Supply Chain Transparency and Scope 3 Reporting Loading...
Driving Emission Reduction in Corporate Value Chains
Every successful company knows that the cost and quality of its products depends on costs and quality in the supply chain. Many companies also understand that assessing their greenhouse gas emissions is a productive way to identify cost savings related to energy use and operating efficiency.
Until recently, few companies combined these two perspectives. That has changed with the introduction of the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (known as the “Scope 3 Standard”) and the Product Life Cycle Accounting and Reporting Standard (known as the “Product Standard”). The main purpose of these voluntary standards is to help companies understand their entire value chain, both upstream and downstream, in a new way. Well-managed companies already know that both customers and suppliers influence the cost and quality of what the company offers. With the Scope 3 Standard and the Product Standard, companies can gain a similar understanding of what their customers and suppliers contribute in terms of carbon emissions—whether from manufacturing, transportation services, product disposal, or other activities.
Once they gain this understanding, companies that care about their carbon can engage in more meaningful dialog with suppliers of parts, components, or raw materials. This dialog is likely to cascade up and down the supply chain, because so many companies in the global economy are both customers and suppliers.
It’s always been true that the various phases of a product’s life cycle include energy processes that result in greenhouse gas emissions. This starts with growing or extracting raw materials, includes energy expended in using the product, and ends when the product is recycled or becomes waste. The difference today is that the Scope 3 standard is pulling back the curtain on a formerly hidden equation.
At UPS, we welcome the new light being shed on carbon emissions in corporate value chains. One reason is that our supply chain and transportation activities are part of the value chain for 8.8 million customers around the world on an average business day. When we reduce our carbon, we do the same for the Scope 3 emissions of our customers. We also help customers understand our contribution to their carbon inventory in detail, accurately, and comprehensively, with third-party validation. This gives them the information and confidence they need to adjust their priorities and processes to get equivalent or better business results with lower emissions. And of course we have many suppliers of our own, whom we can inspire and influence to reduce their carbon footprint. After all, their footprint is part of ours—and so on up and down the value chain.
Update on UPS Scope 3 Reporting
UPS was one of the first companies in the transportation and logistics sector to comprehensively report Scope 3 emissions. For the third year, we are reporting according to the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting & Reporting Standard, which includes 15 emissions categories covering the entire corporate value chain.
In 2012, we were once again able to increase the scope and boundary of our reporting. We are now reporting on seven of 15 possible categories, adding one. It is our intention to report on all Scope 3 categories that apply to UPS. We have already determined that four categories do not apply to UPS, and further analysis may exclude additional categories. We report on the following (details are in Appendix B):
- Category 3 – Fuel and Energy Related Activities: We report on the upstream (well-to-pump) emissions from raw material extraction up to the point of (but excluding) combustion for the following global fuel sources: Jet-A aircraft fuel, diesel, gasoline, compressed natural gas (CNG), liquefied propane gas (LPG), liquefied natural gas (LNG), natural gas, heating oil, and propane. In addition, we report the upstream emissions for the generation of purchased electricity and the transmission and distribution losses.
- Category 4 – Purchased Transportation & Distribution (upstream): This category continues to be our largest source of Scope 3 emissions. It includes all forms of the of the transportation we purchase including air, rail, road, and ocean movements by third-parties.
- Category 5 – Waste Generated in Operations: We are now reporting emissions occurring from all wastes (landfill, recycled, incinerated, recovered) in the U.S. We intend to disclose waste generated from other countries in future years as our data collection systems grow and mature.
- Category 6 – Business Travel: This category includes emissions from air, rail, and car travel for businessrelated activities for all our global operations.
- Category 7 – Employee Commuting: We report on this category for our global operations.
- Category 12 – End-of-Life Treatment of Sold Products: We are reporting on this category for the first time this year. This category includes the disposal and recycling of all UPS-branded packaging and labels globally.
- Category 14 – Franchises: UPS franchisees operate more than 4,700 The UPS Store locations in Canada, India, Puerto Rico, and the United States. We have estimated their emissions in order to report on this category.
A detailed breakdown and scope and boundary of all the Scope 3 categories begins in the "Statement of GHG Emissions" of Appendix B.
