Think about the air, before you see it… Turn off the engine… (sign next to the traffic light with “long” red light)

What are GHG spillovers?

In the term of GHG, spillovers[1][2] basically represent “cheating” – if you ask me.

GHG spillovers happen when manufacturer of the Consumer Products is moving its “dirty” and CO2e intensive production into other countries. Currently this is a very usual modus operandi –manufacturers from the developed countries are moving its production to less developed countries – where the local environmental policies are less regulated. This “moved” production  is usually outsourced – not even owned by the “formal” manufacturers.

While from one end, those manufacturers are giving positive impact on the CO2e emissions in their own countries, at the same time they are bringing negative impact on the CO2e emissions in the countries where the actual production is happening – basically “spilling-over” the negative impact into other countries.

Also, when using country or industry averages to calculate carbon footprint of the Raw Materials or Semi-Finish Goods – the overall CO2e emissions of the manufacturer, who is placing the Finish Goods (=Consumer Products) on the market, can be further disturbed (intentionally or unintentionally). However, it is very difficult to say, to which extend this would, at the end, produce better results on the company’s Scope 3 emission – very difficult to quantify, as it would depend on case to case bases (i.e. is the actual carbon footprint of the outsourced production higher or lower of the industry averages).

The main concern here is – no real “decarbonizations” has been done – problem of one country is simply swept “under the carpet” of the other country. Globally we achieve nothing, except the illusion of “somebody” is doing much better than someone else – and this does not help overall NetZero agenda…

Please note, GHG spillovers are nothing new. UN Sustainable Development Solutions Network (SDSN) is putting substantial effort in making sure CO2e emissions are properly recorded under the responsible countries – but it usually has to rely not on the official figures provided by the countries’ regulatory bodies (as they are obviously not useful in these use-cases), but by using NGO and other sources of data to compensate & complement countries’ real contribution to the Goal 13 Climate Action[3]  – and all other affected Sustainable Development Goals (SDG)[4] (as “spilling-over” is not affecting only GHG and Climate Action).

Why is it important?

If CO2e emissions are moved away from my door, why should I care?

Well, CO2e are gases (CO2, CH4, N2O etc.), and in fact gasses, once released, do not tend to be contained in on place.

Back in 1958 Charles David Keeling started monitoring carbon dioxide concentrations in a monitoring station in Mauna Loa, Hawaii, situated on 3,397 meters above the sea level, away from dense vegetation or human population that could impact the measurements. This resulted in the famous Keeling Curve[5] – showing constant rise of carbon dioxide concentrations in a course of last 50 years. Based on those measurements, in May 2013 accumulated concentration reached 399.76 parts per million – compared with pre-Industrial Revolution levels which were roughly 278 parts per million[6]. Things are getting event worse in the last 10 years…

The other outcome of the research is even more interesting – even though carbon dioxide concentrations throughout the Earth are not fully equal – distribution does not really depend of “how far away” we are from the place of the actual emission.

This all clearly demonstrates:

• CO2e emissions are constantly raising;
• CO2e wherever emitted in the world – do affect all of us.

So, sweeping things under the carpet – does not help…

How do we cope with it?

Now that we do understand what spillovers are, and why it is important, let’s see now we can address the problem properly.

If something is important for all of us, then we are all invited to take an action, and act as a controller of the Consumer Products on the market – weather this is textile, car, food, beverage, appliances, or anything else…

To have an efficient control – there are some pre-requisites – and this is more “call for action” as we need an industry to react and start meeting these requirements:

1. To enable Consumer to compare products from the different brands and manufacturers – we would need to see an environmental impact of each product – clearly labeled. While this is quite challenging, it is still feasible – and market should expect it in the future. This would imply an accurate carbon footprint is calculated per product based on the transactional data in each relevant step during the production and distribution.
2. To be able to build-in carbon footprint calculation into Finish Goods, manufacturer would need to acquire accurate information about carbon footprint of the purchased Raw Materials or Semi-Finish Goods. This would have to be provided by the Suppliers in the unified format and data exchange. While in some industry sectors things are pretty much advanced (e.g. Catena-X in the automotive), for other industries there are some pioneering moves into global standardization of this data exchange under the Partnership for Carbon Transparency (PACT)[7], powered by the World Business Council for Sustainable Development (WBCSD)[8].
3. To ensure accurate data exchange, tracking the materials throughout all phases of the Value Chain would be welcome as well – this is needed to protect the brand value and make sure ESG attributes of the inbound Raw Materials and Semi-Finish Goods and outbound Finish Goods are trustworthy. Track and trace solutions or tokenized blockchain is nothing new – so, at least in this area, there are many available solutions in the market, which could potentially be of use.

How is SAP addressing this issue…

SAP is already working on solutions which could address all three major requirements.

SAP Sustainability Footprint Management is (currently) leading the way in calculating carbon footprint per product It has been constantly evolving with new features, and with clear roadmap to encompass all relevant Scope 3 calculation, upstream and downstream – with more and more integration capability for other SAP and non-SAP solutions. More can be found in this article by Nico Wottke (please note, regular product update info is being provided in the Blogs series).

SAP Sustainability Data Exchange is a tool which will enables enterprises to exchange standardized sustainability data based on PACT protocol, and feed carbon footprint data into SAP Sustainability Footprint Management. The integration will go in other direction as well. For produced products, the manufacturer could also push carbon footprint data from SAP Sustainability Footprint Management into SAP Sustainability Data Exchange, so other enterprises could use it in its own further calculations.

SAP Business Network Material Traceability, through Business Network collaboration, provides a solution for an enterprise to clearly track inbound purchased materials from its Suppliers, but also to expose clear data of the outbound materials sold to its Customers – thus fully closing the loop, and enabling trust in the complete Value Chain.

Call for action

Yes, it is important!

It’s one Earth, home to us all…

We do need to strength the legislation in the countries (in)directly responsible for the largest portion of the CO2e emissions – we need both, more standards and more legislation:

• Manufacturers should provide clear and transparent ESG (not only CO2e) per product placed on the market – whenever applicable.
• Of course, we also do need to standardized the way of ESG (not only CO2e) data exchange, which will enable manufacturers to execute relevant calculations on the transactional data – per product and services they provide. PACT looks like promising solution, with potential to further evolve…

Some of these things can already be seen in SAP products (or product roadmaps) – enabling more transparent and more accurate CO2e calculations based on “actuals”. Looks great, and looks like SAP is leading the way…

However, standardization means – everybody is invited to provide its solutions within the boundaries of the open standards and forthcoming legislation requirements – which we would definitely need…

Acknowledgment

*) This article uses SAP Business Technology Platform Solution Diagrams & Icons as per SAP Terms of Use  governing the use of these SAP Materials (please note, newer version of the Solution Diagrams & Icons, as well as Terms of Use, might be in place after the publication of this article).

More guidelines on Solution Diagrams & Icons can be found in this article by Bertram Ganz.

References

[1] G20 countries must curb their negative international spillovers to restore the Global Commons | The University of Tokyo (u-tokyo.ac.jp)

[2] Spillover effect of greenhouse gas emissions across five major continents | SpringerLink

[3] Goal 13 | Department of Economic and Social Affairs (un.org)

[4] Home | Sustainable Development (un.org)

[5] The Keeling Curve (nasa.gov)

[6] Global Patterns of Carbon Dioxide (nasa.gov)

[7] Pathfinder Framework Version 2.0 – World Business Council for Sustainable Development (WBCSD)

[8] Emissions transparency: PACT Pathfinder Framework (wbcsd.org)