L’Età del Carbonio is a monthly series exploring rapidly evolving climate transition scenarios and emerging carbon issues in the world of politics, business and finance. The Carbon Age is produced by Carbonsink for EticaNews and is published monthly with the ET Climate 2022.
September 2022 – New data confirm that Italian companies are clearly lagging behind the climate challenge. Despite the significant steps forward made in recent years, both in terms of increasing climate commitments and their integrity and alignment with science, the new Net Zero Readiness Index 2022, produced by Carbonsink in collaboration with Borsa Italiana, gives us a snapshot of a private sector that is moving too slowly towards the climate objectives of the Paris Agreement, with the now concrete risk of not reaching them in time.
The study, which assesses the level of decarbonisation readiness of the top 100 companies by capitalisation listed in the Ftse Mib and Ftse Italia Mid Cap indices, highlights important challenges that Italian companies must overcome if they want to grow in a low-carbon economy. When only 16 companies out of 100 reach the level of preparedness required to tackle a decarbonisation pathway aligned with the Paris objectives, it is important to reflect on the causes of this delay and focus on possible solutions. While the path to net-zero has objective complexities, such as the measurement of indirect emissions along the supply chain, we are now seeing both an increase in business awareness of their role in the climate and a sophistication of tools that incentivise action. The panorama painted by the new analysis should therefore not be read as a list of insurmountable obstacles, but rather as a picture that shows us where and how to intervene. The question is: how can companies turn current challenges into opportunities for action towards net-zero?
FROM CHALLENGES TO OPPORTUNITIES
One of the most concrete things a company can do today to accelerate its climate action is to measure and report all its emissions, including indirect Scope 3 emissions along the supply chain. This may sound trivial, but it is not. In fact, the Net Zero Readiness Index 2022 shows that only 26 companies out of the 100 analysed report relevant Scope 3 categories. This figure is important because indirect emissions along the supply chain often account for the majority of the company’s carbon footprint, generating up to 90 per cent of total emissions. This means that we often still do not have a complete and reliable view of companies’ real impact on the climate.
Given the complexity and fragmentation of supply chains, measuring Scope 3 emissions is a real journey for companies, which involves involving suppliers in the collection and analysis of their carbon footprint data. To facilitate this exchange, Carbonsink has developed, and will soon launch, a digital tool that will facilitate the connection between company and suppliers, for simpler and more efficient data collection, on which to base a solid climate strategy.
The next step is to set emission reduction targets in line with science. Although with much room for improvement, Italian companies are working hard on this. While at the end of 2019, only two Italian companies had a reduction target approved by the Science-Based Target initiative (SBTi), by September 2022 the group had risen to 41, joined by a further 22 companies that have publicly committed to a science-based SBTi target within 24 months. Although we started late, the gap between Italian companies and those in other European countries is closing.
Nevertheless, the ambition of reduction plans must be increased. Data from the Net Zero Readiness Index show that even if all companies in the world reduced their emissions in line with the climate commitments of the companies in the Ftse Italia Mid Cap and Ftse Mib, global temperatures would exceed the 1.5°C limit set by the Paris Agreement, aligning with a global temperature increase scenario of 2.5°C compared to pre-industrial levels. Hence the need to focus more on reduction measures along the supply chain by adopting an approach of rethinking the business model in a sustainable way. Together with their suppliers, companies have the opportunity to intervene at different stages of production, from raw material sourcing to logistics via the use of more sustainable materials and energy efficiency.
Acting today towards tomorrow’s net-zero also means acting on the management of residual emissions, i.e. those that cannot be avoided through reduction plans, in a proactive and forward-looking manner. One tool to do this is certified carbon credits, which companies can buy by financing climate change mitigation projects with high environmental and social impact, always in the context of a sound climate strategy. By doing so, the company balances its residual emissions and, at the same time, supports the sustainable development of communities most vulnerable to the effects of climate change. The tools are there, yet 80% of the companies analysed in the Net Zero Readiness Index 2022 still do not offset their emissions.
Last but not least, communicate transparently. This too can be done immediately and responsibly, telling an increasingly aware and sensitive public about one’s climate commitments and journey, avoiding the risk of greenwashing. One of the key tools here is the Cdp questionnaire (formerly the Carbon Disclosure Project), which provides a disclosure system aimed at helping the private sector to communicate its climate strategies in a transparent manner and to compare companies in a given sector also internationally. In 2021, about 75 per cent of Italian companies in the Ftse Mib participated in the questionnaire, a number that is also growing in response to strong market demand.
NECESSARY, POSSIBLE AND STRATEGIC
In a world where climate risk is growing, the climate performance of companies becomes more strategically important. As a study by Simon Kutcher Partners released in 2021 reminds us, sustainability is one of the main purchasing criteria for almost a third of Italians surveyed, but not only. Investors are also increasingly aware of the importance of the environmental impact of the private sector, on which they often base their choices. Tools such as disclosure systems and sustainability ratings have triggered a virtuous competition towards net-zero. In the coming years, the focus on integrity and accountability will continue to grow. Companies know this, they feel the regulatory and market pressure on them, and they are also slowly realising the far-sightedness of climate action with a view to long-term growth and competitiveness. What remains to be done, today, is to identify next steps and accelerate.