Disclosing Downstream Emissions

When are companies accountable for customers’ use of their products?

by

Robert S. Kaplan

and

Karthik Ramanna

by

Robert S. Kaplan

and

Karthik Ramanna

From the Magazine (July–August 2024) · Long read

Carl Godfrey

Summary.

An increasing number of companies are using the E-liability carbon-accounting method as an important tool for tracking progress toward reducing global emissions in their supply chains. The system does not require formal accounting for downstream emissions—those occurring after a company sells its products to immediate customers, for several good reasons.

Certain companies, however, are accountable for disclosing downstream emissions generated by consumers’ use of their products. Three principles govern accountability: (1) Downstream accountability is limited to companies whose products are directly used by end customers. (2) Accountability for B2C companies is limited to cases where a reasonable causal link exists between product-design decisions and the downstream emissions generated by consumers. (3) Companies are accountable for disclosing emissions produced per unit of use, not for total emissions.

This article presents the principles and explains how and to what standards of reliability the companies should disclose downstream emissions.

Idea in Brief

The Situation

An increasing number of companies are using the E-liability carbon-accounting method as an important tool for tracking real progress toward reducing global emissions in their supply chains.

The Challenge

The E-liability system, however, excludes formal accounting for downstream emissions—those occurring after a company sells its products to immediate customers, for several good reasons.

The Principles

Certain companies are in fact accountable for disclosing downstream emissions generated by consumers’ use of their products. This article presents three principles for determining when companies should report downstream emissions, and it explains how and to what standards of reliability the company should disclose them.

Companies attempting to address climate change by decreasing their carbon footprints face the challenge of measuring how their operational, product design, and purchasing decisions affect the emissions generated in their supply chains. In a previous article, we introduced a robust carbon-accounting method (the E-liability system) for just this purpose. By applying this system, companies can produce environmental (or E-) ledgers of their own emissions—and those of their supply chains—that are as accurate, timely, comparable, and auditable as financial statements. An increasing number of companies are finding that the E-liability approach is an important tool for themselves, their customers, and other stakeholders in tracking real progress toward reducing global emissions in their supply chains.

A version of this article appeared in the July–August 2024 issue of Harvard Business Review.

Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development emeritus at Harvard Business School. He coauthored the McKinsey Award–winning HBR article “Accounting for Climate Change” (November–December 2021).
Karthik Ramanna is a professor of business and public policy at University of Oxford’s Blavatnik School of Government and was previously a professor and the Marvin Bower Fellow at Harvard Business School. He coauthored the McKinsey Award–winning HBR article “Accounting for Climate Change” (November–December 2021) and is author of The Age of Outrage: How to Lead in a Polarized World. He is cofounder and principal investigator of the E-liability Institute, a global not-for-profit advancing the urgent accounting upgrade needed to drive green innovation.

Disclosing Downstream Emissions

Idea in Brief

The Situation

The Challenge

The Principles

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