cdp hk strategy development

8/8/2019 CDP HK Strategy Development

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Delivering sustainable solutions in a more competitive world

Lee Solsbery, ERM Global Technical Director,

Energy and Climate ChangeCDP Event, Hong Kong - 4 March 2008

Monitoring/Reporting GHG Emissions andClimate Change Strategy Development New Business Challenges & Opportunities


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Overview of todays presentation

Climate change as a Commercial Issue

GHG Management Concepts and Processes

GHG Reporting Example and Results

Why Firms act on GHGs & what can be done Some reflections on China/A-P perspectives

Getting on the Path of Carbon Disclosure

Possible Next Steps


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Climate change: a commercial issue GHG action can enhance brand/build staff pride

International lenders now consider GHG risk andpossible GHG value, as do many Asian capital funds

The new metric of a firms carbon footprint is usedto (a) gauge a firms total impact on the climate and

(b) measure progress in reducing climate impacts

Using a firms carbon footprint and climate changeaction plans as a differentiator is an emerging trend

Consumers/suppliers becoming more sensitive toclimate change, which can impact sales/market share


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Climate Friendly Firms - Good for Growth!


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Climate Change Companies are saying: Tesco Terry Leahy, CEO, We will measure and publish our

total carbon footprint as a business...we have commissionedERM to map the total direct carbon footprint of the Tesco

business across all the countries in which we operate

Rio Tinto - Tom Albanese, CEO, on the $44b acquisition ofAlcan Alcans hydro power position complements Rio TintosClimate Change and Energy Strategy...

Wal-Mart - Lee Scott, CEO, wants to be a good steward for theenvironment and reduce greenhouse gases tied to globalwarming

Swiss Re - If your company does not take its carbon footprintseriously, maybe our company does not want to insure you. oryour officers


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Capital Programmes

People Programmes/ Awareness

Customer & Product Programmes

Supplier Programmes

GHG Inventory, Targeting, Measurement Systems, Reporting

Impact/Risk Models, Process Mapping, Regulation Mapping

Carbon Trading & Offset / Reduction Balance

External Communication Programmes, Disclosure

Trading& Comms

Direct

Indirect

Impacts& Footprint

Typically, Issue is Approached in Stages

ReducingGHG

Emissions

&Energy Use


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Increased Demand for GHG Reporting Growing consumer and market pressures Climate change the leading globalenvironmental issue

Investors want greater and better disclosure from largecompanies of their climate-related risks and opportunities

CDP, Dow Jones Sustainability Index, BITC CR Index,FTSE4Good Index, CERES all require carbon disclosure

Recycling, waste reduction, other key environmental actionsare notthe same as acting on climate change and GHGs

You cant manage what you dont measure Need Carbon/GHG emissions baseline from which to gauge

status, set improvement goals and measure progress Identify highest impact activities to prioritise investment in

emissions reductions, process changes, etc.

8


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What are Greenhouse Gases (GHGs)?

11

Greenhouse Gas Global WarmingPotential

Key Industrial Sources

Carbon Dioxide (CO2) 1 Combustion of fossil fuels; cement manufacture.

Methane (CH4) 23 Oil & gas extraction and processing; mining; landfills;wastewater and sludge treatment.

Nitrous Oxide (N2O) 296 Adipic acid and nitric acid production; wastewatertreatment; combustion processes.

Hydrofluorocarbons(HFCs) andHydrochlorofluorocarbons(HCFCs)

140 - 11,700 Refrigerant manufacture and use.

Perfluorocarbons (PFCs) 6,500 - 9,200 Refrigerant manufacture and use; Al and Mg smelting.

Sulphur Hexafluoride (SF6) 23,900 Aluminium and magnesium smelting; high voltageelectrical switching equipment.


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Carbon Footprinting & Management

Measure GHG Emissions

Report them

Reduce them

[Offset them?]

