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LCA and Natural CapitalAccounting (NCA)in product designJulie Raynaud - TRUCOSTLise Lyngfelt Molander - thinkstep

Today’s speakersJulie RaynaudLise Lyngfelt MolanderTrucostSenior Research AnalystThinkstepDirector, Strategic AccountsPrincipal consultant

thinkstepTrucost thinkstep enables organizationsworldwide to succeed sustainably. Delivered the world’s first publicEnvironmental Profit and Loss Account, PUMA Our industry-leading software, dataand services help businesses driveoperational excellence, productinnovation, brand value and regulatorycompliance. Other Profit and Loss Accounts include:Yorkshire Water and Novo Nordisk With a global presence in 19 countrieswe serve more than 2,000 companies,including 40 percent of the Fortune 500such as BASF, Hewlett-Packard,Interface, Siemens, Unilever andVolkswagen.14.05.2015 Study for TEEB for Business Coalitionestimating the natural capital cost across arange of business sectors at a regional level. Itdemonstrates that some business activities donot generate sufficient profit to cover theirnatural resource use and pollution costs. Is leading the development of the Sector’sGuide (Food and Beverage and Apparel) aspart of the Natural Capital Protocol3

Feedback from the participantsWhat is your experience with Natural Capital Accounting?7%37%I don't know anything about itI know something about it56%14.05.2015I have experience but I'mstuggling to implement it4

Agenda1. Presentation of todays webinar2. LCA and NCA – how can it create value3. Basic steps for a NCA4. Business cases5. From LCA to NCA – live demo6. Q & A session14.05.20155

SUBMITTING QUESTIONS

Why Use Life Cycle Assessment?To develop more sustainable products and resilient supply chainsLife Cycle AssessmentEnables You ToDISPOSALRAW MATERIALSCradleGraveQuantify the environmental1 performance – holistically andsystematically2LCACompare environmental impacts ateach stage of the product’s lifeUSAGEMANUFACTURINGPACKAGINGBenchmark and compare3 environmental impacts betweenproductsDISTRIBUTIONExamples of LCA’s Success One of several decision support tools considered “best practice” in measuring environmental performanceSpecified in rating and sourcing systems (e.g., green buildings, product standards)Numerous commercial software systemsThousands of practitioners

Evolving considerations in sustainable product developmentTo what extent doesyour business dependon the environment?How much of theresource is available?SustainableProductDevelopmentHow is environmentalperformance linked to financialperformance?

Some Current Challenges with LCASurvey Question 1. What kind of challenges do you havecommunicating LCA results to others in your business?LCA results are not easily understood by:Except for the sustainabilityteam and LCApractitioners, mostbusiness people do notreadily understand LCAstudy results18%25%Other stakeholders?No one28%29%Other business functions?The wider sustainability team?

Some Current Challenges with LCASurvey Question 2. How well are you able to weigh trade-offs usingLCA results?Over 80% of surveyrespondents are unable tosufficiently evaluateenvironmental trade-offs indifferent scenarios29%Use existing methods, which areinsufficientUse existing methods, which aresufficient53%18%Unable to weight trade-offs

Some Current Challenges with LCASurvey Question 3. Are you able to consider regional resourceavailability or scarcity with your LCA results?Over 60% of surveyrespondents think itsimportant to considerregional resource availabilitybut are unable or haveinsufficient information to doso11%5%Unable53%31%Able but insufficient informationAble and have sufficient informationNot important

WHAT IS NATURAL CAPITAL?

