Category 9 Downstream Transportation and Distribution – The best read

Category 9 Downstream Transportation and Distribution

Category description – Category 9 Downstream Transportation and Distribution includes emissions that occur in the reporting year from transportation and distribution of sold products in vehicles and facilities not owned or controlled by the reporting company.

Overview – Category 9 Downstream Transportation and Distribution

Reporting on Category 9 Downstream Transportation and Distribution involves a comprehensive analysis of the logistical processes and operations involved in transporting goods from production facilities to end consumers. Here’s an executive overview:

  1. Scope and Definition: Category 9 Downstream Transportation and Distribution encompasses the movement of goods from manufacturing plants or warehouses to various distribution centers, retailers, or directly to customers. It involves multiple modes of transportation such as road, rail, sea, and air, as well as associated warehousing and distribution activities.
  2. Key Components:
    • Transportation Modes: Assess the utilization of different transportation modes and their efficiency in terms of cost, speed, and reliability.
    • Distribution Network: Evaluate the design and optimization of distribution networks to ensure timely delivery and minimize costs.
    • Warehousing: Analyze the efficiency of warehousing operations in terms of inventory management, storage capacity, and order fulfillment.
    • Last-Mile Delivery: Focus on the final stage of delivery to customers, addressing challenges and strategies for improving efficiency and customer satisfaction.
  3. Performance Metrics:
    • On-Time Delivery: Measure the percentage of deliveries made according to schedule to assess reliability.
    • Transit Time: Evaluate the average time taken for goods to move through the transportation and distribution network.
    • Cost per Unit: Analyze the cost incurred per unit of goods transported, considering transportation, warehousing, and handling expenses.Category 9 Downstream Transportation and Distribution
    • Inventory Turnover: Assess the rate at which inventory is sold and replaced, indicating efficiency in managing stock levels.
  4. Challenges and Opportunities:
    • Infrastructure: Address challenges related to transportation infrastructure, such as road congestion, port capacity, and airport efficiency.
    • Sustainability: Explore opportunities for reducing the environmental impact of transportation and distribution operations through alternative fuels, route optimization, and packaging innovations.
    • Technology Integration: Highlight the role of technology in optimizing logistics processes, including the use of IoT devices, predictive analytics, and automation to improve efficiency and visibility across the supply chain.
  5. Regulatory and Compliance:
    • Compliance with Regulations: Ensure adherence to regulations governing transportation safety, labor practices, environmental standards, and customs procedures.
    • Trade Policies: Monitor changes in trade policies and tariffs that may impact transportation costs, lead times, and supply chain resilience.
  6. Strategic Recommendations:
    • Network Optimization: Identify opportunities to streamline the transportation and distribution network to reduce costs and improve service levels.
    • Technology Investment: Recommend investments in transportation management systems (TMS), warehouse management systems (WMS), and tracking technologies to enhance visibility and control.
    • Collaboration: Encourage collaboration with transportation partners and suppliers to leverage economies of scale, share resources, and mitigate risks.
  7. Future Outlook:
    • Market Trends: Anticipate emerging trends such as e-commerce growth, omnichannel distribution, and the adoption of electric and autonomous vehicles.
    • Resilience Planning: Prepare for disruptions such as natural disasters, geopolitical tensions, and pandemics by enhancing supply chain resilience and flexibility.

In summary, reporting on Category 9 Downstream Transportation and Distribution involves assessing the efficiency, reliability, and sustainability of logistics operations while identifying opportunities for improvement and strategic investment to meet evolving market demands and challenges.

A worked example – EcoFoods Inc.

For this example, let’s consider a fictional company, “EcoFoods Inc.,” which produces organic food products and distributes them to retailers and customers across the country.

1. Scope and Definition:

EcoFoods Inc. operates a complex downstream transportation and distribution network, involving the movement of perishable organic food products from its manufacturing plants to various distribution centers and ultimately to retail outlets and consumers.

2. Key Components:

a. Transportation Modes:

EcoFoods utilizes a combination of refrigerated trucks for land transportation, as well as partnerships with shipping companies for sea transportation of bulk goods. Additionally, it employs air freight for urgent deliveries of high-value or time-sensitive products.

b. Distribution Network:

The company operates multiple distribution centers strategically located across the country to ensure efficient coverage and timely delivery. These distribution centers are equipped with temperature-controlled storage facilities to maintain the freshness and quality of the organic products.

c. Warehousing:

EcoFoods’ warehousing operations focus on efficient inventory management to minimize storage costs and ensure optimal stock levels. It employs barcode scanning and RFID technology for accurate tracking of inventory movement within its warehouses.

d. Last-Mile Delivery:

The company collaborates with local courier services and offers direct-to-customer delivery options, especially for online orders. It leverages route optimization software to ensure cost-effective and timely last-mile deliveries.

