The momentum behind climate action is undeniable. As stakeholder demand to address the climate crisis grows and governments adopt more stringent emissions regulations, global companies are under increasing pressure from consumers, regulators, financiers and even their employees to reduce their carbon footprint, prioritize sustainability efforts and embark on an aggressive decarbonization journey. In spite of the COVID-19 crisis changing business priorities around the world, the need for urgent actions to address climate have not stalled.
We were delighted to co-host a recent Eco-Business webinar to discuss overcoming the pitfalls to decarbonization, focusing on the Asia Pacific region. We also had the chance to respond to questions from attendees who joined the virtual event from across the region, and we'd like to share answers to a few of the key questions we received during this session.
Malavika: Indeed, this is an important question to address because decarbonization as a journey depends on various factors, including which sector a company is in. For example, an electronics manufacturer must plan beyond their own carbon footprint to their whole value chain. That's because much of the consumption is coming from the use of these electronics, not just the manufacturing. So while the company is not directly emitting carbon from the electricity used to power these products, which we term Scope 3 emissions, it is still the job of the manufacturer to ensure the product is made to perform efficiently. In addition, it also must hold supply-chain partners accountable for emissions coming from the manufacture of components. In contrast, a utility which is generating energy is generating most of its carbon emissions directly as Scope 1, and has greater control in terms of adopting technologies that can reduce these emissions.
The location of a company’s primary operations can be another factor. If it is located in a region where there is plenty of sunshine throughout the year, it has the option to capitalize on solar energy to power its operations, reducing its carbon footprint.
Finally, it also depends on the size of the company. For SMEs (small, medium-sized enterprises), access to government grants and subsidies, as well as information about technologies that they can adopt, are critical to implement clean-energy alternatives. For Fortune 500 enterprises on the other hand, the ability to access capital and technology for decarbonization to meet their goals is much more plausible.
Myriam: I would say that we can identify three main groups of companies in the region with different levels of maturity when it comes to decarbonization.
First, there are the local entities of global multi-nationals. These companies are more mature and advanced when it comes to decarbonization, and most are in the process of implementing the solutions to reach the sustainability goals that have already been defined by their headquarters. What they might struggle with would be the operational organization and implementation, but they do have an established set of goals and top-down directive to reach these goals.
The second group of companies are local and already quite mature when it comes to decarbonization and most are located in countries like Singapore, where the government has clear mandates in their environmental policies to address climate change. These companies are gaining more awareness of issues related to climate change, and slowly trying to transform themselves. They would be considered less mature but serious about wanting to incorporate sustainability goals in their business strategies.
And finally, the third group are the more traditional companies in countries where you have much less urgency to decarbonize, for example, in Indonesia, where the country is still largely dependent on fossil fuel and energy, and also where local companies struggle to get funding for green energy projects.
Myriam: While there has been a clear momentum behind the sustainability transformation, its clearly not fast enough. We see the impact of climate risk on a daily basis in the region. And if you look at the companies globally who signed the Paris Climate Agreement, only 28% of them are on track to achieve their goal to limit global temperature rise below 1.5 degrees Celsius. So, we really think things are not happening fast enough!
Malavika: This is a great question, and yes, from what we have seen from our clients around the world, organizational culture shift is certainly one of the most challenging elements to executing on the sustainability transformation. The easy answer to this is that culture and directive should be coming from the top. So, if you have a visionary CEO, the decision and strategy will be aligned and things will happen faster. If the leader looks beyond their term in office into the next decade, then it will create the momentum to actually build an impactful decarbonization roadmap. But this culture cannot be limited to being driven by the C-level alone.
This must be both a top down and bottom up strategy. Each of us can take simple initiatives or find advocates to create a few grassroots measures. For example, it can be as simple asking as how do we travel to work, minimize or make sure no waste is generated during lunch time, reduce the number of flights taken and instead increase video conferencing? At the business level, we all have to look at new ways of valorizing a project by, for example, setting an internal carbon price. This would allow companies to think about future risk and have a different approach to cost versus benefits analysis of an initiative.
The grassroots effort of employee-led programs can have tremendous impact. And the top management is always looking for that story, for someone to rise up, take on the challenge. So it is an incentive for the top management to make changes if they see that revolution happening in the ranks and demanding change.