What are best options

Assurance

Accountability

Commitment


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Carbon Footprinting Basics (I) Key terminology used Greenhouse gas (GHG)

GHG / Carbon emissions inventory Carbon footprint / baseline

Product / life cycle carbon footprint

Carbon neutral (firm, product, event) Carbon disclosure (morethan just inventory)

All involve quantification of

GHG emissions & actionswithin defined boundaries

CO2


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Carbon Footprint Basics (II) Kyoto basket of six GHGs

Standard reporting unit is tonnes of carbondioxide equivalent (tCO2e)

Also can use tonnes of carbon (tC), 1tC = 3.67 tCO2e

Need to be clear on boundaries of assessment

Most basic standard is to include all electricity and energyuse by the company (e.g. natural gas, diesel)

Also important to consider process-related GHG emissions

(e.g. refrigerant leakage, other specific emitting activities) Option to include business travel, waste disposal, employee

commuting, firms suppliers and/or consumers emissions

10

Corporate Jet?


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Life Cycle Thinking and Carbon Footprint

Business interacts with environment across the supplychain, not just in its direct activities

Life cycle methods robustly calculate allpotentialcarbon/GHG emissions associated with a product, processor service activity, including:

Raw materials extraction

Processing

Manufacturing

Use

Disposal

At each life cycle stage, natural resources are consumedand GHGs released into the atmosphere = carbon footprint


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Developing Tesco Carbon Footprint

Tesco decided it needed to:

Demonstrate commitment c.f. lead by M&S and others Understand their contribution to climate change

Identify and prioritise carbon saving opportunities

ERM developed global direct carbon footprint ERM quantified all GHG emissions for which Tesco were

directly responsible (excluding supply chain)

Spreadsheet tool, management report, KPIs Assurance and recommendations

CO2


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Tesco Direct Footprint Boundary

12

Tesco

Distribution

Centres

Tesco Stores(incl. One Stop)

Consumption

& Disposal

of Goods

Production

of Goods

Tesco

Offices/

Buildings

Boundary for Direct Carbon Footprint

Supplier

Transport

Employee

Commuting

Tesco Home

Delivery

Customer

TransportDistribution

to Stores(incl. outsourced)

Business

Travel

Asset Sites

International

Freight

WasteRecycling &

Disposal

Refrigerant

Emissions

Key

Stationary sources

Transport sources

Tesco

Distribution

Centres

Tesco Stores(incl. One Stop)

Consumption

& Disposal

of Goods

Production

of Goods

Tesco

Offices/

Buildings

Boundary for Direct Carbon Footprint

Supplier

Transport

Employee

Commuting

Tesco Home

Delivery

Customer

TransportDistribution

to Stores(incl. outsourced)

Business

Travel

Asset Sites

International

Freight

WasteRecycling &

Disposal

Refrigerant

Emissions

Key

Stationary sources

Transport sources


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Tesco Carbon Footprint Tool (screenshots)

40%

27%

18%

5%

3%1%

2%2%

2% Superstores

Extra Stores

Distribution Centres

Express Stores

Metro Stores

Northern Ireland

One Stop

Offices

Other Operations

Overall Carbon Intensity (c.f. floor area) for 2005/06

0

10

20

30

40

50

60

70

80

90

100

UK

Thailan

d

South

Korea

Hung

ary

Republi

cofIr

eland

China

Polan

d

CzechR

epublic

Slovakia

Mala

ysia

Turke

y

Japa

nCarbonIn

tensity(kgCO2/ft^2)

Average

Actual 04/05 Actual 05/06 Change 05/06

Summary of Energy and Carbon KPIs

-0.1%Overall Carbon Intensity

(kgCO2/ft2)

74 74

-7.4%

Business Travel Carbon Intensity(tCO2/m sales)

0.8

-1.0%Freight Carbon Intensity

(tCO2/m sales)11.5

0.8 -1.7%

Store Electricity Use

(kWh/ft2)

31

-3.9%

Refrigerant Emissions

(tCO2e/m sales)34

77

Overall Carbon Intensity

(tCO2/m sales)113

-5.1%73

109

11.4


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Tesco Example Calculations Emission factors and GWPs taken from IPCC,

WBCSD, DEFRA

Important to double check base data, units and sense checkresults

13

Emission Source &GHG

Activity Data EmissionsFactor

GWP Emissions(ktCO2e)

Grid Electricity CO2 2791 GWh 0.43 kgCO2/kWh 1 1200

Natural Gas CO2 881 GWh 0.19 kgCO2/kWh 1 167

Freight Diesel CO2 62 Ml 2.63 kgCO2/l 1 163

Long haul air travel CO2 55 million km 0.11 kgCO2/km 1 (2.7*) 6 (16*)