3. Performance Metrics:

a. On-Time Delivery:

EcoFoods consistently achieves an on-time delivery rate of over 95%, ensuring reliability for its retail partners and customers.

b. Transit Time:

The average transit time for products from manufacturing to retail shelves is maintained within industry standards, with continuous efforts to optimize routes and minimize lead times.

c. Cost per Unit:

The company closely monitors the cost per unit transported, including transportation, warehousing, and handling expenses, to ensure competitiveness while maintaining profitability.

d. Inventory Turnover:

EcoFoods maintains a healthy inventory turnover ratio by closely managing stock levels and implementing just-in-time inventory practices to minimize carrying costs.

4. Challenges and Opportunities:

a. Infrastructure:

EcoFoods faces challenges related to infrastructure constraints, particularly road congestion during peak hours and limited capacity at certain ports. The company explores alternative transportation routes and invests in infrastructure improvements where feasible.

b. Sustainability:

Recognizing the importance of sustainability, EcoFoods invests in hybrid and electric vehicles for its transportation fleet and implements packaging innovations to reduce environmental impact.

c. Technology Integration:

The company continuously invests in transportation management systems (TMS) and warehouse management systems (WMS) to optimize logistics operations and enhance visibility across the supply chain.

5. Regulatory and Compliance:

EcoFoods ensures compliance with food safety regulations, transportation safety standards, and environmental regulations governing its operations. It maintains robust procedures for quality control and traceability throughout the supply chain.

6. Strategic Recommendations:

a. Network Optimization:

Continuously assess and optimize the distribution network to minimize transportation costs and improve delivery efficiency, considering factors such as customer demand patterns and geographic distribution.

b. Technology Investment:

Further invest in advanced tracking and monitoring technologies to enhance real-time visibility into the supply chain, enabling proactive management of logistics operations and quicker response to disruptions.

c. Collaboration:

Strengthen partnerships with transportation providers, suppliers, and retailers to foster collaboration and streamline end-to-end supply chain processes.

7. Future Outlook:

a. Market Trends:

Anticipate and adapt to emerging market trends such as increasing demand for organic products, growth in e-commerce sales, and advancements in sustainable transportation technologies.

b. Resilience Planning:

Develop robust contingency plans to mitigate risks posed by potential disruptions, including natural disasters, geopolitical tensions, and supply chain disruptions.

By conducting comprehensive reporting and analysis across these key components, EcoFoods Inc. can effectively manage its downstream transportation and distribution operations, ensuring reliable and sustainable delivery of organic food products to its customers nationwide.

 

This category also includes emissions from retail and storage. Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 includes only emissions from transportation and distribution of products after the point of sale. See table 5.7 in the Scope 3 Standard for guidance in accounting for emissions from transportation and distribution in the value chain.

Emissions from downstream transportation and distribution can arise from transportation/storage of sold products in vehicles/facilities not owned by the reporting company. For example:

  • Warehouses and distribution centers
  • Retail facilities
  • Air transport
  • Rail transport
  • Road transport
  • Marine transport.

In this category, companies may include emissions from customers traveling to and from retail stores, which can be significant for companies that own or operate retail facilities. See chapter 5.6 of the Scope 3 Standard for guidance on the applicability of category 9 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from downstream transportation and distribution include the scope 1 and scope 2 emissions of transportation companies, distribution companies, retailers, and (optionally) customers.

If the reporting company sells an intermediate product, the company should report emissions from transportation and distribution of this intermediate product between the point of sale by the reporting company and either (1) the end consumer (if the eventual end use of the intermediate product is known) or (2) business customers (if the eventual end use of the intermediate product is unknown).

Read more

Category 8 Upstream Leased Assets – The best calculation guidance

Category 8 Upstream Leased Assets

Category description – Category 8 Upstream Leased Assets includes emissions from the operation of assets that are leased by the reporting company in the reporting year and not already included in the reporting company’s scope 1 or scope 2 inventories. This category is applicable only to companies that operate leased assets (i.e., lessees). For companies that own and lease assets to others (i.e., lessors), see category 13 (Downstream leased assets).

