Audit, Compliance and Risk Blog

GHG Auditing and Environmental Compliance — Are You Prepared?

Posted by Jon Elliott on Tue, Oct 16, 2012

environmental complianceEnvironmental compliance has been an important issue for large, multi-national companies for many years, and in recent years it has taken on added importance for their suppliers. Case in point: Walmart, Procter & Gamble, IBM – many Fortune 500 companies – are requiring that their vendors audit and quantify the greenhouse gas (GHG) emissions in their supply chains. Indeed, many of these high-profile organizations have undertaken ambitious plans for reducing their carbon footprint. (A big driver of this activity is stronger environmental regulation and pressure from environmental organizations, customers, investors and the like.) For example, in early 2010 Walmart announced a goal to eliminate 20 million metric tons of GHG emissions from its global supply chain by the end of 2015. Procter & Gamble has the stated objective of generating 100% of its energy from renewable resources – with a target of generating 25% of that by 2020.

Enlisting the Help of Suppliers

Overall, it’s safe to say that a majority of Fortune 500 organizations have targeted a reduction in GHG emissions going forward. And to help them achieve these goals they are enlisting the help of their suppliers. In Walmart’s case alone this affects more than 60,000 businesses.

So while your business may not be directly affected by GHG emissions regulations, if you’re a vendor to an organization that is – and therefore part of its supply chain – you’ll still feel the effect of these regulations. More pointedly, if your company’s customer list includes any of the largest organizations in North America, the odds are, at some point – sooner rather than later – you’ll be asked to document GHG emissions related to the products you sell.

As you peruse the official notification and questionnaire you receive from your customer(s) don’t be surprised if you see that you’re expected to respond within 90 days. Also, not surprisingly, your answers will likely affect whether your customer remains your customer or whether you maintain your “preferred supplier” status. On top of this, in most cases you won’t get a lot of specific guidance as to how to gather the information your customer wants. In short, this whole turn of events can happen suddenly, offering you but a very narrow window of time to respond – and oh, by the way, the outcome can be crucial to the ongoing success of your business.

If you find yourself in the above situation, facing a tight deadline for which you are totally unprepared, at best you’ll end up paying a huge “rush project” consulting fee to an organization that helps companies prepare these type of responses. The solution to avoiding such a predicament is, of course, to plan ahead. A good place to start is with a general understanding of the Greenhouse Gas Protocol (GHG Protocol).

The GHG Protocol is currently the most widely followed and adhered to international voluntary standard for understanding, quantifying, and managing greenhouse gas emissions. Your customer likely borrowed heavily from it in formulating their questionnaire – specifically from the GHG Protocol Corporate Standard. This standard, to quote the organization’s website, “provides standards and guidance for companies and other organizations preparing a GHG emissions inventory.” You can download the 116-page document here.

Auditing Your Supply Chain For Greenhouse Gas

Auditing your supply chain for greenhouse gas is as simple and as daunting as answering this question: what is my inventory of GHG emissions? The problem for most smaller companies is that they don’t have any idea about how to calculate their emissions inventory. The good news is that the GHG protocols show you how to calculate those emissions. The not so good news? Many smaller organizations often lack the staff expertise and/or the available staff to spare for what can be an arduous and time-consuming undertaking. Given these circumstances, hiring a consultant can be a viable, albeit expensive, option. Before you do that though, my recommendation – and yes, it’s a self-serving one – is that you look into some of the guides on the market that have been created for the express purpose of helping businesses achieve environmental compliance with GHG reporting standards.

As you review the features and benefits of the available guides here are 5 key questions you want to answer for yourself:

environmental compliance  

  1. Does the guide offer a procedural audit protocol that will enable my organization to clearly identify its GHG Supply Chain reporting challenges?
  2. Does the guide include detailed applicability tables that will help my organization determine which requirements apply?
  3. Does the guide provide clear, concise directives to ensure that my organization can accurately report its emissions?
  4. Does the guide offer an up-to-date overview of the GHG Protocol standards and customer supply chain reporting requirements for select Fortune 500 companies?
  5. Is the guide regularly updated to stay current with regulations and standards?

An effective guide can make it possible for you to conduct a GHG audit of your supply chain using your own staff, thereby saving your business substantial time and money. As I wrap up this post, I want to leave you with this closing thought: if your business is a supplier to any of the larger companies in North America, and you haven’t yet undertaken a GHG audit of your supply chain, my strong recommendation is that you do so soon. Depending on how much of your revenues are tied to any one, or several, of these large entities, your profitability and even the viability of your business, may depend on it.


About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. He was involved in developing 16 existing products, including Environmental Compliance: A Simplified National GuideGreenhouse Gas Auditing of Supply Chains and Environmental Auditing: Federal Compliance Guide.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

Tags: Corporate Governance, Audit Standards, Health & Safety, Environmental risks, Environmental