international WOrkshop of GHG PRotocol PRograms World Resources Institute, Washington DC, March 22-23, 2010

1. Accounting For GHG Emissions In Corporate and Product Supply Chains international WOrkshop of GHG PRotocolPRograms World Resources Institute, Washington DC, March 22-23, 2010 1

2. Presentation Outline • Growing Practice of GHG Management in the Supply Chain • GHG Protocol and Supply Chain Initiative Overview • Scope 3 Standard: Overview and Key Requirements • Product Life Cycle Standard: Overview & Key Requirements • Next Steps 2

3. Corporate GHG management moving beyond companies’ own operations, toward full value chain Investors pushing for supply chain GHG disclosure and risk management Governments programs and policies increasing public reporting of scope 3 and product-level GHG emissions Companies requesting product and supply chain information from suppliers The Growing Practice of GHG Management in the Supply Chain

4. Company-specific: Wal-Mart’s supply chain sustainability initiative; Tesco’s product carbon labeling initiative; etc. Sector-specific: Electronics industry; Beverage industry; Dairy industry; Utility industry; World Auto Steel; etc. Cross-sector: Carbon Disclosure Project’s Supply Chain Initiative; WWF Climate Positive Initiative (under development) Methodologies: Carbon Trust/Defra product life cycle methodology Emerging Initiatives

5. New Standards in Development Product Life Cycle Accounting & Reporting Standard Scope 3 (Corporate Value Chain) Accounting & Reporting Standard • Quantify and report major GHG emissions in the value chain at the company/organization level (scope 3) • To understand, manage, and report GHG emissions across the entire value chain • Build on GHG Protocol Corporate Standard • Quantify and report product-level emissions • To understand, manage, and report the life cycle GHG emissions associated with individual products • Build on existing life cycle assessment standards 5

6. Process Structure WRI/WBCSD Secretariat Steering Committee (25 members) Product Technical Working Groups ( 100+ members) Scope 3 Technical Working Groups ( 60+ members) Stakeholder Advisory Group (1,000+) Product Standard Scope 3 Standard 6

7. Setting Boundaries: What do you include in scope 3? Steering Committee Members 7 7

8. Process Timeline

9. Scope 3 Accounting & Reporting Standard 9

10. Scope 3 Standard Contents Part 1: General Requirements & Guidance Introduction Accounting and reporting principles Business goals and inventory design Mapping the value chain Setting the boundary Collecting data Calculating emissions Accounting for GHG reductions Performance tracking Setting a reduction target Managing inventory quality Assurance Reporting and communication 10

11. Scope 3 Standard Contents Part 2: Guidance for Specific Scope 3 Categories Purchased Goods & Services – Direct Supplier Emissions Purchased Goods & Services – Cradle-to-Gate Emissions Energy-Related Activities Not Included in Scope 2 Capital Equipment Transportation & Distribution (Upstream / Inbound) Business Travel Waste Generated in Operations Franchises (Not Included In Scope 1 and 2) – Upstream Leased Assets (Not Included In Scope 1 and 2) – Upstream Investments (Not Included In Scope 1 and 2) Franchises (Not Included In Scope 1 and 2) – Downstream Leased Assets (Not Included In Scope 1 and 2) – Downstream Transportation & Distribution (Downstream / Outbound) Use of Sold Products Disposal of Sold Products at the End of Life Employee Commuting 11

12. GHG Protocol Reporting Requirements Report in conformance with the GHG Protocol Corporate Standard Report in conformance with the GHG Protocol Corporate Standard and Scope 3 Standard • Shall report all scope 1 and 2 emissions • Should optionally report scope 3 emissions • Shall report all scope 1 and 2 emissions • Shall report scope 3 emissions (following the requirements/guidance in this standard) 12