Refrigeration HFC134a 443 t 1 1300 576

* Including uplift for indirect global warming effect of aircraft emissions at altitude


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Tesco Footprint Results for CompanyTotal Global Direct Emissions of 4.3 million tCO2e


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Overview - Carbon in the Tesco Value Chain

RetailRawMaterials Transport Production Distribution

Storage& Retail

CustomerTransport

Storage &Consumption Disposal

Direct emissions from Tesco stores account for a small portion ofthe total carbon footprint, but this is starting point where Tescofaces direct responsibility and has immediate local impacts

1.75m2m 0.5m2m

Complicating factors:

What is the responsibility of the retailer up and downstream? Food and non-food products will have very different emissions profiles Methane emissions from agriculture and waste could be significant Environmental costs are not yet internalised in many areas

1m3m1m*

Total ~ 12m tonnes CO2e/year

1m*


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Carbon Footprint of a Tesco Product

Processing and packaging

Retail and use

End of life

22%

68%

10%

0.2%

Production and transport of raw materials

Totalfootprint =7.3 kg CO2e

per 500g ofproduct

An example of the output from ERMs work


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ERM Recommendations to Tesco Develop KPIs and targets for carbon and energy Carbon intensity (tCO2e/million sales) dropped by 3.9%

between 04/05 & 05/06 but total emissions increased 3.5%

Improve data collection systems and checks

Need to implement robust data management systems

A number of measures are available to Tesco toreduce carbon emissions including:

investment in renewable electricity supplies

store energy efficiency programmes

replacement of refrigerants

increased use of biodiesel


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Store Energy Efficiency Programme?Environmental Data Management System?

People Programmes/ Awareness

Product Footprint Pilot

Assurance and Recommendations

Global Direct Footprint Assessment

10 Million Trees Initiative

External Communication Programmes, Disclosure

Trading& Comms

Direct

Indirect

Impacts& Footprint

Example: Tesco Began at Top with ERM Help

ReducingGHG

Emissions&

Energy Use

Supplier Programmes


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Elements for Firms to Address Climate Change

Where are our GHG emissions comingfrom and how large are they?

Inventory

What factors are driving our GHGemissions and what are our internalabatement costs?

What might our future emissions be ?

Analysis/Projections

What is the implication of this for us:potential opportunities for new revenue?added costs/operating constraints?

Duediligence

How we manage risks/gain opportunities? Strategies


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Steps for scoping/managing GHG riskGHG Emission inventories and

forecasts of future CO2 Emissions(by jurisdiction, since rules differ)

GHG Emission inventories andforecasts of future CO2 Emissions(by jurisdiction, since rules differ)

Identification, Description, and Assessment ofEmission Reduction Options/Technologies &Marginal Abatement Cost Curves/Volumes

Identification, Description, and Assessment ofEmission Reduction Options/Technologies &Marginal Abatement Cost Curves/Volumes

Assessment of CO2 costs and practicalpotential for implementing Emission Reduction

Measures

Assessment of CO2 costs and practicalpotential for implementing Emission Reduction

Measures

Monitoring and Verification of EmissionsReductions outside inventories (JI/CDM type)

and valid offsets available in the market

Monitoring and Verification of EmissionsReductions outside inventories (JI/CDM type)

and valid offsets available in the market

Active GHG Trading Across the company

based on actual data from activities, real-timemarket tracking and future expectations

Active GHG Trading Across the company

based on actual data from activities, real-timemarket tracking and future expectations


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Carbon Risks/Opportunities Exist Now Everyfirm that ERM has assessed for carbon risk

has had materialimpacts which affect bottom line;

some were expected but needed quantification;many were unexpected (e.g., physical weatherimpacts, potential for market disruptions, supplychain impacts, upside of carbon credit revenue)

Assessment of climate change exposure must bespecific to firms sector, operations, markets,suppliers, infrastructure, investors & consumers

Assessment must be followed by strategies andGHG Management Plan tied to core business


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Climate Change risks and opportunities

Competitive risks/opportunities consumer demand decline for GHG/energy intensive products

or demand increase for more GHG friendly products

rise in costs for GHG/energy intensive processes or reductionin costs due to GHG abatement measures implemented

GHG differentiators affect market share, market structure

Reputational risks from climate change inaction

or gains from acting on climate change issue Regulatory risks from GHG control / carbon cost Physical risks from extreme weather events

