Reporting leaders, including Tesco, Dell and Nestle, are being urged to find out what their suppliers' carbon footprints are. The move is getting a mixed response

It is five years since the global climate change initiative, the Carbon Disclosure Project, first received backing from investors to ask the world's largest companies to report annually on their direct emissions. Now a new and much more complex side to carbon emissions reporting is beginning to be addressed. Company supply chains.

Beginning in early 2009, the CDP plans to ask all companies listed within London's FTSE 350, New York's Standard & Poor's 500 and other global stock exchanges not only to report on their own emissions (which the CDP estimates to make up 40% of global emissions), but also to send carbon disclosure questionnaires out to their suppliers.

Paul Dickinson, CEO of the Carbon Disclosure Project, hopes it will encourage transparency in areas of the supply chain that are under less economic pressure to increase energy efficiency, especially in countries such as China where energy is cheaper. "If suppliers are scrutinised by their purchasers they will feel under huge pressure to report on and lower emissions," he says.

Of the 166 largest companies in Asia (excluding Japan) surveyed by the CDP in 2007, only 26% reported back on their emissions. The region may start feeling the pressure from their customers to report under the CDP's new supply chain initiative, however, as many suppliers to large multinationals operate across the continent.

Coalition of the semi-willing

A few companies, including Tesco, Nestlé, Proctor & Gamble and Dell are now trialling a pilot questionnaire before the official launch, which, according to Dickinson, is scheduled for next spring. Each has asked 50 of its biggest suppliers from all sectors of the supply chain to respond on the questionnaire's usability.

At this stage the results will be shared internally. Dickinson is keen that all suppliers' carbon disclosure reports should be made public from 2009.

He says companies will not be obliged to call on all their suppliers to report, but are encouraged to make the inquiry "as thorough as possible".

However, the companies involved in the pilot survey, known as the Supply Chain Leadership Coalition, seem more reluctant to make bold commitments to the survey.

Chain reaction

Many of the companies piloting the questionnaire remain cautious. Nestlé told ClimateChangeCorp: "During the current pilot phase we are concentrating on first-tier suppliers." These are the company's direct suppliers. Whether and how this might be extended in future, Nestlé said, will depend on the results of the current trial.

Some of the participants, including computer manufacturer Dell, seem keener than others to publicly disclose the reports given by their suppliers.

Dickinson sympathises with concerns companies might have that information about suppliers is too commercially sensitive to make public but he maintains: "If you are a leader then you'll be leading from the front."

Sedex, an ethical data exchange, has been there before. It operates a private database, which is used by over 15,000 suppliers in 132 countries to provide customers with information on their ethical practices. Rigmor Haga, from Sedex, says restricted viewing of this data is essential for suppliers wary of reputational risks as well as customers wanting to shield their supply chain from competitors.

Sedex , which launched its first environmental survey of supplier members in March, sees a place for public reporting, albeit with fewer respondents. "I think a public database would be more likely to get the people who are driving the agenda and who really want to make change", says Haga. Having viewed the CDP questionnaire, she does not think the survey would reveal any commercially sensitive data linking suppliers with customers.

Mixed motivations

The motivations to voluntarily examine suppliers' carbon emissions vary.

Dell's environmental policy manager, Mark Newton, says efficiency and profitability go hand in hand. He sees the survey as a good way of monitoring suppliers on how well they run their business. Newton regards energy management as one of the deciding criteria when choosing a supplier.

For Procter & Gamble, low carbon emissions are "an indicator that the company is well managed" but not the deciding factor over price, when the company chooses suppliers, according to Peter White, the company's sustainability director.

It is not yet certain how far transport emissions in the supply chain will be tackled by the new questionnaires.

More than a label

According to Dickinson, the CDP is working closely with the Carbon Trust, founder of the UK corporate carbon label, on the supply chain initiative. Despite the obvious links between suppliers reporting on emissions and calculating the carbon footprint of products, the companies sending out pilot CDP questionnaires are reluctant to draw any parallels.

A spokesperson for Tesco said, "The two initiatives are complementary, given that they help us understand emissions in our supply chain, but there is no direct relationship between them." Tesco stated its aim, in January 2007, to carbon label all its products.

Nestlé, meanwhile, disputes the very basis of the carbon footprint. The company says that focusing on one single environmental aspect, for example the carbon footprint, without considering others, like water use, can be misleading.

"We expect… the CDP to extend its initiative beyond carbon and also include water," a company spokesperson told ClimateChangeCorp.

Detergent giant Procter & Gamble, another participant in the CDP supply chain trials, claims to be ahead of the carbon reduction game, aiming to reduce emissions from its own operations by 40% per unit sold by 2012, compared with its 2002 emissions.

However, Procter & Gamble is also holding out against carbon labelling: "The resources required to calculate carbon footprints down to the level of every product are incredibly high and would be more effectively deployed elsewhere to reduce emissions," White says.

Authentic concerns

One of the main difficulties with both carbon labelling and reporting to the CDP lies in standardising the methodology for emissions disclosure.

According to a forthcoming report on carbon auditing, published by the Ethical Corporation Institute, a sister company to ClimateChangeCorp.com, most current CDP responses use the World Resource Institute's GHG protocol reporting guidelines. Only around half of companies, however, have the figures audited by external verifiers, such as the environmental auditor Bureau Veritas, to ensure they are accurate.

Verification is likely to become even more of a problem for smaller suppliers who cannot afford a professional carbon audit.

Reporting gaps

Many of the companies interviewed by ClimateChangeCorp believe that the lack of emissions disclosure experienced by the CDP in Asia is down to a general lack of company reporting on the continent.

Dell's Newton says from his experience Asia is "at least on a par" with other regions supplying the company, in terms of carbon emissions.

On the international level, looming trade tariffs could persuade companies to start monitoring carbon emissions from their international suppliers. The European Union, has talked this year of exercising a carbon tariff on dirty imports in order to protect domestic industry caught under the EU emissions trading scheme.

Dickinson of the CDP believes it is only matter of time before a carbon price hits Asia, due to import tariffs abroad, "so companies should start getting their houses in order now rather than later".

For the time being, however, much of the risk posed to companies by their carbon emissions remains speculative.

Despite climate change reporting becoming more popular year by year among companies, Dickinson agrees that the Carbon Disclosure Project has not yet made a large impact on the heavyweight investors that back the project.

"Investors are not Father Christmas," he says. "If a company like American Electric Power is emitting millions of tonnes of carbon a year and the carbon price is zero then investors are not going to worry too much".

International signals

However, the growing momentum of voluntary reporting has been backed up by the recent proposal for mandatory emissions reporting in Australia. The Australian government has made it clear that emissions reporting is the first step towards integrating companies into a national emissions trading scheme. If successful, the trading scheme will make heavy CO2 polluters pay for their emissions.

Similarly, UK environment minister Jeff Rooker last week accepted an amendment to the UK Climate Change Bill that would strongly encourage listed companies to report on their greenhouse gas emissions, subject to terms set out in the Companies Act (see Hansard).

Cautious legislative moves on carbon disclosure are afoot in some countries. The US can also be expected to follow suit, in its own way, after the next administration takes office in 2009. But without serious business drivers for investment in supply chain calculations, such as pressure from big investors or major changes in law, it appears to remain early days for supply chain carbon calculations.