Sustaining Decarbonization Momentum: Overcoming Key Challenges

A recent webinar hosted by Reuters and ENGIE Impact explored the growing concern of organizations to keep on track with their sustainability goals. The discussion revealed that organizations are encountering significant hurdles, including securing funding for decarbonization projects, managing the complexities of upstream and downstream emissions (Scope 3), and developing the necessary in-house expertise.

While these challenges may seem daunting, they do not have to derail an organization's decarbonization journey. To maintain the momentum towards decarbonization, organizations must adopt a holistic approach that addresses all of the challenges involved.

The following insights from the discussion look at the complex hurdles for maintaining momentum toward decarbonization and the effective strategies for overcoming them, including specific insights from PepsiCo Chief Sustainability Officer into the organization's sustainability strategy.

Decarbonization Funding and Investment Evaluation

Traditional financial measures like IRR (Internal Rate of Return) often fall short in evaluating sustainability investments. These metrics primarily focus on financial returns, overlooking the significant environmental and social benefits that such investments can deliver. A more holistic approach is needed – one that considers both financial and sustainability outcomes, such as greenhouse gas (GHG) emissions reductions, water conservation, and social impact.

PepsiCo exemplifies this approach by prioritizing projects that demonstrate the highest potential for emissions reduction while aligning with their overall business objectives. Since decarbonization projects frequently compete for funding with core business activities, it is crucial to establish specific frameworks for prioritizing sustainability investments.

ENGIE Impact noted that one effective strategy is to set an internal price on carbon emissions. By assigning a cost to each ton of CO₂ emitted, companies can incentivize emissions reduction efforts. Renewable energy projects, energy efficiency improvements, and other decarbonization initiatives can then be viewed as cost-saving measures, as they help companies avoid these internal carbon costs. This approach aligns economic incentives with environmental goals, making decarbonization more financially attractive and highlighting the significant costs associated with inaction.

Another valuable lever is the deployment of third-party financing models for decarbonization investments. Instead of solely relying on internal capital, companies can partner with third-party providers who finance, install, and operate sustainable technologies. These partnerships often involve performance-based contracts, where the third party is remunerated based on achieved energy performance and decarbonization targets. This approach can unlock significant capital for decarbonization projects while minimizing upfront costs for the company.

Global Knowledge Sharing and Collaboration

Global knowledge sharing and collaboration are key for scaling decarbonization initiatives. PepsiCo demonstrates this approach through its communities of practice and the development of global tools. These platforms enable different sectors and regions to share successful strategies, leverage global partnerships, and accelerate the implementation of decarbonization projects while fostering innovation and operational efficiency across the organization.

ENGIE Impact emphasized that aligning leadership teams is essential, from planning to execution and from site to corporate. Without company-wide alignment, companies often take a site-by-site or project-by-project approach, hindering the pace of implementation and limiting the potential for synergies. By developing integrated and fostering a culture of collaboration, organizations can avoid pitfalls such as overlooking dependencies between different sustainability levers. Site-to-site collaboration plays a crucial role in balancing local and centralized priorities.

Internal Capabilities and Accountability

Developing Internal capabilities and establishing accountability mechanisms are essential for successful decarbonization strategies. PepsiCo's education programs, such as the PepsiCo Positive Champions Program, play a crucial role in empowering employees with the knowledge and skills needed to drive sustainability initiatives. By establishing clear Key Performance Indicators (KPIs) and accountability structures, organizations can ensure alignment with strategic decarbonization goals.

From ENGIE Impacts experience with implementing decarbonization strategies, flexibility and innovation are vital for adapting to local conditions. While maintaining global strategic alignment, companies should allow local businesses to tailor solutions to their specific regional contexts. For example, when deciding between electrification and biofuels for logistics and operations, factors such as local energy price ratios and infrastructure availability should be carefully considered.

Successfully implementing a sustainability program requires a combination of skillsets. This includes engineers with deep knowledge of decarbonization and energy assets, contracting and financing specialists, dedicated staff to operate the assets, and fit-for-purpose tools to monitor performance. Project management skills are also crucial for implementing programs across a global portfolio.

Supplier Engagement and Scope 3 Emissions

The trend of large companies actively supporting their suppliers' decarbonization efforts is gaining momentum. ENGIE Impact called out that by making vetted solutions readily available to suppliers and grouping them based on shared decarbonization needs, companies can effectively scale their sustainability initiatives and significantly reduce their Scope 3 emissions.

PepsiCo demonstrates a strong commitment to supplier sustainability by setting clear expectations, including the adoption of science-based targets and comprehensive decarbonization plans. This approach not only aligns with global sustainability goals but also enhances long-term business resilience by mitigating climate change risks. By providing suppliers with valuable resources and tools, such as the Sustainability Action Center and joint renewable energy programs, PepsiCo facilitates their transition to more sustainable practices.

While the path to decarbonization presents significant challenges, organizations can overcome these hurdles through a multifaceted approach. By prioritizing Scope 3 emissions reduction, implementing robust investment frameworks, leveraging global knowledge sharing, enhancing internal capabilities, and adapting to local conditions, industry leaders can navigate the complexities of decarbonization and progress towards their sustainability goals.