Overview – Category 8 Upstream Leased Assets

Reporting on emissions for Category 8 Upstream Leased Assets involves documenting and disclosing the greenhouse gas (GHG) emissions associated with activities related to upstream oil and gas operations that are conducted through leased assets. This category typically includes activities such as exploration, extraction, and production of oil and gas resources.

Here’s an overview of reporting on emissions for Category 8 Upstream Leased Assets:Upstream Leased Assets

Purpose of Reporting:

The purpose of reporting emissions in Category 8 Upstream Leased Assets serves several important functions:

  1. Transparency and Accountability: Reporting on emissions provides transparency into the environmental impact of upstream oil and gas operations conducted through leased assets. This transparency fosters accountability by allowing stakeholders, including investors, regulators, and communities, to understand the emissions profile of companies and hold them accountable for their environmental performance.
  2. Risk Management: Emissions reporting helps companies identify and manage climate-related risks associated with upstream leased assets. By quantifying emissions and assessing associated risks, companies can better understand potential regulatory changes, physical impacts of climate change (such as extreme weather events), and shifts in market demand for fossil fuels. This enables proactive risk mitigation strategies and enhances long-term resilience.
  3. Performance Tracking: Reporting enables companies to track trends in emissions over time and assess the effectiveness of emission reduction measures. Performance metrics such as emissions intensity (emissions per unit of production) and reduction targets allow companies to benchmark their performance against industry peers and evaluate progress toward sustainability goals.
  4. Investor and Stakeholder Confidence: Comprehensive reporting builds investor and stakeholder confidence by demonstrating a company’s commitment to environmental stewardship and sustainability. Transparent disclosure of emissions data, methodologies, and performance metrics helps investors make informed decisions about the environmental risks and opportunities associated with their investments.
  5. Regulatory Compliance: Reporting on emissions helps companies comply with regulatory requirements related to greenhouse gas emissions. Many jurisdictions have reporting obligations or emission reduction targets that companies must meet, and accurate emissions reporting is essential for demonstrating compliance with these regulations.
  6. Market Differentiation: Companies that proactively report on emissions and demonstrate a commitment to reducing their carbon footprint may gain a competitive advantage in the market. Increasingly, investors, customers, and other stakeholders are placing value on companies with strong environmental performance and may preferentially support businesses that prioritize sustainability.
  7. Driving Innovation and Efficiency: Emissions reporting can drive innovation and efficiency by identifying opportunities for emission reduction and operational optimization. By quantifying emissions and analyzing emission sources, companies can identify areas for improvement, invest in cleaner technologies, and implement best practices to minimize environmental impact and enhance operational efficiency.

Components of Reporting:

Reporting on emissions for Category 8 Upstream Leased Assets involves several key components to provide comprehensive and transparent information about the greenhouse gas (GHG) emissions associated with oil and gas operations conducted through leased assets. Here are the main components:

  1. Emission Sources Identification:
    • Identify and categorize the various sources of GHG emissions associated with upstream oil and gas operations conducted through leased assets. This includes sources such as combustion of fossil fuels in equipment, flaring and venting of associated gas, methane emissions from leaks, and other sources of emissions.
  2. Data Collection and Measurement:
    • Collect relevant data on activities and operations that contribute to GHG emissions from upstream leased assets. This may include data on fuel consumption, production volumes, equipment operation hours, and other relevant parameters.
    • Utilize appropriate measurement techniques, such as direct monitoring using sensors and meters, as well as estimation methods based on engineering calculations and emission factors, to quantify emissions accurately.
  3. Emission Factors and Calculations:
    • Use established emission factors and calculation methodologies to convert activity data into CO2-equivalent emissions for each emission source. These factors may vary depending on factors such as the type of equipment, fuel type, operating conditions, and efficiency.
    • Perform calculations to determine the total GHG emissions associated with upstream leased assets, broken down by emission source and emission type (e.g., CO2, methane).
  4. Reporting Boundaries and Scopes:
    • Define the reporting boundaries and scopes in alignment with internationally recognized standards such as the Greenhouse Gas Protocol. Determine which emissions fall under Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased electricity, heat, or steam).
    • Consider including Scope 3 emissions (indirect emissions from sources not owned or controlled by the reporting entity but associated with its activities) if relevant and feasible.
  5. Verification and Assurance:
    • Undergo third-party verification or assurance processes to validate the accuracy and completeness of emissions data. Independent auditors may assess data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
    • Disclose information about the verification or assurance process and the qualifications of the verifying entity.
  6. Performance Metrics and Targets:
    • Define performance metrics such as emissions intensity (e.g., emissions per unit of production), energy efficiency indicators, and emission reduction targets to track progress over time and benchmark performance against industry peers.
    • Provide context for performance metrics by comparing current performance to historical data and explaining factors influencing emissions trends.
  7. Disclosure and Transparency:
    • Prepare a comprehensive emissions inventory report detailing the methodologies used, emission sources identified, emission calculations, and resulting emissions data.
    • Disclose emissions data and related information in annual sustainability reports, financial filings, or dedicated emissions inventories published on company websites.
    • Provide transparent explanations of data uncertainties, limitations, and assumptions used in emissions calculations to facilitate understanding and interpretation by stakeholders.
  8. Risk Assessment and Mitigation Strategies:
    • Conduct a risk assessment to identify climate-related risks associated with GHG emissions from upstream leased assets, such as regulatory changes, physical impacts of climate change, and market shifts.
    • Develop and implement mitigation strategies to address identified risks, including investments in cleaner technologies, operational improvements, and adaptation measures to enhance resilience.

