The Achilles Heel of Environmental Accounting: Supply chains

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, responsible innovation, CSR reporting, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business School, ESSEC Asia-Pacific, FGV-EAESP, Trinity College Dublin Business School, IE Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Global Voice magazine, Frederik Dahlmann, Warwick Business SchoolAs firms scramble to get their emissions under control facing pressure from customers and regulators, Dr-Prof. Frederik Dahlmann from Warwick Business School explains what they may be forgetting.

By CoBS Editor Tanvi Rakesh from the article ‘When it comes to carbon footprint, supply chains are our Achilles heel’ by Professor Frederik Dahlmann, with kind acknowledgements to Warwick Business School.

Forget Something?

Climate change may have little impact on Donald Trump – a staunch believer of climate change being a hoax – but it seems like several firms and organisations have begun cleaning up the carbon trails they leave behind. Although this may seem like a ray of hope in an otherwise seemingly bleak future, Professor Dahlmann claims that it may not necessarily be the case. While firms get busy reducing their carbon emissions, what many are ignoring is the inclusion of their supply chains – something that Prof. Dahlmann considers a key factor. Take for example, the popularity of electric scooters. Users and propagators of the electric scooter claimed for a long time that the electric scooter was an eco-friendly way to cover short distances. However, most manufacturers of these scooters are Chinese firms, the majority of which do not maintain records of their carbon emissions. Moreover, most electric scooters have never lived an efficient life-cycle because of their non-durable build. The electric scooter has ridden a wave of popularity thanks to only a single segment of its lifecycle that is easy on emissions – riding it. Research has revealed that after taking into account the emissions from manufacturing, transportation, maintenance, and upkeep, electric dockless scooters do not rank as high on the green-o-meter as companies would have liked us to believe.

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, responsible innovation, CSR reporting, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business School, ESSEC Asia-Pacific, FGV-EAESP, Trinity College Dublin Business School, IE Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Global Voice magazine, Frederik Dahlmann, Warwick Business School

Heavy is the head that wears green

Overlooking supply chains is bad news for the environment. Supply chains bear a heavy weight in determining a firm’s carbon footprint, amounting to as much as four times the organisation’s own operational emissions. And it seems few organisations are aware of their own. The Carbon Disclosure Project (CDP) – a charity running the global disclosure system on carbon emissions for investors and other interested parties – revealed that a mere 36 per cent of companies that responded to its annual survey are actually engaging with their suppliers. Professor Dahlmann explains why this is disturbing on two fronts. Firstly, regulation. Increasingly, regulators around the world are demanding publicly listed companies to cough up their greenhouse gas (GHG) emission numbers and disclose them in their annual reports. One among these countries is the UK, which has gone as far as to introduce the Streamlined Energy & Carbon Reporting (SECR) scheme in 2019, which brings under purview, the entire supply chain. Secondly, with the subject of climate change an increasingly politicised arena thanks to Greta Thunberg’s worldwide movement, pressure is building on firms to not just use their carbon-reduction actions as good PR, but more importantly to lead society in the move towards a sustainable future. It is increasingly important firms engage with their supply chain to work collectively to reduce carbon emissions.

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business School, ESSEC Asia-Pacific, FGV-EAESP, Trinity College Dublin Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Sheila Cannon

The 3 levels of handling supply chains

By analysing the CDP annual survey from 2014 to 2017, Professors Dahlmann from WBS and Jens Roehrich from the University of Bath examined 1,686 listed companies from all over the world that are actively collecting environmental data and engaging with their supply chain i.e. customers on one end and suppliers on the other. Indeed, of those 28 per cent only engage with their customers while 21 per cent only with their suppliers, while the rest talk to both ends of the chain. Although two thirds of firms are doing neither, the number of firms engaging with some or all of their supply chain has seen an increase of 57 per cent between 2014 and 2017. From this data, Professor Dahlmann was able to place firms into three different categories, based on their level of involvement with the supply chain – basic, transactional and collaborative. “It is at the collaborative stage where we see the most comprehensive approach to managing supply chain partners and customers”, Professor Dahlmann points out.