Trends in Natural Capital ValuationINVESTORSSOVEREIGNNGOsCORPORATIONSScale Enterprise-wide Supply Chain Product Category orBrand Portfolios Products Technologies Site or Facility levelMULTI-STAKEHOLDERGROUPS

Our General LCA Valuation ApproachLCA mid-point impactsClimate changeAcidificationEutrophicationResults inphysical termsOzone creation potentialResults inmonetary termsReflects the damage impacting societyand human well-being, expressed inmonetary termsHuman toxicityEco-toxicityWater consumptionetcFor each mid-point impact1Investigate thecharacterizationmodelHow does the modelcalculate the consideredmid-point impact?2Define thescopeWhat impact do we wantto capture? Health impacts Impact on forests Impact on crops Etc3Identify thevaluationtechniqueIs the valuation going to begeographically specific?What is the most appropriatevaluation technique given thebudget and data available?Shall we integrate end-pointmodels?45Develop andapply thevaluationCalculate andaggregate theresults

Extending Insights from LCA StudiesNatural Capital ValuationProvides these business insights One common metric for allenvironmental impacts allows forcomparison Which impacts are most materialWhich environmental trade-offs aremore important in design oroptimization schemes Links the regional availability orscarcity of the natural resource toits use, Understand regional sourcing orproduction risks (for example, related towater scarcity) Provides results in standardmonetary, business terms Allows businesses to integrate the LCAresults alongside standard businessmetrics (e.g., profit, margin, etc.) Allows businesses to communicate theresults to a general audience not expertin LCA or sustainability

Example 1: Evaluating a cell phone take-back programWhat is the environmental and financial ROI of a cell phone takeback program?Business Implications: Recycling has significantly lower environmentalimpacts overall, compared to other disposal options

Example 2: Optimizing T-Shirt Design and ProductionWhich type of environmental impact is most material?Business Implications: Focus product optimizationand sourcing efforts on reducing greenhouse gasemissions, followed by air pollutants

Example 3: Apparel Sourcing and Production LocationsHow does sourcing and production in different regions affect environmental impacts? Howimportant is water scarcity in the region where commodities are being sourced?Business Implications: Same product, but different natural capitalcosts as a result of sourcing from a region where water is more scarce

Example 4: Beverage ProductionComparison of natural capital costs for two breweries based on water availability100,000 m3 water usedBilbaoBilbaoCordobaHigh waterscarcity (100%)Natural capital cost: 14.1/m3 1,410,000SPAINCordobaModerate waterscarcity (53%)Natural capital cost: 4.0/m3 400,000

Example 5: Integrating Environmental and Financial ResultsWhat are the financial and natural capital costs of a new production facility for biobasedor petroleum based ingredients?1.20Financial and Natural Capital Costs (NPV, per kg)1.000.800.600.400.200.00Bio-based butanol - EuropeFinancial costsBio-based butanol - USGHGsVOCsSoxPropylene-based butanol EuropeCON20PMWaterPropylene-based butanol - USLand conversion

Example 6: Communicating Results

SummaryApplying a single, impact oriented metric expressed in financial terms enablesbusinesses to: Determine whichimpacts are mostmaterial Assess trade-offs Quantify regionalresource risks Integrateenvironmental andbusiness results Communicateenvironmentalperformance to abroader audienceThe value to your businessBetter strategies forsustainable productdevelopmentMore resilient businessmodelsMarket differentiation,leadership, andtransparency

Basic steps to conduct Natural Capital AnalysisWhat is the business case? Whatbusiness decision will be supported byresearch and question?What is the scope?AnalysisFeedback, review and integrationHow can Trucost- thinkstep solution feed into this process?

Getting Started: Trucost-thinkstep solutionFull scale natural capital assessment can be a lengthy and costly process .Materiality assessment allow s you to:- Save time and focus effort- Get familiar with the processData to quantify impacts(tonnes of CO2eq, m3 of water )Natural capital valuationcoefficients ( per tonne ofCO2eq, per m3 )Analyse several products, impacts, life cycle stages in one clickCan be applied to any GaBi datasets across 9 impact categoriesBuild a business case and refine focus for potential further, more –detailedassessment

