How blockchain can enable carbon tracking within the supply chain

In this series of papers, we’ve been looking at blockchain technology from a supply chain perspective. We’ve considered typical supply chain challenges, and how blockchain might be used to tackle them. We’ve also explored traceability; how blockchain can enhance transparency and accountability; procure-to-pay (P2P) processes; and the role of Internet of Things (IoT) devices in the supply chain.

Clémence Lambert
Clémence Lambert,
Managing Consultant, Capgemini Invent

Edouard Morio de L’isle
Edouard Morio de L’isle, Blockchain and B2B Platforms Business Development, Capgemini’s Business Services

In this, the last article in the series, we’re going to consider a much broader perspective. We’re going to look at the effects of climate change on the supply chain, at the implications it has for data collection and for regulatory compliance, and also at the role blockchain can play in meeting carbon tracking needs.

The race to Net Zero

Every year, the combustion of fossil fuels is adding carbon to the atmosphere, which is increasing global temperatures. The overall “net zero emission” carbon target of 2050, as set out in the Paris Agreement of 2015, is being demanded by the climate movement. It was corroborated by a report from the Intergovernmental Panel on Climate Change (IPCC) in 2018, which affirmed that net emissions must be reduced to zero by 2050 in order to stabilize global temperatures and meet a global warming target of no more than 1.5°C. To meet these internationally recognized targets, carbon levels will need to be reduced by 45% from 2010 levels by 2030, and reaching 0% by 2050 to keep temperature rises below 1.5 °C. This means unprecedented collaboration between countries and organizations from different backgrounds (public, private, and scientific) to align on targets, roadmaps and methodologies. It also means commitment:

  • At national level – this objective has been ratified by Switzerland, the EU and many other countries, and, if anything, the COVID-19 pandemic of 2020 has intensified international pressure to act. Indeed, according to a recent report,[1] 45% of companies were committed to becoming carbon neutral in 2020, against 20% in 2019.
  • At personal level– carbon reduction is a target in which everyone will have a role to play, at home, while traveling, and even when working.
  • At private levelMicrosoft, for instance, will be carbon negative by 2030, and will remove its historical carbon emissions by 2050. Capgemini is also taking its part in this global effort, by recently committing to carbon neutrality by 2025, and by also committing to net zero carbon emission by 2030.

Guidelines and targets

While everyone races to zero emissions, organizations need to keep track of emerging guidelines from a number of bodies. Some of these guidelines are global or multinational, such as the Greenhouse Gas (GHG) Protocol, which establishes comprehensive standardized frameworks to measure and manage GHG emissions from private and public sector operations, value chains, and mitigation actions.

Other guidelines are being set at national level. For example, the Bilan Carbone, which is aligned with GHG protocol guidelines, provides a method of accounting for GHG emissions, and was developed by the French Agency for Environment and Energy Management.

Others again are at sector level – both vertical and horizontal. For instance, and as we’ve noted in an earlier article in this series, a consortium of apparel companies, not-for-profit organizations, government bodies and industry groups has established the Open Apparel Registry (OAR), with the aim of enabling the fashion industry to map buyers and supply facilities, and to monitor them in (environmental, social, and governance terms (ESG).

Scoping and measuring

In the supply chain, the operational scope of carbon tracking involves defining the sources of emissions that will be taken into account. The main international standards and methods, and the GHG Protocol, which is the most widely used international accounting tool, together define three categories of emissions:

  • Scope 1 = Direct GHG emissions from owned or controlled sources, such as general fuel combustion, company vehicles, and fugitive emissions
  • Scope 2 = Indirect GHG emissions from the generation of purchased energy, such as purchased electricity, steam, heating, and cooling
  • Scope 3 = Other indirect GHG emissions, not included in Scope 2, that occur in the value chain of the reporting company, including both upstream (transportation, purchase, assets) and downstream (waste, emissions generated through the usage of sold products) with the usage of the product/service. Reporting for Scope 3 is not mandatory, but it is nonetheless a crucial category, because it can represent up to 80% of a company’s entire carbon emissions.

Three scopes of emissions

Needless to say, an organization can only move to Net Zero when it can quantify its current carbon footprint. For large enterprises in particular, this is not straightforward, as they need to prepare, collect, clean, and convert all data across business lines.

The data squeeze

One of the most important elements of carbon tracking is transparency: organizations need to be able to demonstrate their progress to a list of stakeholders that includes customers, employees, partners, and investors, some of whom are now founded on ESG principles. They have to show how are they doing against their own commitments, and against their peers. They have to show they are improving their performance. They also need to monitor their activities, so they can learn lessons, enabling them to improve performance further still.

It isn’t straightforward. With sustainability issues, there are numerous and evolving rules surrounding the scope and the frameworks of reporting and disclosure that are conducted on a voluntary or regulatory basis. Also, there are specific rules to compute and translate activities into sustainability information, such as carbon calculation models and carbon factors, often varying by country – and these, too, are evolving.