Intensity Metrics are Part of the Solution
As climate change becomes a more pressing issue for society and private enterprise around the world, policy makers are faced with tough decisions. One of the biggest issues is determining what incentives and disincentives are most likely to slow the increase in human-caused greenhouse gas emissions. Should all countries and companies be required to reduce their emissions, and be penalized if they don’t? Or should society look for mechanisms that deliver broader, aggregate emission reduction for entire industries, regions, or even the whole planet?
These questions are particularly important for transportation companies. Societies around the world have long agreed that public transportation is good, because when people share transportation they use less energy and generate fewer emissions in getting to their destination. This is the same principle behind railroads and airlines: it’s better to combine the long-distance trips of many people into a much smaller number of vehicles. The same goes for shipping goods through highly efficient global logistics networks, like the one we’ve built at UPS.
Certainly it’s better for society if transportation systems generate fewer emissions. But what if we told individual transportation companies that they must reduce their emissions each year on an absolute basis compared to the year before? The easiest way for a transportation company to do that is to reduce the amount of passengers or goods it carries, either by reducing capacity or the scope of services it offers.
This achieves the small goal of reducing emissions for that one company, but it fails the larger goal of helping the whole global economy increase its sustainability. As long as population increases and society wants standards of living to rise in ways that have historically increased carbon emissions, we need to utilize our most efficient modes of transport more, not less.
This is one of the reasons economists developed metrics for what is known as “carbon intensity.” These metrics tell companies how much fuel they use or emissions they generate per unit of output or revenue. At UPS, for example, we report on carbon emissions per package we deliver in the U.S. and per ton-mile of air cargo we carry. (You can find these metrics and specific examples of how we achieve carbon intensity reductions in “Environment” beginning in the "Environment" section.
The benefit of carbon intensity metrics is that they focus companies on getting more efficient, no matter what they do and how fast they grow. This benefit is vitally important in transportation, because the sector as a whole is a major consumer of fossil fuels – on behalf of all the other industries it serves. We need transportation to get more efficient, and we also need the sector’s most efficient companies to grow as the global economy grows. This will inevitably increase the emissions they generate on an absolute basis, but it will also help drive down emissions for society overall.
At UPS, we believe every company should understand its total absolute carbon emissions in detail. We do, and we report on them in detail every year (see Appendix B). At the same time, we don’t believe that every company should be praised or blamed—or penalized—based only on absolute numbers. We understand why some respected organizations are pushing hard for absolute emission reductions by all companies in all industries, and we respectfully submit that this may not be the best approach in all cases.
Carbon intensity metrics are a valid, meaningful way of understanding the challenges of climate change, and for certain industries they can be a better way to evaluate the progress we all want.
Where Is That Carbon Coming From?
If you think delivery vehicles are the biggest source, think again.
Like our main competitors in the transportation and logistics sector, we have invested in vehicles that use alternative fuels and advanced technologies, because they generate fewer greenhouse gas emissions than conventional vehicles. In fact, with 2,688 alternative fuel and advanced technology vehicles in operation in 2012 (and more on order in 2013), we have one of the largest and most diverse alternative fleets in the logistics industry.
Like most companies, we put signs on these vehicles to let people on the street know what type of fuel or technology it uses. But vehicles are not the biggest factor in our greenhouse gas reduction strategy. They definitely help us and other companies, but there are other factors in a global transportation network that matter more.
The pickup and delivery vehicles (both alternative and conventional) that we operate in our largest business segment, U.S. Domestic Package, account for only 20 percent of greenhouse gas emissions for the segment. All our facilities in the United States put together account for another 10 percent. That means that the large majority of our carbon emissions—70 percent—comes from the parts of our logistics network most people don’t see: planes, trains and long-haul trucks. While the percentages may vary from company to company, this is the likely reality for our nearest competitors as well. That’s a big reason why we devote so much time, energy, and capital in making our entire network more efficient—and why we describe those efforts in detail in this Report. Our overall greenhouse gas reduction strategy is to manage, optimize, and integrate everything in our global logistics network, everywhere, all the time. That’s how we are working to reduce our carbon intensity, while helping the global economy grow more efficiently. For more information on our progress in this area, see “Transportation Intensity Index” in "Priorities and Goals".