WBCSD - Portfolio Sustainability Assessment Framework - Subgroup 1 - Defining Product-Application-Region-Combinations
A. Objectives & quality criteria
Companies define Product-Application-Region-Combinations (PARCs) with the objective to provide portfolio sustainability assessment results which are:
1- Relevant, by facilitating internal decision-making as well as external communication on portfolio sustainability assessment results
2 - Complete & Accurate, by providing a structured and exhaustive approach with sufficient accuracy
3 - Transparent & feasible, by creating a clear methodology to manage existing complexity of companies' portfolios
4 - Consistent, by providing an adequate and acceptable, but also consistent simplification to reduce the complexity of the portfolio sustainability assessment.
The scope of Portfolio Sustainability Assessments (PSA) includes, in principle, all activities covered by the company’s external financial reporting. This implies that the scope includes e.g. joint ventures, tolling, trading, investments, and participations.
Companies should conduct a quickscan on the complete portfolio of activities to identify controversial topics and critical impacts on sustainability.
Following the quickscan, the company may decide to either:
- Include all activities in scope of the Portfolio Sustainability Assessment (full scope)
- Select a part of the business (e.g. one business unit) for assessment (after all, not all companies can be expected to directly assess the complete portfolio of activities)
- Exclude non-core, less relevant activities from the scope of its assessment (e.g. accommodation services), provided that excluded activities:
- Do not contain any activities for which controversial items / critical sustainability impacts were identified during the quickscan
- Together do not generate <1% of the total revenues or (marginal) profitability
- Are described and justified in reporting
The quality criteria mentioned in the first paragraph must still be fulfilled with any reduced scope. The process through which PARCs are defined should foresee in a step-wise approach, through which the number of PARCs is expanded over time based on a company roadmap with specific targets
C. Approach & criteria
The objective of Product-Application-Region-Combinations (PARCs) is to define groups of products x applications x regions for which sustainability performance (in terms of both the score on relevant favorable and unfavorable sustainability performance indicators) is similar.
A well-defined PARC can therefore not be divided into sub-segments for which sustainability performance is different. The segmentation approach is very similar when compared to classical Marketing segmentation approaches.
Product groups should be based as much as possible on existing product segmentations, used e.g. in production. Products in a well-defined segmentation would have similar LCA / ecoprofiles.
Application groups should be based as much as possible on existing business segments and be aligned (where possible) with segmentations used by marketing and in financial reporting.
Product-Application-Combinations can be further divided into different regions if this increases relevance of results. The grouping of countries into regions should be aligned as much as possible with typical groupings used by the business and in financial reporting.
Companies may diverge from the above guidance if the further division of PARCs would lead to an unreasonable high amount of work given the size of the business covered by the PARC.
As a general rule, companies may group PARCs for which sustainability signals are different when revenues covered by the smallest of the two PACS is <1% of total revenues. When evaluating the PARC, companies should follow the cautionary principle by evaluating the business with most unfavorable sustainability signals, unless this part of the business constitutes <10% of the aggregated PARC size.
D. Sizing of PARCs
- The size of a PARC is determined based on the sales of the company to the application in the year of reporting
- Revenues used for sizing of PARCs shall be aligned with the financial and/or environmental reporting of the company
- The GHG protocol distinguishes between an "equity share" and an "operational control" approach:
- In case the equity share approach is applied to business activities (i.e. business revenues and profits are reported on a pro rata basis in external reporting), the size of related Product-Application-Region combinations (PARC) shall be reported by multiplying the total size of the PARC by the pro rata % using in the P&L statement.
- In case of operational control , the full revenues and profits will be included in external reporting. There can be reasons, why a company fully consolidates a JV, although it owns only a minority share, e.g. reporting company owns a 49 % share, but has full operational control, 51 % is owned by a financial Investor with no operational control). In these cases, the full revenue will be used for the sizing of the PARC
As indicated above, the sizing of PARCs shall take place on the basis of actual company sales in a recent year. In some cases, information on actual product end-use may be lacking (e.g. in the case of highly commoditized chemicals which are used in a wide range of applications).
For such PARCs, companies shall:
- Define relative size of applications (% of total) using market reports from authoritative bodies
- The relative application size in the market reports is then multiplied with actual company product sales to derive PARC size
- Starting with the largest applications, companies will continue defining applications based on market report data until constraint by the feasibility/materiality principle (applications no longer meet threshold level)
E. Case example
Case examples developed by Solvay and/or Evonik to be inserted in guidance document.