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This article explores a critical enabler for a successful Net Zero transformation, highlighting key findings from ENGIE Impact's Net Zero Corporate Readiness Report – based on our survey of 400 business leaders representing 21 sectors across 23 countries, on the importance of a robust yet pragmatic data collection and analytics strategy to unlock the full potential of companies decarbonization strategies.
Companies across the sustainability maturity spectrum know they must be equipped with the right data insights, but often struggle to acknowledge they will likely face data limitations, gaps and uncertainties. Especially for companies with complex global value chains, driving decarbonization and climate resiliency outcomes with a data-driven approach calls for pragmatism around data collection and analysis. It is possible—necessary even—to strike a balance between the ideal approach to data management and the operational realities.
Embarking on a science-based pathway starts with estimating a reliable GHG emissions footprint baseline. However, collecting the necessary data to conduct this exercise can be cumbersome due to the number and diversity of stakeholders involved, as well as the need for verification by internal and external auditors. Data collection, access and management typically include business units, facilities, finance, operations, procurement and sustainability functions—yet these teams often operate in siloes, collecting and consolidating data from their respective external partners. In fact, our survey of 400 business leaders revealed that a single source of truth for data remains elusive to all but 3% of respondents. This is particularly the case for companies with region-by-region tracking tools, reporting processes, or legacy carbon-related data management systems. Against this backdrop, companies tend to overestimate the efforts needed to establish their first greenhouse gas (GHG) inventory.
Establishing a comprehensive and credible carbon footprint requires a monumental effort to collect Scope 3 data directly from external business partners.
To build comprehensive GHG inventories, companies must account for all material direct and indirect sources of emissions, including the notoriously difficult to measure Scope 3 emissions. This exercise can be complex, and often comes with pitfalls and limitations. Leaders tend to be under the impression that a solid baseline is rooted in high quality, granular data. For example, a company looking to measure the total emissions from its corporate fleet might allocate additional time and resources to collect the exact amount of gas consumed by each vehicle instead of adopting a less resource-intensive approach that entails estimating the total consumption based on the number of vehicles and approximate annual gas consumption per vehicle. In principle, there is credibility behind the first, more resource-intensive approach. However, making the GHG baselining a cumbersome exercise, companies create the risk of delaying action.
This risk is exacerbated when it comes to estimating Scope 3 emissions. The most sophisticated accounting methods require gathering activity data (e.g., quantity of materials purchased) from diverse external business partners such as suppliers, customers and investors. Once again, companies are faced with data gaps due to a lack of data consistency in terms of availability, quality, and verifiability across complex and opaque supply chains that are constantly shifting. Instead of being used as a means to goal setting and strategy design, the footprinting exercise turns into an end in and of itself—an unattainable North Star for which perfect is the enemy of the good.
When it comes to understanding their GHG current state, companies can ensure that perfect isn’t the enemy of the good by adopting a pragmatic mindset to carbon data collection.
I understand that my first GHG inventory is unlikely to be perfect, yet it is sufficient to identify emissions hotspots, engage the highest-emitting business partners strategically and enable governance to improve data quality over time.
To overcome inherent data challenges while building their first comprehensive GHG inventory, companies should adopt accounting methods that rely on accessible data. This often requires using the more basic accounting methodologies—for example, those laid out by the GHG Protocol—including a spend-based approach which relies on expenditure data (typically centralized by the Purchasing department) and industry average emissions factors (which can be retrieved by public sources). This approach prioritizes the comprehensiveness of the GHG inventory and is sufficient to understand the big picture, enabling companies to identify and focus on their carbon “hotspots”, the largest sources of emissions that should be prioritized in the ambition setting and decarbonization strategy design phase of the journey.
In our work with clients, leaders tend to feel paralyzed by lack of perfect data. In practice, leaders can take sound decarbonization decisions without having a deep understanding of their current state. Winners in the Net Zero economy will be those that fund longer-term strategies, mobilize relevant internal and external partners (including supplier and customer networks), and tackle emissions across their value chains.
While relying on basic accounting methods is a good way to get started on their decarbonization journey, companies should acknowledge the need to progressively switch to more sophisticated methods supported by data governance and infrastructure in order to capture progress against goals and tailor the course of action as necessary. For Scope 3 accounting in particular, the spend-based method, despite being the most common method, does not reflect the company’s supply chain decarbonization efforts. Transitioning to alternative methods, such as activity-based, is a long-term endeavor that is nevertheless necessary for companies to demonstrate the decoupling of business growth (including an increase in spend) and emissions reductions.