LCA to NCAAluminium30. april 201525

Bauxite to aluminium sheet14.05.201526

Mining bauxite14.05.201527

Processing bauxite to ingots14.05.201528

Refining process to sheets14.05.201529

Use of aluminium and recycling14.05.201530

LCA and NCAResults14.05.201531

LCA results 1 kg Aluminium sheet Global WarmingPotentialGWP9.07.06.05.04.03.02.0 Water depletion1.00.0Total2 Alumina1 Bauxite Production5 Aluminium alloy mixer3 Electrolysis (Pre-baked)6 Aluminium sheetRestWater7.0Resource depletion, waterClimate change [kg 2 Alumina1 Bauxite Production4 Cast house3 Electrolysis (Pre-baked)Rest6 Aluminium sheet32

Natural Capital Accouting (NCA), ILCD/PEF recommended impactsNCA – Total cost of productionAcidification, accumulated exceedance [Mole of H eq.]Human toxicity cancer effects, USEtox (recommended) [CTUh]Particulate matter/Respiratory inorganics, RiskPoll [kg PM2,5-Equiv.]Total freshw ater consumption, including rainw ater, Sw iss Ecoscarcity [UBP]Ecotoxicity for aquatic fresh w ater, USEtox (recommended) [CTUe]Human toxicity non-canc. effects, USEtox (recommended) [CTUh]Photochemical ozone formation, LOTOS-EUROS model, ReCiPe [kg NMVOC]Freshw ater eutrophication, EUTREND model, ReCiPe [kg P eq]IPCC global w arming, incl biogenic carbon [kg CO2-Equiv.]Resource Depletion, fossil and mineral, reserve Based, CML2002 [kg Sb-Equiv.]2.52.42.32.22.1NCA [USD, 2014], ILCD/PEF recommended .60.50.40.30.20.10.0Total2 Alumina1 Bauxite Production14.05.20155 Aluminium alloy mixer3 Electrolysis (Pre-baked)Rest6 Aluminium sheet33

Natural Capital Accouting (NCA), ILCD/PEF recommended impactsNCA for aluminia productionAcidification, accumulated exceedance [Mole of H eq.]Human toxicity cancer effects, USEtox (recommended) [CTUh]Particulate matter/Respiratory inorganics, RiskPoll [kg PM2,5-Equiv.]Total freshw ater consumption, including rainw ater, Sw iss Ecoscarcity [UBP]Ecotoxicity for aquatic fresh w ater, USEtox (recommended) [CTUe]Human toxicity non-canc. effects, USEtox (recommended) [CTUh]Photochemical ozone formation, LOTOS-EUROS model, ReCiPe [kg NMVOC]Freshw ater eutrophication, EUTREND model, ReCiPe [kg P eq]IPCC global w arming, incl biogenic carbon [kg CO2-Equiv.]Resource Depletion, fossil and mineral, reserve Based, CML2002 [kg Sb-Equiv.]NCA [USD, 2014], ILCD/PEF recommended impacts0.50.40.30.20.10.0TotalEU-27: Alumina EAA update 2010 EAA u-so Bauxite transport14.05.2015EU-27: Electricity grid mix PEEU-27: Thermal energy from heavy fuel oil (HFO) PEEU-27: Thermal energy from natural gas PERest34

World bank price for Aluminium vs NCAUS per kg Aluminum, 99.5%654321014.05.201535

What is now available in GaBi regarding NCA method? Global factors of the NCA method implemented intoGaBi database Implementation enables to convert LCIA based resultsinto dollars of natural capital Implementation done for the flowing LCIA methods 14.05.2015CML 2013 EU25 3Traci 2.1, US-CA 2008PEF recommendationReCiPe 1.08 (H)36

TRUCOST valuation coefficients in GaBi Datasets Trucost NCA methodology and coefficients are now available inyour GaBi Datasets and is offered as:Subscription license First license: Additional license:450 annually225 annuallyPerpetual license First license: Additional license:14.05.2015900 plus 25% annual maintenance450 plus 25% annual maintenance37