Malavika: I think basically the leaders are looking for consensus, that everyone will follow once they lead. And I think it falls back to one of the pitfalls that I talked about in the webinar – what technologies are available and how much their price is going to fall and whether there’s going to be a strong business case to support this decarbonization journey. I think having that visionary leadership that I’ve talked about, like Paul Polman from Unilever and companies like Microsoft and Starbucks having the long-term vision, requires courage and decisive action.
Malavika: Well, this is definitely not an easy situation to be in, and they should start with looking internally within the organization and defining where the cost savings can be found. Most of the time, decarbonization is actually linked to improved efficiency of the business and therefore improved savings. So, find these projects in your businesses, which may require some upfront investment but will pay off along the way.
Another way is through partnerships. If companies come together and create a joint narrative, which is strong enough to be heard by industry bodies and governments, this becomes a very powerful way of achieving and driving change as well.
Myriam: The first step is assessing your current situation, and carbon footprint, and understanding sustainability initiatives that have already been defined. Next is to project the consumption and energy needs of the company in a business as usual situation, grounded in data. And once you have all these mapped, you can start to define the decarbonization targets.
The next step is defining and building the pathways to achieve your goals, looking into what are the available solutions – a combination of technical, financing and cultural change solutions – that are specific to your organization’s requirements. It is important to take a holistic and road-mapping approach to make sure you have a clear and actionable plan to achieve your goals.
And we believe that the targets have to be ambitious, because in this climate emergency situation, if the targets are not ambitious enough, we’ll never achieve the goal of maintaining the temperature rise below 1.5 degrees Celsius.
Myriam: When something goes wrong along the decarbonization journey, it is important to realize it and communicate it as soon as possible. If decarbonizing and transforming the ways of operating is at the core of the company’s vision, and all employees and stakeholders are aligned on this, it will be easier for them to be open and transparent.
The first step is to acknowledge the fact that the current approach is not necessarily the right one and activate the course correction quickly. The road to sustainability is fluid and you must remain agile as you progress.
The second step is to secure the right capabilities and appoint the right support to identify how best to make these changes and corrections. It is important to have that external expertise to provide advice while you can still build upon work that has already been done.
Myriam: First, you have to understand the Scope 3 footprint, and for this, you don’t necessarily need to collect all the data, you can be making some assumptions to understand the full footprint. Then identify where your consumption hot spots are and address them first.
In order to do that, it is important for the company to work with its suppliers. Create long-term partnership or incorporate incentives to encourage them to decarbonize, which will enable your company to reach its Scope 3 ambitions. You can support your suppliers with the right capabilities, help them understand their footprint and monitor the way you purchase or contract with them. You may even need to provide them with technical solution to help them to decarbonize.
Ultimately, for global companies, it is their responsibility to look into Scope 3 and find solutions to reduce. Bring small, individual suppliers on board the decarbonization journey, because it is only by coming together collectively that we can move the needle and achieve our goals.
Malavika: Offsets should be the last resort. So first, businesses should start by assessing their operations and reducing energy consumption. Next is to look at renewable energy sources to cover remaining consumption, and finally, use offsets as the last resort. Ultimately, companies have to think about how to reduce their reliance on offsets over time, because it is not the answer to real decarbonization. It has a limit.
Myriam: This is a temporary solution for the transition from now to a zero-carbon world. As a final note, you should also look at the certificate of origin and the sources of the carbon offsets to make sure that you have a clear understanding of what you are buying.
Malavika: So, it’s changing and shifting all the time. Lately more companies are now declaring that they will be carbon negative. Net zero was really good a year ago, but now it is a standard and not quite as ambitious anymore.
In order to really make a change, it is important to be bold and ambitious in your goal setting. You will have to set a target that makes you slightly uneasy. And of course, you should leverage tools like science-based targets to have a valid scientific reason behind the goals you have set and to achieve what you have planned.
In order to accelerate progress toward decarbonization in Asia Pacific, organizations must be bold and ambitious. It is not an easy journey, but these key lessons will keep you on the path to your goals.
For any questions related to the webinar or to request a meeting with an ENGIE Impact expert to discuss your sustainability transformation, please contact us.