Delivering sustainable solutions in a more competitive world

Bryan Hartlin, Senior Consultant, ERMMarch 2011

Carbon Disclosure:Global Trends and Best Practice

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Sustainability leaders

• 3600 professional staff • 130 offices in 40 countries • Projects in 170 countries • Over the past five years we

have worked for around 60% of the Global Fortune 500

• Annual gross revenues of US$600m

• 39 year history

ERM is one of the leading sustainability consultants worldwide, providing environmental, health and safety, risk and social consulting services in influential assignments. We have extensive experience in carbon footprinting, life cycle assessment and assisting companies respond to CDP.

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About GTE• Established in 2008• Over 60 emission reduction

projects• 1200MW of total capacity

• 7.8% of total installed capacity

• 3 million emission reductions/year• 1.1% of emissions in

2008

• Supports the delivery of low carbon projects through carbon financing and footprinting services

• Leading project developer and consultancy firm in the field of renewable energy and energy efficiency in Turkey

• First Turkish company to get trained and registered to the ‘UK Carbon Trust’s Footprint Expert’

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Our presence in Turkey

• ERM has over 20 years experience of working in Turkey.

• Working with GTE on product and corporate footprinting projects and assisting companies respond to CDP and other sustainability reporting.

• Working with ELC to provide support site selection, screening, impact assessment, national permitting processes and international financing under IFC and Equator Principles requirements.

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Climate change in Turkey

Emissions have doubled since 1990Driven by economic

and demographic development

Increased in all sectors accept

agriculture

High annual population growth compared to European countries

but the lowest per capita GHG emissions

Source: EEA

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Where are the emissions from?

Energy supply30%

Energy use33%

Transport13%

Industrial processes

8%

Agriculture7%

Waste9%

Source: EEA

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Emissions are growing

Source: IEA

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Country comparison

Source: IEA

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Building the business case• A company’s current and potential success is not simply

judged in terms of financial growth.

• Carbon disclosure is part of a wider trend toward including more non-financial information into business reporting.

• Investors, consumers and suppliers are becoming more sensitive to climate change, which can impact sales and market share.

• Large enterprises are putting pressure on their suppliers to fill out the CDP questionnaire.

• Opportunity to enhance brand and be seen as ‘carbon leader’.

• Competitive advantage over those who don’t disclose.

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How did the ISE-50 response compare?

Turkey20%First year

Brazil72%Sixth year

China11%Third year

Russia8%Second year

India21%Fourth year

Global 50082%Eighth year

Source: CDP

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Benefits of disclosure• Climate change presents strategic risks and opportunities to most

companies.

• Going through the process of answering the CDP questionnaire enables companies to begin the process of measuring their carbon emissions: this is the first step towards being able to then manage these emissions.

• Answering CDP provides a high level of visibility and accountability to all stakeholders including institutional investors and participation in:

• Voluntary GHG programs• Mandatory reporting programs• GHG markets

• The questionnaire contains quantitative as well as qualitative information and thus it enables companies to take a holistic look at climate related risks, opportunities and management strategies.

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Looking beyond CDP: Global initiatives

• Measures the performance of companies that meet globally recognised CR standards and facilitates investment

• Tracks financial performance of the leading sustainability-driven companies worldwide

• Integrating sustainability into capital markets for the health of the planet and its people

• Carbon Efficient Index addresses the investment community’s increasing concern with environmental issues

• Identifies the best managed companies that will succeed on a sustainable basis

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Looking beyond CDP: Global initiatives

• Provided 100,000 global suppliers with a survey to evaluate their own companies’ sustainability to be used in data base and tool

• Non-profit organization rating corporations on their efforts towards mitigating climate change

• ESG data on 3080 companies in 43 countries in the hands of investors

• Provides objective, relevant and systematic ESG information based on 250+ KPIs

• Ratings for popular food, personal care products, household chemicals and toys

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Best practice: Understanding the terminology

• A carbon footprint is the total emissions of carbon dioxide equivalents from whichever source is being measured (individual, organisation, product etc)

• A number of terms are widely used

• Carbon (C) or carbon dioxide (CO2)

• Greenhouse gas (GHG) inventory

• Carbon footprint

• Life cycle carbon footprint / ’embedded’ carbon

• Carbon neutral (activity, product, event)

• All involve quantification of GHG emissions for a defined system

• The purpose should guide the method you use, the amount of data collection required and the cost.

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Standards and methods

• ISO 14040/44 life cycle assessment• WRI/WBCSD GHG accounting protocol • Environmental Product Declaration Schemes

• British Standards Institute (BSI) publicly available specification (PAS) 2050

• Carbon Trust – Carbon Reduction Label

• New WRI/WBCSD product carbon accounting and Scope 3 guidelines

• Proposed ISO 14067 standard for carbon footprinting • Various international initiatives

Existing

Emerging

New

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• France - Le Grenelle Environnement: BP X30-323

• Germany - Extension of Blue Angel label; PCF pilot

• Switzerland - Migros labelling scheme

• Sweden - Criteria based labelling scheme, joint initiative

• EU-wide - ILCD, ELCD

• US - Carbon Trust pilots; Wal-Mart use of CDP

• China - Carbon Trust pilots

• Japan - Carbon label programme, national guidelines

• Korea - Carbon label programme launched

• New Zealand - Sector-based GHG footprinting strategy

• Global – WBCSD/WRI, ISO

International standards

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Where to start? The carbon management cycle

