Net-zero climate strategies and science-based targets are increasingly in demand and widespread. Having an ambitious climate plan is increasingly important for the private sector. In order to aim high, it is essential to start from a solid foundation – a robust and comprehensive GHG inventory (carbon footprint) that looks at the entire value chain.
In 2021, media attention to global climate change was the highest in 18 years. Climate commitments by states, organizations, and companies are steadily growing. At COP26 in Glasgow, the Science Based Target (SBTi) initiative launched the first international standard for setting a corporate net-zero emissions target in line with science and the Paris Accords. Seven companies validated the net-zero target during the pilot phase. Hundreds have committed to defining one, with important implications for global supply chains.
2022 is the year when the integrity of climate strategies comes under the spotlight and the focus shifts from quantity to quality of commitments. At COP26, UN Secretary General Guterres announced the formation of high-level expert group to analyze private sector commitments to net-zero. And this is not a passing trend. For example, the Race to Zero initiative annually reviews the minimum criteria for establishing the robustness of announced commitments.
Trust and credibility are critical as the transition takes off. For companies, this also means monitoring and communicating their climate impacts and goals as seriously as they do their financial results. So how do you design a climate strategy that is in line with international standards, consistent with the ambition required, rigorous and transparent?
The decarbonization path can be summarized in five steps, valid for any sector: measuring emissions and understanding climate risks, defining the target and the steps to achieve it, implementing emission reduction actions (including in the supply chain), balancing residual emissions by financing climate action and sustainable development, communicating commitments and engaging stakeholders.
Having a robust inventory of emissions, on which to base the next steps, is not trivial. According to our analysis, almost all major Italian companies measure and report direct emissions and those related to energy use, i.e. Scope 1 and 2 (see the report “Climate risk perception of companies listed in FTSE MIB and FTSE Italia Mid Cap”, Carbonsink/FEEM 2021). The panorama of indirect emissions generated upstream and downstream along the entire value chain, i.e. Scope 3 emissions, is very different. For many sectors, these are the biggest challenge towards net-zero and represent a significant quantity of emissions still unreported. It is estimated that, on average, Scope 3 emissions amount to 11 times operational emissions.
Calculating Scope 3 can be complex due to a number of factors, for example, limited data availability and multiple ways of collecting information. For this reason Carbonsink has developed an innovative approach that can be customized according to the starting data and the organization’s objectives. A tailor-made approach makes it possible to adopt the most suitable calculation methods (for example, between spend-based or phisycal data) and to encourage the involvement and enhancement of suppliers.
Moreover, building a good inventory is not just about measurement. Defining a target also means that subsequent reduction actions will need to be reflected in the inventory, so that the impacts can be monitored and the consistency of the strategy with the targets can be assessed. Particularly for Scope 3, this step requires a lot of design work, which allows the company to build its climate strategy on a solid foundation and seize important opportunities on the path to net-zero.
Article published on: N° 7 – MARZO 2022 di ESG Business Review di ETicaNews