The basic level involves an elementary level of interaction, where companies typically send their suppliers a survey to fill in on their emissions data. US software firm Symantec produces an annual report on its suppliers’ GHG emissions, while Bank of America has been conducting a CDP supply chain survey since 2009. Firms at the basic level will usually only measure and collate data, engaging only in the first step necessary for the conception of a more comprehensive carbon reduction plan. “Perhaps tellingly”, Professor Dahlmann observes, “survey responses from firms engaging in only basic engagement were relatively shorter in length and qualitatively less detailed”. On the other hand, more advanced firms – at the transactional and collaborative levels – use this data for more productive means. At the transactional level firms calculate their carbon footprint and identify opportunities for improvements. The more experienced firms of this lot, then, use the data to provide their supply chain with targets and incentives. Virgin Atlantic Airways, for example, aims for reductions in emissions from its supply chain each year, while nuclear power firm Exelon sets goals for its suppliers to reduce energy usage and GHG emissions. What is more is that this data is also being used for the development of key performance indicators (KPIs) which can facilitate supplier selection and the assessment of their performance. Warnings are sent to firms not hitting requisite performance levels and improvements demanded. As a result, the emissions data becomes an integral part of the selection criteria for suppliers making them more accountable. For instance, pharma giant Pfizer reported that the aim of its data collection is “to provide benchmarking to suppliers regarding their GHG emission reduction and water conservation programmes, in order to identify sustainability improvement opportunities”.

Going all the way

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, responsible innovation, CSR reporting, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business School, ESSEC Asia-Pacific, FGV-EAESP, Trinity College Dublin Business School, IE Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Global Voice magazine, Frederik Dahlmann, Warwick Business SchoolAt the collaborative level, on one end firms and suppliers work together to develop shared goals and values around sustainability: collaboration is more tightly knit. Prof. Dahlmann maintains that in order to build mutually beneficial and greener relationships, a deeper involvement and commitment is necessary from firms and suppliers. This means more meetings, seminars on best practice, more personal interactions in the form of phone calls and emails including the establishment of online discussion groups for a mutually beneficial relationship aimed at reducing their overall carbon footprint. Eventually, some firms offer supportive supplier training and development courses, briefings, summits and award ceremonies to identify joint development and innovation projects. On the other end of the chain, firms at the collaborative level also seek to engage customers and consumers, persuading them through marketing and PR of the benefits of new, greener products and how to use them in a way that is less harmful on the environment.  Companies bring the collaborative relationship to life in a variety of different ways. Food multinational Kellogg’s has created a ‘Sustainability Consortium’ with its supply chain to “drive scientific research and the development of standards and information technology tools to enhance the ability to understand and address the environmental, social and economic implications of products”, while The InterContinental Hotels Group is working with the International Tourism Partnership to reduce the environmental impact of the cotton used in its bed linen. In the B2B sphere, companies employ two-way engagement with customers with a more proactive and strategic approach on show. Partnerships with industry associations and university research teams is the way the French hospitality firm Sodexo has gone. Sodexo is funding the position of the Professor of Sustainable Sourcing at the Euromed School of Management in Marseilles. In other instances, Professor Dahlmann’s team also discovered firms which are able to employ transactional and collaborative modes of engagement simultaneously with different suppliers and customers.

The circular economy and the supply chainAll said and done, to calculate the carbon emissions across the lifecycle of a product – which could mean from sourcing raw materials to the final product ending up in a landfill – is no easy task, which is why a collaborative approach is increasingly important. The requirement for companies to report their emissions makes them more accountable in a system where what one does affects the rest. Companies must understand that they are part of a single system that must work together, rather than employ emissions monitoring as another supply chain management tool.

Those who tech, can

Let’s not forget data. Tracking emissions can be incredibly complex especially for the likes of firms like Walmart. The amount of data that would involve is probably why tech companies are leading the way in the reduction of their carbon footprints. Their data analytics skills mean it is natural for them to not only collate data but also to put it to effective use, both up and down the supply chain. Aside from being ahead in the game, tech companies are likely to be in an optimal position and poised to develop emission management platforms and tech that is much in demand given the increasing requirement for emissions accounting.  If tech companies can resolve this complex puzzle and produce a comprehensive software package that does it all – track, record and manage carbon emission across the entire chain effectively – they could see a new market opening to them. Verizon, for example, now sees its Internet of Things products, designed to reduce carbon emissions, as “providing significant revenue opportunities”.

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, responsible innovation, CSR reporting, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business School, ESSEC Asia-Pacific, FGV-EAESP, Trinity College Dublin Business School, IE Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Global Voice magazine, Frederik Dahlmann, Warwick Business School

It’s clear, with the youth of today engaged as never before in the climate change political battle, that sustainability will be the issue of this generation. If businesses are to prosper in this climate they need to include their whole supply chain to claim they are truly on the planet’s side and not be accused of creative carbon accounting.

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