Asset damage

Health and safety risks

Project delays or business interruption related to climate effects


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Considering GHGs in investment

Improving energy efficiency and/or switching to lesscarbon-intensive fuels are key economic drivers intheir own right, given high energy costs and concernabout energy supply security & diversification

Besides energy efficiency/fuel switching, various

process changes are possible to reduce GHGs All future planned investments should be screened

for their GHG risk (i.e., market penalty for beingGHG-intensive) or GHG value (i.e., market value forreducing GHGs compared to local/industry norms)


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China & Asia-Pacific Implications (I) Even if China does not take on an absolute

economy-wide national GHG target for first period

post-2012, other types of targets are possible(e.g., intensity/efficiency/technology/sectoral)

Big pressure for Chinese national target >2020

Tougher binding targets by other nations + somekind of target in China now/future means morepressure (& more value) in global carbon market

Carbon reduction projects in China likely toincrease substantially in volume & value >2012


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China & Asia-Pacific Implications (II) Pressures to reduce carbon intensity of the

supply chain will be felt SOON in China

very big issue as China supplies the world!

Hewlett-Packard, Dell, PepsiCo, LOrealand Reckitt-Benckiser have announcedthey require some suppliers to measureand disclose their carbon footprints

Threat of border tax adjustment for carbonintensity is real & very big issue for China


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China & Asia-Pacific Implications (III) Chinese/A-P manufacturers would be

prudent to measure their carbon footprints

and consider means to reduce them

Competition could come not only fromlower cost producers, but also lower

carbon-intensive suppliers of products

Opportunity to earn carbon credits can

contribute to continued competitiveness Get ready for future GHG targets in China


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Recap: Why firms act on climate change Enhance corporate reputation and public leadership on the

leading global environmental and sustainability issue

Address business/commercial opportunities to monetisecarbon savings and risks associated with GHG emissions

Make money/minimise costs: GHG emissions reductions canmean cost reduction, process improvement, other savings

Gain market share from increased competitiveness and/orpositioning on GHG issue with suppliers and consumers

Manage risk/strategic planning - understand the impact ofGHGs on the firm and implement risk management needed


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Where do we Draw the Boundaries? WBCSD / WRI GHG Accounting Protocol defines

procedures for determining emissions boundaries


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Getting on the path of carbon disclosure (I)

Best Practice in GHG Reporting includes:

Comprehensive reporting for each financial year Use of standardised methods (GHG Protocol)

Minimum Scope 1 & 2 reporting; ideally Scope 3 also

Explanation of data reliability & probable sources of error

Assurance via independent third party review

Projects of future emissions on comparable basis

Ability of an external party to understand/verify results

Repeated annually with corrections/adjustments as needed


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Getting on the path of carbon disclosure (II) Ideally, companies beginning CDP participation

should complete a GHG emissions inventory in thefirst year and expect to improve it over time

Some companies treat the first year as a scoping andplanning exercise with more concrete data in year 2

Incomplete or imprecise responses do not look good

Joining CDP creates expectations that participantswill ultimately analyse their climate change risksand opportunities, manage and communicate them

New venture to consider suppliers (Supply ChainLeadership Collaboration SCLC) very important


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Getting on the path of carbon disclosure (III)

Credibility of CDP participation tied to seriousnessof response submitted and demonstration of

improvement in responding over time

After a couple of years, pressure likely to increase toachieve Best Practice reporting and transparency

Supply chain very likely to become more important Ultimately, firms expected to demonstrate that they

have systematically assessed their climate changerisks and opportunities and have meaningful plansin place and part of core business to deal with them


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How ERM Climate Change Team helps Rapid assessment of approx footprint from energy

Detailed footprint evaluation and KPI development

Required for offsetting to become carbon neutral

Help clients to minimise carbon risks, strengthen brandreputation and reduce costs

Interpret footprint results as basis for new carbon riskassessment and risk management follow-on project

Help client with internal/external communication

Advise on regulatory responses and carbon credit potential

Analyse/help implement GHG reduction projects & crediting

Provide on-going assurance & updates


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Thank you!

For further information, please contact:

Lee Solsbery, ERM [email protected]

(+65) 9173 3215

Alastair Scott, ERM Hong [email protected](+852) 2271 3137

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