scope for energy efficiency.'

The Carbon Disclosure Project was established in 2000 in an attempt to help set up a standardised process of benchmarking – it now holds the world’s largest database of corporate climate change information. The CDP represents institutional investors, purchasing organisations and governmental bodies. Participating businesses – and the CDP now polls around 5000 companies annually, including the Global 500 and FTSE 350 – are asked to complete a comprehensive questionnaire on their end-to-end greenhouse gas measurement and accounting systems.

'For many companies the first time they’ve ever thought about climate change is when the questionnaire lands on the desk of the CEO or the chairman,' says Lee. She believes that the process of having to ask and answer the right questions helps to raise awareness and drive change within participating companies. 'It helps to identify areas where there’s scope for emissions reduction and to develop strategies to manage them,' she says.

The CDP’s questionnaires are comprehensive and complex, but the data is ultimately consolidated into a single ‘score’. The response rate is high – around 90 per cent of FTSE 100 companies take part, but, inevitably some businesses - in CDP parlance - ‘decline to participate’. This can be either because of inability to collect the data or because they feel climate change is not a high priority.

Understandably, larger companies have a better response rate.
'It does fall away when you get to the FTSE 350 because you’ve got smaller companies who may not be as advanced in their understanding of the issues,' Lee says. The global response rate for 2008 was 77 per cent. As well as geographical differences there are significant variations in the quality of disclosure between industry sectors, but there are few surprises.

In general, the carbon-intensive sector, with a need to have a good grip on its processes, out-performs the non-intensive. The energy-hungry sectors, such as utilities, mining, paper and packaging all perform well. Overall, financial services underperforms, and was the lowest scoring non-intensive sector, as well as having the lowest response rate - not a good move for a sector recently condemned by Lord Adair Turner, chair of the Government's Climate Change Committee, as 'socially useless'.

The CDP’s annual reports – and the organisation now slices and dices the data in over 20 different ways – accentuate the positive.
'We don’t do sinners,' Lee says. 'We score companies within what we call the Carbon Disclosure Leadership Index (CDLI), which assesses the quality of the response. What it demonstrates in a clear and simple way is how well companies have responded to us.'

While gaps in participation remain in what the organisation calls ‘the carbon disclosure journey' the CDP’s assessment is that progress is being made. Lee cites increased consumer awareness and a growing perception of opportunities that better carbon strategies can present to business as key drivers.

The troublesome third scope...

While different methodologies are still in use, processes are beginning to coalesce around the Greenhouse Gas (GHG) Protocol Corporate Reporting and Accounting Standard developed by the environmental think tank the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). In 2006, the International Organization for Standardization (ISO) adopted the Corporate Standard as the basis for its ISO 14064-I specification. It has formed the basis of the recently announced UK Government emissions reporting guide.

But as the drive to get an accurate measurement of businesses’ environmental impact gathers momentum, so the issues involved grow more complex. While legislation is pushing companies to get to grips with direct emissions (Scope 1 under the GHG protocol), and the more easily measurable indirect emissions (Scope 2), the WRI and WBCSD are still working on developing a standardised methodology for the diverse and difficult to measure Scope 3, which is still optional.

Environmental consultant Emma Stewart describes Scope 3 emissions as 'the elephant in the room'. Reporting is still optional, yet Scope 3 emissions can be as significant as Scope 1 and 2. Covering a range of indirect GHG emissions, Scope 3 can include the impact of waste-water treatment, business travel, sourcing raw materials, product use and end-of-life disposal. Stewart believes that companies can cherry-pick the activities which are either easiest to measure or give the result which looks most attractive to the outside world.

Peverse carbon?

Including product use in the calculation can lead to unexpected results. Along with others in the sector, German chemical giant BASF campaigned vigorously - 'corrosively', according to Greenpeace - against much of the legislation proposed during the period leading up to the introduction of the 'REACH' chemicals legislation. In terms of carbon emissions, however, the company has been keen to table its eco-friendliness, or to at least try to show that there was a silver lining to the huge carbon cloud cloud produced by its activities.

In early 2008 an extensive end-to-end review of BASF's 2006 operations led to the claim, checked and largely substantiated by Freiburg’s independent green think-tank the Öko-Institut, that favourable environmental impact stemming from the use of BASF insulation and other products could 'offset' the company’s hefty 87 million tonnes of CO2 equivalent emissions by a factor of three to one.

Such a comprehensive exercise in data collection is neither quick nor easy. BASF’s analysis of the entire life cycle of 90 products and took over a year to complete. The company intends to keep the information up to date, but it will not become an annual report.

NGO response to the claim was guardedly positive, but general consensus was that the calculation was too complex to verify easily, if at all. Without a standardised protocol for Scope 3 reporting, companies can ignore, or manipulate, a highly significant portion of their total business impact on the environment.

Businesses, their customers, governments and NGOs alike, see the need for standardised green metrics, and, developed over the last ten years, the basic machinery is available, though its uptake would appear to be slowed by a combination of the time and costs involved, and the massive complexity of the data feeds needed to assess accurately the end-to-end operation of a large company.

Give us your data

There is no doubt that the DJSI and the CDP are highly influential benchmarking systems, and that the last decade has seen huge advances in companies’ awareness of their carbon footprint. Whether driven by the demands of customers and shareholders, genuine corporate social responsibility or self-interest – there are usually cost savings which stem from a business becoming more energy-efficient - real progress has been made.

There is also little doubt that there is still a long way to go. The cost in time and resources needed to carry out a total carbon balance calculation mean that, without legislation, reporting of Scope 3 emissions will remain an option that many companies will choose to avoid. Without the adoption of a system that forces companies to measure the total environmental impact of their business, top to bottom, it will continue to be impossible to assess accurately just how green a business is.

David Ord is a freelance journalist

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