CEO Guide to Carbon Accounting

U.S. Corporations Size Up Their Carbon Footprints


Like many companies, Coca-Cola (KO) wants to cut its carbon footprint. The soft-drink maker has pledged to eliminate 2 million tons of CO2 emissions from its manufacturing operations by 2015. To do that, Coca-Cola has become adept at using spreadsheets and databases to measure how much carbon it produces and energy it consumes. It's even able to track less tangible causes, such as greenhouse gases emitted by vending machines. But when it comes to tracking and managing the projects that will help it reduce carbon emissions and make better use of resources, Coca-Cola is having a harder time.

The company needed a more sophisticated set of carbon accounting and management tools, says Bryan Jacob, director of energy management and climate protection at Coca-Cola. "I'm looking for something to take us to the next level," he says. "I'm going to either enhance what I've got or move to a different platform that's much more robust." To that end, the company is testing a product from software company Hara that goes beyond simply measuring carbon footprints. The Web-delivered tools, formally introduced June 1, help companies manage efforts to actually reduce carbon and more efficiently use natural resources such as water, waste, and paper.

Amid growing pressure from investors, employees, and environmental watchdogs such as Greenpeace, the circle of companies making a concerted effort to go green is widening. But corporations are finding that even in cases where there's a will to reduce emissions, it's not easy to measure a company's environmental impact, much less keep track of the various projects aimed at meeting aggressive carbon reduction targets.

The Carbon Disclosure Project

The go-green impetus has spawned a cottage industry of vendors specializing in software specifically to measure, track, and manage carbon emissions. About 50 companies now target this market, says Paul Baier, vice-president for consulting at Groom Energy Solutions, which specializes in technology that helps corporations become more energy-efficient. In a report due to be published June 2, Baier identified seven emerging leaders in enterprise carbon accounting. Among them: Clear Standards, Enviance, Environmental Support Solutions, and IHS (IHS). Vendors were ranked by financial stability, number of customers, and the overall strength of their products. Newcomers are quickly entering the market and Baier says there could be as many as 80 or 90 vendors by yearend.

Demand for better carbon accounting comes not just from corporate brass, but also from investors, customers, consumers, and employees who want detailed information about a corporation's environmental impact. Among the leaders of the charge is the Carbon Disclosure Project, a nonprofit organization that has assembled the largest corporate greenhouse gas emissions database in the world. The group is backed by 475 institutional investors that manage $55 trillion in assets. Last year, 321 companies that make up 64% of the corporations listed in the Standard & Poor's 500-stock index responded to a request for emissions information from the Carbon Disclosure Project, up from 235 in 2006.

To hand over data on emissions, a company must first gather it. Most still use fairly rudimentary homegrown methods. "About 90% of companies use spreadsheets," says Baier. A December 2008 worldwide survey by research firm Gartner (IT) found that too many enterprises were in denial about the need for carbon management. Of 575 companies surveyed by Gartner in the U.S. and 10 other countries, 18.8% had implemented carbon reporting and management systems and 64.7% had not. An astonishing 13.6% weren't sure.

Intuit Tracks Its Carbon Footprint

They had better find out soon. According to the Carbon Disclosure Project, direct emissions from Coca-Cola and 416 other large global companies account for about 5.8% of the world's greenhouse gas emissions. While regulations today regarding greenhouse gases are limited in many cases to carbon-intensive industries such as power generation, Gartner and other analysts expect individual countries to pass climate-change bills that would eventually target less carbon-intensive organizations as well. In the U.S., a bill now wending its way through Congress proposes to reduce greenhouse gas emissions and create a market-based mechanism known as cap and trade that would encourage moves toward low-emission technologies and practices. As such laws pass, pressure to keep better tabs on a company's environmental impact will grow. "The bar for reporting [greenhouse gas emissions] will drop over time," says Stephen Stokes, vice-president for sustainability and green technology at AMR Research.

Most companies face a steep learning curve once they start measuring and tracking their carbon footprints; the process is often refined over many years. Intuit (INTU), maker of Quicken and TurboTax software, began tracking its carbon footprint less than two years ago. "We're at the beginning of our journey," says Rupesh Shah, the company's director of corporate sustainability. Intuit's emissions are not currently regulated, but the company found that more consumers were starting to inquire about its impact on the environment.