Reporting on emissions for Category 8 Upstream Leased Assets

  1. Scope of Reporting:
  2. Data Collection and Measurement:
    • Gathering data on emissions involves tracking various sources of GHG emissions within the upstream leased assets, including but not limited to:
      • Combustion of fossil fuels in equipment such as drilling rigs, pumps, compressors, and generators.
      • Flaring and venting of associated gas during oil production.
      • Methane emissions from leaks in equipment and infrastructure.
    • Measurement methodologies may include direct monitoring of emissions using sensors and meters, as well as estimation techniques based on engineering calculations and emission factors.
  3. Emission Factors and Calculations:
    • Emission factors are used to convert activity data (e.g., fuel consumption, production volumes) into CO2-equivalent emissions.
    • These factors may be specific to the type of equipment or process, taking into account factors such as fuel type, operating conditions, and efficiency.
    • Calculation of emissions involves multiplying activity data (e.g., fuel consumption in liters or cubic meters) by the corresponding emission factor to derive CO2-equivalent emissions.
  4. Reporting Standards and Frameworks:
    • Reporting on emissions for Category 8 Upstream Leased Assets often aligns with internationally recognized standards and frameworks, such as the Greenhouse Gas Protocol, the Carbon Disclosure Project (CDP), or jurisdiction-specific reporting requirements.
    • Companies may also voluntarily disclose emissions data through initiatives like the Task Force on Climate-related Financial Disclosures (TCFD) to provide investors and stakeholders with a comprehensive view of their climate-related risks and opportunities.
  5. Verification and Assurance:
    • Many companies undergo third-party verification or assurance processes to validate the accuracy and completeness of their emissions data.
    • Verification may involve independent auditors assessing data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
  6. Trends and Performance Analysis:
    • Reporting on emissions allows companies to track trends in their emissions over time and assess the effectiveness of emission reduction measures.
    • Performance metrics such as emissions intensity (e.g., emissions per unit of production) and reduction targets help companies set goals and benchmark their performance against industry peers.
  7. Disclosure and Transparency:
    • Transparent disclosure of emissions data, methodologies, and performance metrics is essential for building trust with stakeholders, including investors, regulators, communities, and civil society organizations.
    • Comprehensive reporting may include detailed disclosures in annual sustainability reports, financial filings, and dedicated emissions inventories published on company websites.
  8. Risk Management and Mitigation:
    • Understanding and reporting on emissions from upstream leased assets enables companies to identify climate-related risks, such as regulatory changes, physical impacts of climate change, and shifts in market demand for fossil fuels.
    • By quantifying emissions and assessing associated risks, companies can develop mitigation strategies, invest in cleaner technologies, and transition towards low-carbon energy sources to reduce their carbon footprint and enhance long-term resilience.

In summary, reporting on emissions for Category 8 Upstream Leased Assets involves comprehensive data collection, measurement, and disclosure of GHG emissions associated with oil and gas operations conducted through leased assets. This reporting supports transparency, risk management, and the transition to a low-carbon economy in alignment with global climate goals.

Leased assets may be included in a company’s scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries (see section 5.2 of the Scope 3 Standard).

