Enterprise Carbon Tracing

As the global community intensifies its efforts to combat climate change, the innovative approach of E-liability has taken centre stage. E-liability represents a paradigm shift in how organisations measure, report, and offset their carbon emissions. Developed by Professors Robert Kaplan (Harvard) and Karthik Ramanna (Oxford), E-liability is an approach to corporate carbon accounting that applies principles of financial accounting to allow organisations to produce real-time, accurate, and auditable data on their total direct and supplier emissions, and those for any of its products and services.

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E-liability enables organisations to continuously reduce their own supplychain emissions through innovations in operational and sourcing decisions by making emissions a factor in every business’s purchasing and investment decisions, like price or quality. E-liability accounting holds each business accountable only for its direct emissions and the actual upstream emissions embedded in the inputs it purchases from suppliers. This solves the problems of multiple-counting and guesstimates in current carbon accounting practices and allows organisations to produce real-time, accurate, and auditable data on cradle-to-gate emissions for any of its products and services.

Over the past 12 months, several industry leaders have been early adopters of the E-liability approach, obtaining and leveraging carbon information from suppliers and their own operations to improve their own carbon footprints and offer customers the opportunities to improve theirs.

A Southeast Asia-based global tire manufacturer, Giti Tire, was the first to pilot the E-liability approach. Launched in G20 Bali and published in Harvard Business Review, Giti engaged E-liability to calculate the total emissions to produce a standard passenger-car tire, a product that is both crucial to the global economy and, given its high carbon-footprint, and one where emissions-reduction excellence will be essential to fighting climate change.

Giti Tire collaborate with BMW and Volkswagen and auto cluster to outreach suppliers to learn how to source low-emission, high-durability materials that reduces fossil-fuel usage over a car’s lifetime operations.

Similarly, Heidelberg Materials, one of the world’s largest cement producers, has successfully piloted E-liability principles, leading to enhanced visibility into its emissions across various production stages. Cement production is a major contributor to global warming, responsible for up to 8% of global CO2 emissions. Heidelberg wanted to explore ways of reducing its contribution to that number. Focusing on the dominant contributors to cement-related emissions, Heidelberg used the E-liability algorithm to calculate the actual carbon content from current cement recipes, production processes, energy purchasing, and materials sourcing, and provided its customers with information on product-level emissions.

Tata Steel and Hitachi Energy have also made significant strides, utilising E-liability to bolster their commitment to sustainability and align with global climate goals. Tata Steel, which is part of India’s largest conglomerate Tata Group, analysed the carbon content of steel produced through various methods and used the E-liability methodology to differentiate what is effectively a commodity product on emissions grounds. Hitachi Energy worked with three tiers of its supply chain to analyse the E-liabilities of electrical transformers. The case study, published in November 2023, describes the fascinating insights into the copper supply chain and cradle-to-gate emissions of Hitachi products discovered during the course of the pilot.

Pilot studies illustrate how companies can implement the E-liability framework to green their supply chains and operations, using accurate, real-time carbon accounting to effectively manage their environmental impact. The E-liability Institute was established in November

OVER THE PAST 12 MONTHS, SEVERAL INDUSTRY LEADERS HAVE BEEN EARLY ADOPTERS OF THE E-LIABILITY APPROACH, OBTAINING AND LEVERAGING CARBON INFORMATION FROM SUPPLIERS AND THEIR OWN OPERATIONS TO IMPROVE THEIR OWN CARBON FOOTPRINTS AND OFFER CUSTOMERS THE OPPORTUNITIES TO IMPROVE THEIRS.

2022 to support organisations that are piloting adoption of the E-liability method. Looking ahead, 2024 holds the promise of even more ambitious E-liability pilots, driving emissions reduction and decarbonisation innovation worldwide.

The significance of E-liability extends beyond individual corporate commitments. The Institute also seeks to catalyse the broader ecosystem of policymakers, regulators, standard setters and investors to urgently upgrade the global standards for carbon reporting and to drive decarbonisation innovation. The implementation of Carbon Border

Adjustment Mechanisms (CBAM),

particularly in Europe, highlights the need for accurate carbon accounting on a global scale. E-liability, with its ability to provide real-time and verifiable emission data, becomes a linchpin in the successful execution of policies like CBAM. As nations and organisations strive to meet ambitious climate targets, E-liability emerges as a beacon of hope, offering a tangible solution for measuring and mitigating carbon emissions. ■

Robert S. Kaplan, Karthik Ramanna, and Stefan J. Reichelstein, Getting a Clearer View of Your Company’s Carbon Footprint, Harvard Business Review, April 03, 2023

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