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Planning: Identify business goals

Source: GHG Protocol

Managing GHG risks and identifying reduction opportunities

• GHG constraints in the future• Cost effective reduction opportunities• Setting targets, measuring and reporting

Public reporting and participation in voluntary GHG

programs

• Voluntary stakeholder reporting • Reporting to government/NGO GHG registries• Eco-labelling and GHG certification

Participating in mandatory reporting programs

• Participating in government reporting programs: national, regional or local

Participating in GHG markets• Supporting internal GHG trading programs• External cap and trade allowance trading programs• Calculating carbon/GHG taxes

Recognition for early voluntary action

• Providing information to support “baseline protection” and/or credit for early action

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Planning: Set boundaries

• Set organisational boundaries: equity share vs control approach

• Set operational boundaries

Source: GHG Protocol

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• Understand your business and operational boundaries

• Have the right people involved to answer questions and collect data

• How to collect data: measure, calculate, estimate, assume

• Tools: cross sector vs sectoral

Measuring

Source: GHG Protocol

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Managing and informing

• Efficiently manage reduction and mitigation plans

• Set baseline data and plan for future updates

• Third party credibility• Inform stakeholders• Communicate to the public• Detail required depends on

your communication plan and audience

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Completing your first CDP response

• Ideally, companies beginning CDP participation should complete a GHG emissions inventory in the first year and expect to improve it over time.

• Some companies treat the first year as a scoping and planning exercise with more concrete data in following years.

• Incomplete or imprecise responses do not look good.

• Joining CDP creates expectations that participants will ultimately analyse their climate change risks and opportunities, manage and communicate them.

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CDP response tips

Strategy

InvestmentDisclosure

• Integrate climate change into business strategy

• Explain: strategy, governance, risks and opportunities, accounting and communication

• Capital should be marked for tackling climate risk on a long-term timescale and not have to compete for budget with short term projects

• Past and current GHG emissions should be reported for each financial year

• Explain the reliability of the data and including whether the information is verified by a qualified third party

• Stakeholder engagement/external communication

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CDP response tips• Report how anticipated sea-level rises, changes to

weather patterns, water availability, frequency of flooding or forest fires and employee health will not only impact their own business operations, but those of supply chain and customers.

• The nature and significance of GHG regulations in each country the company operates should be described and included in the company’s regional and global performance reporting.

• Investors have a vital role to play in tackling global warming.

• Climate change is debated for 2020, 2050, or even 2100, but adaptation starts now.

• For companies not making the effort to close the ‘disclosure deficit’, it is not a question of if, but when.

Physical Risk Disclosure

Regulatory Disclosure

Investor Activism

Not if, but when?

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Things to remember

• Credibility of CDP participation tied to seriousness of response submitted and demonstration of improvement in responding over time.

• After a couple of years, pressure likely to increase to achieve best practice reporting and transparency.

• Supply chain becoming more important.

• Ultimately, organisations are expected to demonstrate that they have systematically assessed their climate change risks and opportunities and have meaningful plans in place and part of core business to deal with them.

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Reporting trends

• Supplier evaluations more common

• Scope 3 standards are now drafted

• More ratings and indices with their own requirements

• Life cycle thinking emerging • Entire supply chain• Additional impacts beyond

carbon• Verification and auditing• Labelling for suppliers and public

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Reporting challenges

• Regulatory uncertainty

• Emerging accounting methods

• Global and regional differences

• Understanding your processes and boundaries is not always easy

• Data collection and availability

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What’s next for CDP

• Working on methods to improve quality and comparability of data• Launching a Reporter Service, exclusively for

responding companies, to help them develop their carbon management strategies through increased data quality, deeper analysis and the sharing of best practice.• Expanding initiatives include: CDP water, supply chain,

public procurement and cities programmes• Focus on mitigation and emissions reduction strategy

Source: CDP

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Case study: Ambuja Cements (India)

• Challenge: Business operations expanding

• Solution: Increased efforts towards energy conservation, waste heat recovery, use of renewable energy, efficient lightning systems and technology like video conferencing to reduce travel

• Benefit: Recognition as one of the best-performing companies in the CDP 2009

“CDP has played important role in recognition of risks and

opportunities related to climate change, associated with operations”

Business growth presents climate related risks and opportunities

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Case study: Avaya Communications (Global)

• Challenge: Cutting carbon footprint through operational changes

• Solution: Public disclosure – an annual marker to aid strategy

• Benefit: Energy efficiency brings cost savings and business opportunities

Operational changes result in energy efficiency and guide product development

“The CDP questionnaire… has helped to consolidate management

of climate change across the organisation.”

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Case study: PepsiCo (Global)

• Challenge: Building greater understanding of complex operations and supply chain

• Solution: A collaborative approach with their supply chain

• Benefit: Sharing best practice and growing awareness

Looking beyond direct operations to realise the scale of your carbon footprint

“Involvement with the CDP Supply Chain Program means we are able to build a better understanding of

our corporate carbon footprint and the level of climate change risk

within our supply chain.”

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Final thoughts

Carbon Management

CDP Response

3000 organizations in 60 countries respond to CDP

Fundamental knowledge learning

Realise financial savings

Ability to report to other global

initiatives and indices

Brand enhancement

Showcase innovative sustainable management