Why decarbonizing your company means significant returns on investment.
Recently, we shared our story on why we started carbmee, an enterprise software platform that accelerates corporate decarbonization efforts. Although there is a growing number of companies committing to net-zero and science-based targets decarbonization is still perceived as a cost factor rather than a foresighted investment. It is not surprising that many companies lack initiative to take measures in order to decarbonize their complex supply chains and procurement.
To us, data accuracy and a centralized, workflow-based platform is key to enable fast decision-making and turn efforts of decarbonization into a safe investment. Our unique approach is therefore to ensure a return on decarbonization (RoD) by reducing emissions while saving offsetting costs and increasing operational efficiency.
Large organizations double down on decarbonization 🌏🌏
A growing number of large organizations have shown the way forward and clearly recognized the need to take drastic measures.
“Many of them have already taken the right steps by adopting reduction targets, by including sustainability as a key component of the overall strategy, and by integrating these targets into their performance evaluation structures.”, says Alexandra Morton former director of SCM Unilever and Starbucks and Vice President SCM Western Europe at Adidas. There are several European companies, often in high-emitting sectors, including Maersk, Volkswagen, ArcelorMittal and HeidelbergCement that are increasingly aware of the risks of dangerous climate change and focus on business opportunities in taking action. Sustainability has always been a factor, but so far it has mainly focused on responsible sourcing, alternative fuels, recycling on-site and general alternative energy solutions. A central problem is that most of these companies produce offshore where waste collection efforts and recycling infrastructure are underdeveloped, which is an obstacle to achieving significant impacts and improvements. In order for these measures to have a huge impact, companies do not only have to focus on emissions from their own operations but have to consider suppliers as well. Alexandra Morton points to the fact that:
„such a change along the supply chain interrupts the concept of ‘economies of scale’
and raises questions of complexity for FMCGs.”
Investing in software is a competitive advantage 🚀
As the climate market gains global significance and the cost of carbon increases, GHG emissions are increasingly becoming an important business liability. Since a company’s supply chain emissions are on average 5.5 times larger than those of scope 1 and 2 emissions it makes perfect sense to focus on their reduction and confront questions of complexity. For clean businesses, a reduced climate risk represents a valuable asset and investment into its future.
“It seems to be a short-sighted decision to put the aspects of efficiency and cost reduction before necessary investments for the reduction of scope 3 emissions, which would ultimately reduce customer loyalty and the potential loss of a competitive advantage”, argues Alexandra Morton.
In order to take action, we do not only need C-level leaders who introduce and implement such changes, but mature technology as well as software-based solutions that are key to scale and reduce indirect emissions:
Software allows to track down the biggest sources of emissions along the supply chain and thereby to focus on areas of greatest concern. Additionally it identifies ‘Duplication of efforts‘ (emissions) in handover processes, and in particular could enable the identification of partnership opportunities (partnership with suppliers, providers, etc.). Building vertical and horizontal partnerships is vital for creating a more sustainable, decarbonized supply chain.
Why good carbon management equates to higher profits 💰💰💰
Pressure from consumers as well as government regulation have led more businesses to account for their carbon output. What is generally known as carbon accounting has become increasingly essential to most companies. In 2019 more than 8,400 companies have been reporting on their greenhouse gas emissions to the Carbon Disclosure Project (CDP), that conducts sustainability ratings. And over the last decades reporting standards like the GHG Protocol Standard ensure the comparability of carbon footprints.
But regulations and standards are not necessarily the drivers of change when it comes to cutting emissions. A basic trigger for companies to invest in good climate management are higher profits.
The cloud-based carbmee environmental intelligence™ helps operational teams to identify and manage hotspots with the most significant impact on an organizations’ carbon footprint.
Companies that are set to net-zero can benefit from carbmee’s Environmental Intelligence System in two ways:
Firstly, it increases efficiency as it provides access to high-quality and centralized data (your standard RoI-case). Secondly, there is a cost of carbon pollution to be saved. Such costs usually arise through carbon prices generated by emission trading systems (ETS), or carbon offsetting. Avoiding these costs equates to your return on decarbonization (RoD).
ETS is also referred to as a cap-and-trade system. It caps the total level of greenhouse gas emissions and allows organizations to buy and sell allowances in a secondary market. By supply and demand for emissions allowances, a market price for greenhouse gas emissions is created. But since the price emerges from trading it can become costly at times. Lately allowances surged to a record of EUR 43,14 per ton and has increased almost 16 times since 2013. (For future scenarios in which carbon prices could be in line in the Paris Agreement, namely a carbon price of 80–120 by 2030 Roland Berger has recently estimated a “profit at risk” for companies. They found that many industries will see up to 50 percent of their profits at risk). Reducing emissions in order to save money for allowances is therefore highly cost-effective. For companies such as BASF, that has emitted 47,8 million tons of Co2 for purchased goods and services in scope 3 (according to its own information), this is a huge gain.
Carbon offsetting is a great way for businesses to take responsibility and account for their current carbon footprint on their way to net-zero. Shell offsets the petrol bought by customers and some sectors like aviation rely on it. Simply put, the idea behind off-setting is that generated carbon emissions can be calculated and later be “paid off”. This is usually done via a scheme for carbon removal. There are ‘offset projects” such as tree planting that lock away emissions or draw down more carbon than is being emitted.
Offsetting schemes are also employed as marketing strategies used by companies to appear environmentally friendly. In the long run they do not provide a solution to tackle climate change since they delay challenging decisions to reduce emissions. What is more important for businesses is to change the ways they operate in order to reduce their carbon footprint before it comes to offsetting.
With software at hand you can explore ways to reduce emissions before they even occur and affect the environment. The reduction of emissions does not lead to additional costs but is profitable in the long run as it optimizes operations and resources.
Decarbonization is the new currency 🌏💰
Currently only around 30 countries have introduced mechanisms such as ETS, but the number is certain to rise in the years to come. At the same time the market on voluntary offsets, has picked up momentum despite the global COVID-19 pandemic. According to a report by environmental markets information group Ecosystem Marketplace, prices for nature-based emissions projects increased by 30 %, while average offset prices are unchanged. While prices on offsetting and on market-based systems such as ETS are already on the rise, businesses have to keep in the mind the effect of rising prices on their profits.
This will require a shift in mindset for companies realizing that climate action increasingly reflects their value and competitiveness, not only with respect to the money saved on allowances and credits.
For underperformers inaction translates into a twofold risk that involves limited access to financial resources from investors and insurance services and a lesser viability of their business models. As demand for products dwindles so will customer loyalty. What makes companies competitive in the future is a meaningful implementation of sustainability. For Alexandra Morton this involves
“aggressive goals, specific functions (Chief Sustainability Officers) and partnerships along the supply chain”.
Collaboration and access to high-quality data are therefore key in cutting emissions and your company’s resilience in a green future.
Contact my Co-Founder Christian Heinrich for a detailed analysis of your individual Return on Decarbonization.