Transparency also requires accuracy, completeness, and clarity. Large volumes of data need to be collected across the organization, and then cleaned. Where data doesn’t exist – the carbon emissions from a supplier’s services, for example – it will need to be gathered ad hoc, or estimated.

Under pressure

It’s a sad fact that most organizations are ill-equipped to address such a large and multi-layered task, which often forms part of the workload of Corporate Responsibility and Sustainability (CR&S) teams. These teams are often distributed within companies, some in a central location and others at country level. Reporting is often managed centrally by just two to five people on an Excel sheet, and represents a considerable amount of data collection and data cleaning in order to be comprehensive. In fact, sustainability teams typically spend 80% of their time gathering, structuring, and analyzing data, but only 20% working on strategy.

The four major challenges that sustainability teams are facing can be summarized as the ability to:

  • Collect more and more granular data from different sources, clean it, and transform it into real insights, at scale, and on a regular basis
  • Report sustainability data with confidence, and focus on the reports that matter
  • Cascade the right level of information to decision-makers, and incentivize them to improve sustainability performance across the organization
  • Collect and guarantee the quality of the data in new areas of the value chain, such as middle-sized suppliers, who may not report their own data.

The good news is that new solutions are now taking advantage of cloud computing, artificial intelligence (AI), and analytics to offer a more convenient way of monitoring carbon, for greater transparency and performance.

However, they are still not answering the challenge of collecting carbon data all along the supply chain. This is a significant problem. For a start, measuring all supply-chain emissions requires a high level of integration and coordination between multiple supply chain networks. In addition, organizations need to have visibility beyond their first-tier suppliers – and research shows that 60% of executives have zero visibility in this respect. In addition, they need to establish KPIs to make comparisons, compute, build insights, and make decisions. Finally, they need to develop mechanisms to collect data with trust.

Blockchain – a key enabler for carbon tracking

Blockchain can help to address these issues. As we have noted in previous papers in this series, this technology has been defined as “an open, distributed ledger that can record transactions between two parties efficiently, and in a verifiable and permanent way.”[2]

The logic in how blockchain principles apply to carbon tracking is clear. To reduce the carbon footprint of supply chains, companies must be able to collect and track reliable and trusted data accurately and repeatedly. By reporting carbon emissions across a blockchain network, they are creating a single platform for carbon measurement, helping to provide a trusted network that can report emissions in an immutable and tamper-proof audit-trail, facilitating connections between all the different participants around a trusted platform that guarantees privacy, security, and traceability. Ultimately, this is all about transparency and accountability between all the supply chain participants.

It’s also worth mentioning that private blockchains such as Corda or Fabric, which are the most used for enterprise applications, are quite energy-sober, especially when compared to public blockchains such as Bitcoin or Ethereum. This is mainly due to the difference in the way these protocols validate transactions, in what is known as the consensus method (digital signatures for Corda and Fabric, versus mining for Bitcoin and Ethereum).

Mercedes – a case in point

Mercedes-Benz is working with blockchain start-up Circulor on a pilot project for transparency on CO2 emissions in the cobalt supply chain.

The project will track the emissions of greenhouse gases and the secondary materials in the battery manufacturing supply chains. Additionally, blockchain will be used to ensure all participants follow Daimler’s sustainability standards in the supply chain. This is one of the initial efforts for a carbon-neutral supply chain, and Mercedes is working with an undisclosed battery cell supplier for the project.

The project partners are focusing on cobalt procurement, which enters the battery supply chain from recycling facilities. The blockchain will monitor the manufacturing of car batteries and the resultant CO2 emissions involved in production. Mercedes has said it ultimately wants to create a circular economy.

The importance of collaboration

Supply chains are team efforts by their very nature, and interconnectedness is implicit in blockchain, too. Likewise, reducing global carbon levels is something that governments, organizations, and individuals need to work together to achieve.

This is why it’s so heartening to see business consortia being formed to tackle the issue. In particular, there is the Climate Chain Coalition (CCC). This is an open global initiative to support collaboration among members and stakeholders to advance blockchain and related digital solutions such as the IoT and Big Data. The aim is to help mobilize climate finance and enhance MRV (measurement, reporting and verification) so as to scale climate actions for mitigation and adaptation.
Achieving Net Zero isn’t something businesses can do on their own. Working together, and using blockchain technology in their supply chains, they will get further, faster – and with luck, it will help to give the world a happier and more sustainable future.

 

[1] Ecoact 2020 Rapport sur la performance en matière de reporting climat des entreprises du CAC 40

[2] Iansiti, Marco; Lakhani, Karim R. (January 2017). “The Truth About Blockchain”. Harvard Business Review. Harvard University.