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					 Key Performance Indicators                                   towards one planet living
                                                                measure, manage and reduce
for Sustainability                                               your environmental impact




Making sense of the Carbon footprint
for a Commercial Business




1.   There is a special symbolism associated with the human footprint.

     It represents our impact on the virgin planet, it is what we leave behind as we make
     progress and move on.

     In fact in 1719 when Daniel Defoe wrote what many regard as the World’s first novel,
     he chose the foot print of Man Friday to convey the message to Robinson Crusoe that
     he was no longer alone on the Island.




2.   So footprint is a good metaphor to express our carbon emissions. Our carbon footprint
     is our carbon impact on the planet. What we will leave behind.

     But unlike Man Friday’s footprint, ours will not be washed away by the next tide.

     And it is that carbon footprint that most scientific opinion believes is driving global
     warming and causing climate change


3.   Carbon footprint works well at a personal level because the carbon impact of our
     individual lifestyle is about the personal decisions we make.




       The Sustainability Company
 Key Performance Indicators                                  towards one planet living
                                                                  measure, manage and reduce
for Sustainability                                                 your environmental impact




4.   Understanding and measuring the Carbon footprint of a business is considerably more
     complex and CarbonPlan believes a business footprint needs to be seen in the context
     of broader environmental accounting.




5.   Financial Accounting now lies at the heart of commerce for both
     the private and public sector. But it has taken 500 years to develop
     and agree accounting standards. As an example, Wiley’s standard
     reference work Interpretation and Application of Generally
     Accepted Accounting Principals GAAP ran to over 1,154 pages in
     2006. Carbon accounting is not defined in such detail yet.




6.   No single financial accounting measure can tell the whole story about a company; the
     same is true for carbon accounting.




7.   In particular commercial organisations face two complexities that are not usually
     encountered in a personal footprint.

     •    Setting the systems boundaries

     •    Understanding and accepting responsibility within a supply chain



8.   CarbonPlan have identified two useful accounting metrics for Carbon; the Direct
     carbon footprint and the Consolidated carbon footprint. The direct carbon footprint
     takes account of the electricity and fossil fuels used by the business. Most companies
     report their direct carbon footprint and therefore this metric is useful in reporting and
     marketing, and in comparing one business to another. The consolidated carbon
     footprint is considerably more complicated, but presents a complete picture of the
     business by taking account of all the resources it consumes, and those that is
     processes and sells on to customers.




         The Sustainability Company
 Key Performance Indicators                                   towards one planet living
                                                                    measure, manage and reduce
for Sustainability                                                   your environmental impact




9.   Setting the systems boundaries; knowing what is included and what is not can be
     difficult and complex.

     For instance does the impact of a business include the emissions associated with staff
     travelling to and from work? Especially as the
     organisation has no control over where its
     employees choose to live.



     However, the organisation can take positive steps
     to bring about a reduction; by providing facilities
     for cyclists, offering flexitime to reduce rush hour
     congestion.



10. There are currently no accounting standards to cover setting systems boundaries. The
     United Nations has made a start by laying down a protocol which uses three categories
     to classify the emissions associated with a business. These have become know as
     scope 1 scope 2 and scope 3 , and CarbonPlan bases its measurement technique
     around this classification




11. The lack of defined standards means key issues have to be vetted by company
     directors or trustees to decide what is fair and reasonable.

     This places an additional responsibility on directors to ensure they are properly
     informed.




       The Sustainability Company
 Key Performance Indicators                               towards one planet living
                                                             measure, manage and reduce
for Sustainability                                            your environmental impact




12. Understanding and accepting responsibility in the supply chain is perhaps more
    complex.

    The drive for cost efficiency of production and distribution has lead to company
    specialisation. This means the products and services we consume, in both in a B2C
    and a B2B situation, have often passed through a complex supply chain.




13. At each point in that supply chain, to remain financially sustainable, a company needs
    to make a profit through selling added value. In dong so it incurs costs and creates
    impacts. However, there is no defined carbon accounting standard as to how to
    measure those impacts. But practically whatever method is used it needs to dovetail
    easily into exist accounting and taxation practice.



14. Here is a clear example of the supply chain problem. Each tonne of cement used in
    construction creates approximately 1 tonne of CO2. But who is responsible for that 1
    tonne?

    •    The cement works?

    •    The builders’ merchant?

    •    The construction company?

    •    Or the owner of the building?




        The Sustainability Company
 Key Performance Indicators                                  towards one planet living
                                                               measure, manage and reduce
for Sustainability                                              your environmental impact




15. And does it matter? Yes it matters because the directors each of those organisations
    involved in the supply chain may decide their company has a corporate responsibility to
    reduce its carbon impact. So it needs to accurately measure what these impacts are;
    take action to lower those it has direct control of, and influence suppliers to reduce the
    impacts at their part of the supply chain.

    So, the socially responsible company will increasingly want to know three things

    •    What is the total impact of each individual business unit?

    •    What is the carbon impact of the products, components and services we
         buy in?
    •    What is the carbon content of the products, components and services we
         sell?




16. Logically, you could calculate the total impact of the business unit by aggregating
    together all the individual items it buy and sell (a measurement method broadly referred
    to as Life Cycle Analysis or LCA).

    However, this is currently is not a realistic way to arrive at the total impact of a
    company, because the source data is not available from suppliers.

    CarbonPlan adopts an academically rigorous method based upon the categorising
    trade flows and applying a carbon intensity factor for each £1,000 of expenditure in
    defined categories.

17. When it comes to addressing the issue of measurement and carbon responsibility
    within the supply chain, CarbonPlan believes lessons can be learnt from standard
    accounting practice. The P&L accounts of a business unit will usually be published in a
    format similar to that shown below



                                                               CarbonPlan looks to mirror
                                                               this structure in its applying
                                                               carbon    accounting         to   a
                                                               business unit.




        The Sustainability Company
 Key Performance Indicators                                    towards one planet living
                                                                measure, manage and reduce
for Sustainability                                               your environmental impact




18. Fair responsibility for the carbon impact of a commercial organisation involved in a
    supply chain is…

    100% of the overheads       - the resources consumed by the business are incurred
    irrespective of any sales being made and so clearly the responsibility of the company
    involved

    plus

    a % of the impacts occurring as a cost of sale(B)

    But here there is still some dispute amongst academics and practitioners Some argue
    that the % should be zero, as the impact should lie entirely with the organisation
    purchasing the product or service.

    CarbonPlan believes and recommends the % should reflect the financial benefit the
    company derived from the impacts involved in that cost.

    In which case B = value added by the business to goods and services

                     = gross profit divided by sales revenue



19. In summary, the direct carbon footprint of a business is made up of the fossil fuel and
    electricity it uses. The direct carbon footprint is used for reporting, marketing and
    comparative purposes. The consolidated carbon footprint of a business is made up
    of all the resources it consumes, and a share of the resources it processes and sells on
    to consumers. The consolidated carbon footprint should be used as the basis of impact
    reduction strategies and for offsetting purposes.

    It is important as a company director to understand that ‘Carbon Footprint’ is an
    abstract concept with few measurement guidelines, and that using different
    assumptions can lead to very different carbon footprints. The two carbon footprints
    recommended by CarbonPlan are the most useful metrics to measure and understand.




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