If the reporting company leases an asset for only part of the reporting year, it should account for emissions for the portion of the year that the asset was leased. A reporting company’s scope 3 emissions from upstream leased assets include the scope 1 and scope 2 emissions of lessors (depending on the lessor’s consolidation approach).

See Appendix A of the Scope 3 Standard for more information on accounting for emissions from leased assets.

Category 8 Upstream Leased Assets – Calculating emissions from leased assets

Figure 8.1 (below) shows a decision tree for selecting a calculation method for emissions from upstream leased assets.

Read more

Category 12 End-of-Life Treatment of Sold Products – Best read

Category 12 End-of-Life Treatment of Sold Products

Category description – Category 12 End-of-Life Treatment of Sold Products includes emissions from the waste disposal and treatment of products sold by the reporting company (in the reporting year) at the end of their life. This category includes the total expected end-of-life emissions from all products sold in the reporting year.

(See section 5.4 of the Scope 3 Standard for more information on the time boundary of scope 3 categories.)

End-of-life treatment methods (e.g., landfilling, incineration, and recycling) are described in category 5 (Waste generated in operations) and apply to both category 5 and category 12. Calculating emissions from category 12 requires assumptions about the end-of-life treatment methods used by consumers. Companies are required to report a description of the methodologies and assumptions used to calculate emissions (see chapter 11 of the Scope 3 Standard).

For sold intermediate products, companies should account for the emissions from disposing of the intermediate product at the end of its life, not the final product.

Read more

Category 11 Use of Sold Products – Best read

Category 11 Use of Sold Products

Category description – Category 11 Use of Sold Products includes emissions from the use of goods and services sold by the reporting company in the reporting year. A reporting company’s scope 3 emissions from use of sold products include the scope 1 and scope 2 emissions of end users. End users include both consumers and business customers that use final products.

The Scope 3 Standard divides emissions from the use of sold products into two types (see also table 11.1):

Category 11 Use of Sold Products

In category 11, companies are required to include direct use-phase emissions of sold products. Companies may also account for indirect use-phase emissions of sold products, and should do so when indirect use-phase emissions are expected to be significant. See table 11.1 for descriptions and examples of direct and indirect use-phase emissions.

Read more

Definition of Material – Important changes to IAS 1 and IAS 8

Definition of Material

The Definition of Material (with amendments to IAS 1 and IAS 8) puts the spotlight on:

  • Applying materiality when preparing financial statements, by:

    • Encouriging IFRS reporting specialists to use materiality as a filter
    • Redefining the definition and existing guidance aim to help preparers apply judgement
    • Making amendments on account policy disclosures, and
    • Providing further guidance on disclosures

Materiality as a filter

Making information in financial statements more relevant and less cluttered has been one of the key focus areas for the International Accounting Standards Board (the Board replace by IASB).

Companies make materiality judgements not only when making decisions about recognition and measurement, but also when deciding what information to disclose and how to present it. However, management are often uncertain about how to apply the concept of materiality to disclosure, and find it easier to defer to using the disclosure requirements within the International Financial Reporting Standards as a checklist.

Up to now, the wording of the definition of material in the Conceptual Framework for Financial Reporting differed from the wording used in IAS 1 and IAS 8. The existence of more than one definition of material was potentially confusing, leading to questions over whether the definitions had different meanings or should be applied differently.

These amendments on accounting policy disclosures will enable IFRS reporting specialists documenting the decisions as to which accounting policies have been disclosed in the financial statements.
The focus on company-specific information
should further encourage tailored disclosure.

Read more

Allocating goodwill to cash-generating units

Allocating goodwill to cash-generating units

On this page we discuss how to allocate goodwill to CGUs.

Identifying CGUs is a critical step in the impairment review and can have a significant impact on its results. That said, the identification of CGUs requires judgement. The identified CGUs may also change due to changes in an entity’s operations and the way it conducts them.

After the entity identifies its CGUs, it must determine which assets belong to which CGUs, or groups of CGUs. The basis of allocation differs for:

The below diagram summarises the different allocation bases for goodwill:

the different allocation bases for goodwil

It is not possible to determine the recoverable amount of goodwill independently from other assets because goodwill does not generate cash flows of its own; rather it contributes to the cash flows of individual CGUs or multiple CGUs.

As such, goodwill must be allocated to individual CGUs (or groups of CGUs) for the purpose of impairment testing. The guidance in IAS 36 requires the goodwill acquired in a business combination to be allocated to each of the acquirer’s CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. Further, the level to which the goodwill is allocated must:

Read more