13. Scope 3: Steps in Accounting & Reporting Steps in Scope 3 Accounting and Reporting … 13

14. Business Goals of Scope 3 Accounting & Reporting GHG management, including identifying GHG reduction opportunities in the value chain; guiding investment and procurement decisions; and managing climate-related risk Performance tracking, includingsetting a baseline, setting GHG reduction goals, and tracking progress over time Engaging partners in the value chain to expand GHG accountability, transparency and management throughout the value chain Public reporting of GHG emissions to meet the decision-making needs of stakeholders (e.g., policy-makers, investors, purchasers, customers, suppliers, employees, NGOs, etc.), as well as participation in corporate-level GHG reporting programs and registries 14

15. Accounting & Reporting Principles

16. Emissions from the company’s operations Cradle to Gate emissions of purchased products and services Gate to Grave emissions from sold products and services Purchase Sale VALUE CHAIN Tier 1 Suppliers Reporting Company Raw Materials Product Distribution Energy Activities Product Use Capital Equipment Product Disposal Grave Transportation Cradle Gate Gate Scope 2 and 3 Scope 1 Scope 3

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18. After mapping the value chain, companies shall account for and report: The largest scope 3 sources that collectively account for at least 80%*of total anticipated scope 3 emissions (excluding use phase); The use phase emissions of select product types; and All scope 1 and scope 2 emissions, as required by the GHG Protocol Corporate Standard * The selection of an 80% threshold is tentative pending road testing Setting the Boundary: Boundary Requirements 18

19. To determine which scope 3 activities are most significant in size, companies should follow these steps: Use screening methods to individually estimate the emissions from all scope 3 activities (examples provided in Part 2 of the standard for each category) Express each individual scope 3 activity’s estimated emissions as a fraction of total anticipated scope 3 emissions Rank all scope 3 activities from largest to smallest to determine which activities are most significant Setting the Boundary 19

20. Use of Sold Products: Required Product Types

21. Guidance: Prioritizing Relevant Emissions Based on Other Criteria • Additional scope 3 activities (below the threshold) should be considered relevant if they meet any of the following criteria: 21

22. Collecting Data 1 2 3 4 Prioritize activities Assess Collect Evaluate data sources data collected data Four-step process for collecting and evaluating data:

23. Collecting Data: Data Types

24. Collecting Data: Methods to Fill Data Gaps

25. Collecting Data • As a general rule, companies should apply the following hierarchy in collecting data: • Primary data • Secondary data • Extrapolated data • Proxy data

26. Collecting Primary Data from Value Chain Partners • When collecting primary data from value chain partners, companies should obtain the most product-specific data available, according to the following hierarchy: • Product-level data • Process-level data • Facility-level data • Business unit-level data • Corporate-level data

27. Data Quality Criteria Criteria Description Technological representativeness • Degree to which the data set reflects the actual technology(ies) used Temporal representativeness • Degree to which the data set reflects the actual time (e.g., year) or age of the activity or whether an appropriate time period is used (e.g., annual/seasonal averages may be appropriate to smooth out data variability due to factors such as weather conditions) Geographical representativeness • Degree to which the data set reflects actual geographic location of the activity, e.g., country or site Completeness • The degree to which the data represents the relevant activity • The percentage of locations for which site specific or generic data are available and used out of the total number that relate to a specific activity. Generally, a percent target is identified for the number of sites from which data is collected for each activity Precision • Measure of the variability of the data points used to derive the GHG emissions from an activity (e.g., low variance = high precision). Relates mostly to where direct measurements have been used.

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29. Questions? 29

30. Product Life Cycle Accounting & Reporting Standard 30

31. Current Product Standard Content • Goal and Scope of the Product Standard • Principles of GHG Accounting • Steps to Performing a GHG Inventory • Establishing the Methodology • Defining the Functional Unit • Boundary Setting • Data Collection & Data Quality • Allocation • Calculating GHG Emissions • Assurance • Reporting a Product GHG Inventory

32. Goal & Scope Goal and Scope • The primary goal of the standard is public disclosure of product level GHG emissions • A product is any good or service • Implementing the standard may support additional business goals including: Identification of GHG reduction opportunities in a supply chain, performance tracking, supply chain engagement, and product differentiation • The standard is sufficiently flexible to support GHG quantification and reporting for many product types