Most companies that track greenhouse gas emissions use an accounting framework called the Greenhouse Gas Protocol from the World Resources Institute and the World Business Council for Sustainable Development. That tool covers the accounting and reporting of the six greenhouse gases covered by the Kyoto Protocol—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). The numbers are converted to a measurement called carbon dioxide emissions equivalents, a standard that allows comparison among different greenhouse gases.

Three "Scopes" of Emissions

Coca-Cola, Intuit, and other companies track three different types of emissions. Direct emissions that a company produces are called Scope 1. For utility American Electric Power (AEP), about 99% of its greenhouse gas emissions fall into this category. "We are the largest CO2 emitter in the country because of our reliance on coal," says John McManus, vice-president for environmental services at American Electric Power, which serves more than 5 million customers in 11 states. While the utility is adding more renewable energy to its portfolio, it largely focuses on improving efficiency within its operations.

Because utilities have been regulated for years, most have sophisticated systems in place to track carbon and other emissions that come from their power plants. But American Electric Power also needs to take into account the carbon emissions that come from the line trucks that work to restore power or the barge fleet that moves its coal. The company uses a software service from Enviance to centralize greenhouse gas reporting from all operations.

Cisco Systems (CSCO), the world's largest maker of computer networking equipment, estimates that it generated 629,735 metric tons of greenhouse gas emissions for the 12 months ending July 26, 2008. Of those, more than 60% derived from the electricity its buildings consume globally. Those fall into a category known as Scope 2 emissions, which result from purchased electricity, heat, and steam. While Cisco has measured its carbon footprint since the late '90s, it initially collected data only from its large corporate campuses. A couple of years ago, Cisco broadened the effort to include about 600 buildings. It built a database that tracks electricity, natural gas, diesel, fuel oil, propane, and refrigerant data.

Sony: The Carbon Its Consumers Use

Perhaps the most complex emissions to calculate, however, are those that occur outside a company's boundary, but over which it has some control. These are referred to as Scope 3, a category that includes emissions associated with employee commutes, business travel, suppliers, and product use. The nature of this work involves estimation. When Intuit's Shah calculated the emissions from employee commutes, for example, he got an Excel spreadsheet from HR that mapped the addresses for all 8,000 employees and calculated their commutes to Intuit offices—even accounting for vacation time and holidays. The company is trying to make its analysis more precise by taking into account such factors as work from home and Intuit-sponsored alternate transportation.

For some companies, the majority of emissions fall into this third, indirect category. More than 90% of Sony's (SNE) carbon footprint—an estimated 19.34 million tons for the 12 months through March 2008—results from the electricity consumed when people use Sony products. "Sony has a measurable impact on global greenhouse gases," says Mark Small, vice-president for corporate environment, safety, and health at Sony Electronics. He estimates that the company is responsible for "a little less than .01% of the total man-made greenhouse gas emissions." That's why Sony has made energy efficiency in its products a priority. In 2000, a 32-inch cathode-ray tube TV consumed 280 kilowatt hours a year. In 2008, a 32-inch LCD TV consumed about 86kwh. Still, Sony needs to take into account that consumers are now buying larger TVs. Since Sony can't actually visit each consumer, it uses estimates to calculate greenhouse gases from product use.

Some companies are surprised by what they find when they look closely at the operations responsible for pollutants. Coca-Cola, for example, initially expected most emissions to come from its fleet of trucks or from its manufacturing operations. The company instead discovered that the lion's share emanated from what it calls cold drink equipment—the coolers, vending machines, and fountain dispensers used to serve up frosty-cold soft drinks. This gear contains refrigerants and insulation with high global warming potential; it also consumes a lot of electricity. Combined, cold drink equipment accounts for about 15 million metric tons of emissions every year, compared with 3 million from Coke's diesel-powered trucks or the roughly 5 million from manufacturing. Armed with that information, Coca-Cola is now striving to eliminate harmful chemical compounds from cold drink equipment. Says Jacob: "If we had never put pencil to paper and done the calculations, we might not have understood it ourselves—or believed it."

King is a writer for BusinessWeek.com in San Francisco.

Rachael_king
King is a writer for Bloomberg Businessweek in San Francisco.

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