The Science Based Targets Initiative (SBTi) helps companies to set science-based carbon emissions targets as standard business practice. The SBTi had targeted to enlist 250 companies by the end of 2020, but 1,045 companies have now signed up (as of November 2020).
Sustainability data is one of the conduits for companies to convert climate commitments to climate action. However, the value of sustainability data is not just in conforming to mandatory and voluntary carbon reporting standards (such as SECR in the UK and the CDP, respectively); monitoring and reducing greenhouse gas emissions across different business activities can give companies an advantage over their competitors.
According to the CDP, Scope 3 (indirect) emissions are on average 5.5 times larger than Scope 1 and 2 emissions. Understanding the carbon footprint of suppliers has therefore become increasingly important to companies that have set ambitious carbon reduction targets. Multi-National Companies will more frequently scrutinise the carbon footprint of companies that supply them with goods and services, creating a “chain reaction” upstream.
What does this mean for smaller and medium-sized companies that don’t have the same resources as MNCs to track their carbon footprint? Some will employ external consultants to support with devising and implementing a corporate sustainability strategy, while others will hire full-time sustainability professionals.
These are positive steps but may not be commercially feasible for SMEs already contending with a global economic downturn. A software solution that doesn’t require implementation processes or manual data entry could be a more time and cost-effective option for both SMEs and corporates.
The chain reaction outlined above is likely to take different forms: for example, let’s take a consulting firm pitching to win a contract with a large consumer goods company. This contract could be to analyse the company’s supply chain and to recommend ways in which the supply chain could become more resilient and sustainable.
When the pitch has finished, the company’s Head of Sustainability asks the consultants about how their firm is monitoring and reducing their carbon footprint. The lead consultant articulates a well-versed response on their firm’s commitment to sustainability without providing any tangible evidence.
The Head of Sustainability points out that if the consulting firm won the contract, they would become part of the supply chain, and thereby contribute to the company’s Scope 3 emissions. How could the consulting firm make recommendations for a more sustainable supply chain if they were not monitoring their own carbon footprint?
Although specific, this example illustrates the potential pitfalls of ignoring sustainability data or categorising it as a regulatory requirement rather than a competitive tool. The consulting firm could have included a slide in their pitch deck on their firm’s carbon emissions and how this has historically trended.
A simpler alternative could have been to have shown the carbon footprint of each consultant’s journey to the meeting. This demonstrates that the pitching firm is making a conscious effort to monitor their carbon footprint and the firm could complement this with some of the actions they are taking to reduce their carbon emissions.
In PwC’s 2019 report on Purpose and Impact in Sustainability Reporting, 92% of reviewed FTSE 100 companies explicitly identify sustainability risks, but only 33% of reviewed companies identify sustainability opportunities. This illustrates the prevailing mindset of most large companies: corporate sustainability is largely viewed through the lens of mitigating climate risks and complying with regulations, rather than as an opportunity to improve financial performance, employee satisfaction and competitive advantages.
This mindset translates to sustainability data, both in terms of which data is tracked and how it is measured; many large companies disclose their Scope 1 & 2 (direct) emissions but often overlook indirect emissions as, although higher, these are more difficult to track and reporting Scope 3 Emissions isn’t a regulatory requirement.
British Telecom (BT) started measuring quantitative KPIs for sustainability in 1992, at which point none of their electricity was renewable. By 2004, 40% of BT’s electricity was renewable and in 2019, renewables accounted for 87%. The company is also on track to achieve its target of 100% renewable electricity this year.
AT&T, by contrast, only started to publish sustainability reporting with quantitative KPIs in 2008 and as of 2018, renewable sources accounted for 30% of total energy used (source: Green America). It can be difficult to isolate the impacts of tracking sustainability data for multi-billion dollar companies, but the reducing cost of renewable energy (both in absolute terms and relative to fossil fuels) is one of the reasons for companies to monitor their energy sources. Onshore wind power is now the cheapest source of electricity in the UK at £63 per MWh and the trend of reducing costs is continuing.
Since 2000, the cost of onshore wind electricity has fallen by 64% globally. Companies that started tracking sustainability data earlier (like BT) have been able to more easily benefit from the reduction in renewable energy costs, improving their profitability.
If companies can source their energy from renewables and avail of falling costs, do they really need to track the sustainability data, especially if it isn’t a regulatory requirement? One way to determine this is to figure out what your customers, employees and shareholders care about. If you’re a B2B company, you may also want to consider what your customers’ customers value.
Consulting firm Kearney found that 83% of 1,000 surveyed consumers considered the environmental impact of their purchases in an April ’20 survey (compared with 71% in 2019), and nearly half said that the COVID-19 pandemic has made them more concerned about the environment.
Consumer attitudes towards sustainability are changing rapidly; by getting ahead of the competition and tracking sustainability data across the value chain (along with setting emission reduction targets), companies can enhance their brand and improve both their top line (in terms of acquiring/ retaining customers) and bottom line (in terms of reduced energy/ travel costs, for example).
Sustainability data is increasingly part of a company’s risk/ compliance procedures but should also be integral to the go-to-market strategy. Many traditional retailers were not quick enough to adopt digital distribution channels over the past decade and have now fallen behind eCommerce rivals, such as ASOS. Companies that fail to respond to changing buyer habits and track their sustainability data risk falling behind the competitors that are developing the sustainable distribution channels of the next decade.
Canopact helps companies to monitor and reduce their carbon footprint by providing analytics and engagement tools for employees.
Image Credits: Microsoft