33. Goal & Scope Goal and Scope • This standard does not fully support product comparison • Valid product comparison, comparative assertion, and labeling requires a greater degree of prescriptiveness than is provided in this standard. • The standard will include guidance on how programs, sector specific guidance developers and organizations can specify additional constraints so that valid product comparisons and claims can be made

34. The overarching method for accounting for product GHG emissions is a life cycle approach Including all stages of the life cycle, from cradle to grave: Establishing the Methodology 34

35. Establishing the Methodology • Companies shall follow the process life cycle accounting approach • Companies shall use an attributional approach to assign life cycle GHG emissions to an individual product system for the purpose of public reporting • Companies shall define the unit of analysis as the functional unit of the product

36. Setting the Boundary Key Requirements: Setting the Boundary • Processes that are attributable to the function of the product shallbe included in the boundary of the product system • Capital equipment shall be included in the product system if deemed significant for the studied product or product sector • Significance can be proven using a qualitative or quantitative test. • Companies shall conduct a cradle-to-grave assessment for all final products • Companies may conduct a cradle-to-gate assessment for intermediate products when the eventual fate of a product is unknown

37. Setting the Boundary Life Cycle Stages

38. Collecting Data Key Requirements: Collecting Data • Primary data shall be collected for all processes under the control of the company undertaking the product inventory • For all other processes, primary or secondary data of the highest practical quality shall be collected • Data gaps shall be filled using extrapolation or proxy data

39. Data Quality Assessment Key Requirements: Data Quality Assessment • A data quality assessment shall be undertaken for all GHG emissions sources that cumulatively sum to 75% of total product emissions • For all processes quantified using any primary data, a qualitative data quality assessment shall be undertaken based on technological, temporal and geographical representativeness, completeness, and precision • For processes that only use secondary data, the data quality assessment shall be undertaken based on technological, temporal and geographical representativeness

40. Performing Assurance Key Requirements: Assurance • The product GHG Inventory shall be assured • The following types of assurance are permissible: • First Party (“Self” or “Internal”) assurance • Third Party (”External”) process assurance • The assurance opinion shall be expressed in the form of either reasonable (high) assurance or limited (moderate) assurance

41. Reporting Key Requirements: Reporting • A company shallpublicly disclose a GHG inventory report • This report is divided into a summary and detailed report to address the needs of different audiences: • The summary and detailed reports shall be disclosed together

42. Reporting Key Requirements: Summary Report • The summary report shall include: • Introduction • Process map • Results • Assurance and data quality information • A statement on the use of results • e.g., a company will use the results to reduce GHG emissions along the product life cycle

43. Reporting Key Requirements: Detailed Report • The detailed report shall include more information on: • Sector or product specific data sources used • Assumptions and justifications • Cradle to Gate Inventories • Temporal Boundary • Exclusion of Capital Goods • Allocation (performed on data collected under the ownership of the company) • Recycling

44. Next Steps 44

45. Road Testing • More than 70 companies currently road testing one or both of the standards • Wide range of sizes, sectors, and geographical locations • Kick-off meeting: January 21st 2010 • Process continues through the end of June • Each company will provide detailed feedback and a case study on their experience with the standard 45

46. Scope 3 Standard Road Testing Companies

47. Product Standard Road Testing Companies

48. List of Products (to date)

49. In 2010, WRI and WBCSD, in collaboration with the Steering Committee and Technical Working Groups, will: Revise draft standards based on feedback received during 5 stakeholder workshops and the stakeholder comment period (November 11 – December 21, 2009) Revise draft standards based on feedback received during road testing Circulate second drafts for public comment in September 2010 Revise second drafts based on feedback received Finalize text in December 2010 Finalizing Draft Standards 49

50. GHG Protocol Standards & Publications • For copies of any GHG Protocol Publication, please see: www.ghgprotocol.org • For copies of the draft Scope 3 and Product Standards, please see: www.ghgprotocol.org/standards/product-and-supply-chain-standard • For updates on the standard development process, please join the stakeholder advisory group