Pilot 3: Why Global Industry?

Pilot 3 Locale: Why Global?

The Industrial Revolution was sparked by fossil fuels. As fossil fuels shrunk distances and increased demand for raw materials in rich countries and mass-produced products in poor countries, once-remote societies became interlinked.

As the economy became globalised, supply chains stretched, multiplied, and intertwined until they’re now lashed around the planet.

Just as all life on Earth is linked by carbon-based ecosystems, carbon accounting too must follow these links as they extend to all corners of human civilization.

That’s why Pilot 3 follows the supply chain wherever it leads.

Pilot 3 Scope: Why Industry?

In principle, measuring the carbon footprint of a global supply chain is no different from measuring that of a small village.

Count all the carbon emissions of each entity, whether businesses or individuals, understand the links between them, allocate them proportionally up and down the supply chain to avoid double counting, and all the carbon footprints will add up to the same total.

When it comes to financial accounting we’ve devised a complex global system that means all the numbers are balanced, internally consistent and add up, but carbon accounting is currently a long way from approaching that level of sophistication, consistency and universality.

Different countries and blocs adopt different measuring systems, with no clear equivalence or matching mechanism, like currency exchange rates.

Industry is an obvious way to connect these disparate parts. Industrial supply chains span continents, and involve intricate networks and sub-networks of suppliers. Industrial companies already have internal financial accounting systems to coordinate their activities, and the same internal communications and infrastructure can coordinate carbon accounting.

Industrial businesses are used to reconciling different financial jurisdictions and regulatory environments, and are now adapting to the same with carbon reporting environments. Chinese multinationals obey local carbon reporting standards in Belgium, and vice versa. Both must do the same if they do business in Brazil or Bahrain.

Politics may tend toward asymmetry, but business and accounting logic favours a single, uniform, consistent, pervasive standard.

Such standards are used in financial accounting, when global accounting firms compile annual reports for multinationals. We’re currently nowhere near a similar pervasive accounting standard for carbon emissions, so global industry presents the best test of See Through Carbon’s ecosystem.

Pilot 3 Methods: How to calculate industrial footprints accurately?

• Methodology: See Through Carbon describes the methodologies it uses for different Pilots in detail on its website, updating them whenever they are improved.
• Methodology: See Through Carbon describes an overview of the basic carbon accounting methodologies in a separate article. As each Pilot progresses, the website will update and add more specifics.
• Pilot 3 is likely to require a flexible approach, combining ​‘carbon footprint’ project models like the GHGP carbon footprint protocol with Life Cycle Assessment models, optimised to simplify emissions-intensive industrial products like steel, cement, aluminium etc.
• Dynamic improvement: As a free, open, transparent ecosystem, See Through Carbon makes all its methodology public, publishes correspondence with regulators regarding compliance, and encourages public scrutiny. The Expert Panel determining STC methodology is motivated by accuracy, not commercial concerns about arriving at ​‘acceptable’ outcomes. This enables STC to incorporate best practice, and new research, giving Pilot participants confidence they’re ​‘ahead of the game’ when it comes to carbon reporting.

Pilot 3 Partners: Potential Participation Entities

• Comprehensive: The interlinked nature of carbon reporting, with every supplier and end user part of any customer’s Scope 3 calculation, means that in principle it doesn’t matter where to start, i.e. which entity, or connected entities, should make the initial application. Accurate calculation of any one entity’s Scope 3 emissions requires the accurate calculation of all parts of its upstream and downstream suppliers/​customers.
• Consistency: Ultimately, all levels and strands of any hierarchy are interconnected, and all will benefit from consistently applying the same methodology.

Having said this, Pilot 3 applicants might want to consider how best to administer the Pilot to suit their particular corporate structure and sector.

Much depends on the particular nature of the multinational, how integrated it is, how much of its supply chain it owns and how much involves other businesses etc. Options include:

• Horizontal slice/​vertical chain: test See Through Carbon’s utility by trialling it in a siloed, isolated element of operations, either vertically (up and down a supply chain) or horizontally (by geographic locale). If successful, the trial can be extended along either or both vectors to integrate other strands.
• Single Entity: See Through Carbon’s ecosystem is designed to operate universally, so can be tested at any point in any supply chain. The further up and down it is used, the greater the cumulative benefit and efficiency gained, by aggregating supply chain carbon footprints into their customers Scope 3s, assigning a fair proportion (on a revenue basis) to avoid double-counting.
• Supply Chain: start with the business entity with an entirely ​‘outsourced’ supply chain, and see how many can be induced to participate in order to most accurately calculate that entity’s Scope 3.
• SME: A unique feature of See Through Carbon’s ecosystem is its capacity to automatically aggregate supply chain data for Scope 3 reporting, as a trusted 3^rd party that will not reveal commercially sensitive information, i.e. any user’s degree of dependence on its customers/​suppliers This information is required in order to assign, say, a ​‘fair’ proportion of a supplier’s carbon footprint to its customers on a revenue basis, but SMEs are understandably reluctant to report such data directly. Most carbon reporting regulation requires big businesses to use 3^rd-party data collectors for precisely this reason.
• Consultancies & Data Providers: As regulation tightens in emissions-intensive industries, many specialist consultancies or data providers are tracking entire industrial supply chains, using a battery of data integrations and monitoring inputs. Integrating See Through Carbon’s reporting ecosystem may be relatively straightforward, and help them provide even more actionable, verifiable, auditable data.

The more links of the supply chain participate in the Pilot, the less guesswork and fewer estimates are involved, and the more accurate (and hence compliant) any resulting baseline calculation becomes.

As any multinational company that’s attempted an ​‘in-house’ carbon footprint calculation has soon discovered, the technical and goodwill challenges involved.

Most are reluctant to spend their hard-earned supply chain goodwill on compelling their suppliers to submit the emissions data they require to comply with Scope 3 reporting regulations. As a result, response rates are usually impractically low.

Even if a multinational succeeds in persuading its SME supply chain to submit data, they soon find that reconciling a patchwork of carbon reports submitted by different suppliers, each using different methodologies, is impractical. A consistent, verifiable, auditable methodology is critical — precisely what See Through Carbon’s ecosystem is designed to deliver.

It’s also worth noting that most regulations governing big business reporting, like the EU’s CSRD and CBAM, require third-party data collection to prevent companies ​‘marking their own homework’, in the same way that businesses are required to use external auditors, so in-house solutions would not be compliant, even if they could be made to work.