OESA Legal Corner: GHG Accounting Within the Supply Chain – What’s Expected?
Steven C. Kohl, Warner Norcross & Judd LLP

The Greenhouse Gas Protocol, a project sponsored by the World Resources Institute and the World Business Council on Sustainable Development, recently finalized standards to guide companies in measuring, reporting and managing GHG intensity on a company-wide basis or on a product specific basis. While broad GHG or carbon intensity supply chain accounting at a product or corporate level has not been generally mandated, other internal or external motivations can exist for conducting such accounting. Companies that seek to adhere to these standards must not only account for their own direct or indirect emissions associated with manufacturing a product or providing a service, but also must account for their supply chain’s emissions.

It is becoming increasingly commonplace to find in supply chain agreements clauses that obligate a seller to cooperate with its buyer relative to environmental initiatives which could be inclusive of accounting for the GHG footprint of the product or service being supplied. These clauses do not typically identify any specific standard or protocol that might be employed for this accounting or afford other meaningful detail as to the nature or quality of the information that might be required. Suppliers would be well advised to familiarize themselves with GHG accounting standards like those finalized by the Greenhouse Gas Protocol to understand what information they may be required to develop and provide up the supply chain under these clauses. While data collection is clearly a key to conducting any GHG accounting under any standard, suppliers should recognize the potential that within some supply chains there may be a requirement for third party verification of a GHG accounting. This could impose additional costs within the supply chain.

In the end, suppliers subject to clauses that could trigger an obligation to conduct a GHG accounting need to be sensitive to the GHG accounting and reporting policies buyers up the supply chain are adopting on a corporate or product basis. This will serve to inform suppliers what may be expected of them in the business relationship and identify the data, and the systems necessary to collect the data.

Kohl is a partner in Warner Norcross & Judd’s Southfield, Mich., office and a member of the firm’s Environmental and Sustainability and Climate Change practice groups.

OESA ed. note: AIAG member OEMs and suppliers have collaboratively developed an AIAG GHG guideline for estimating, collecting and reporting manufacturing facility-based GHG emission data. This document will assist suppliers to develop an emissions inventory. This guideline is based on the World Resources Institute (WRI) GHG Corporate Reporting Standard. The AIAG GHG Guideline will supplement the WRI materials. Information is available on the AIAG website: http://www.aiag.org.

The OESA Legal Corner is a monthly feature in OESA News. OESA affiliate law firm members contribute short legal updates to keep members informed on critical issues affecting their businesses. OESA enforces a strict policy of no legalese for these briefs. For more information or to request or suggest a topic, contact Margaret Baxter at 248.952.6401 ext. 223 or mbaxter@oesa.org.