Developing a Credible GHG Inventory for a Global Luxury Business
A global brand in the luxury sector had established its first GHG footprint relying on basic accounting principles, including the spend-based method. This method helped them set GHG emissions reduction goals across all three scopes, as well as identify where they could employ more sophisticated methods in a targeted and efficient way. In particular, for its division in the Asia Pacific region, the company was looking to refine its GHG footprint in order to account for the local market specificities. ENGIE Impact developed a more granular GHG inventory that relied on the activity-based method when data was available and the previously used methods by default. Even though the accounting methods used have different levels of specificities, the inventory exercise complemented by a qualitative assessment of addressability, public visibility, and internal engagement resulted in the identification of the company’s key GHG emissions “hotspots,” including goods transportation and distribution, events hosting, advertising and business travel.
Impact
Leveraging insights from the refined GHG inventory, the company was able to understand how to best focus its efforts to drive decarbonization, set regional targets in line with the global science-based target for 2030 and build the accounting foundations for the company to update emission estimates over time and thus be able to track progress against targets.
Committing to ambitious decarbonization goals demonstrates leadership but cannot be taken lightly. It is essential to design data-driven roadmaps that allow decision-makers to build internal consensus, credibility and momentum around the actions and investments in decarbonization pathways. As the first step, companies need to capture, analyze and model carbon data to set their ambition and develop credible plans.
I need to have a high-granularity understanding of my GHG current state and projected emissions trajectory across my business operations and value chain in order to set credible science-aligned targets and develop the associated strategies.
When setting a GHG reduction ambition and designing the associated strategy, the spectrum of approaches ranges from setting a bold ambition before fulling understanding what it takes to achieve the goals, to developing a deep understanding of core decarbonization levers and enablers to set an organization-wide ambition comfortably.
In practice, companies fall between these two ends based on a range of internal and external considerations. Internal considerations include corporate culture and leadership’s common approach to decision-making, particularly risk appetite. External considerations encompass the regulatory environment and pressure from key stakeholders, particularly from customers.
When it comes to developing their strategy, we found low confidence levels among business leaders in their decarbonization plans when they fail to factor in current and future uncertainties and risks.
| Statement | % of confident business leaders (strongly agree) |
|---|---|
| We understand the relevant technologies for our decarbonization needs | 38% |
| Our decarbonization plans consider technology evolutions and uncertainties | 23% |
| Our decarbonization strategy includes anticipated future business changes (e.g., growth, new product lines) | 22% |
| We develop business cases and scenarios that consider the total costs of decarbonization | 18% |
Companies that account for future uncertainties must also be cognizant of potential data limitations. Leaders tend to believe that detailed, highly granular GHG inventories and scenarios based on bottom-up analyses are necessary for companies to develop their decarbonization pathway, set an ambition and take action. Unfortunately, this poses the risk of slowing down the decarbonization decision-making process.
Leaders can find a middle-ground between granularity and operational reality—thus confidently putting their company on track to set and meet ambitious decarbonization goals, even without a perfect data inventory.
An 80/20 approach is more than sufficient to set a decarbonization ambition and develop a pathway, approved by my company’s leadership and accepted externally.
In our experience, most companies fall somewhere in the middle of the two approaches described above. In some cases, they coexist within the same organization, creating a cultural tension typically between the revenue-generating teams and the corporate sustainability team, or between the c-suite and operational teams.
Companies can rely on two best practices to ensure these internal tensions spur progress, rather than hinder it.
1. First, they can rely on their imperfect GHG inventory to set a target and develop their decarbonization plans. In fact, a rough and high-level GHG inventory will help companies understand where their emissions are concentrated in their value chain and identify the greatest opportunities to reduce emissions. When it comes to target setting, they may conduct top-down estimations and reasonable extrapolations to bridge data gaps - creating an 80/20 approach. Typically, 80% of the projected GHG emissions reduction potential can be modeled based on 20% of the data needs.
2. Second, they can model different scenarios and sensitivity analyses based on level of ambition around investment and timing, and at various levels of the organization to better understand the areas of uncertainty, risks and develop detailed programs.
By adopting these two tactics, leaders can create a future-proof decarbonization pathway attuned to fast-changing technology and business. In fact, based on our findings, two-thirds of companies agreed that the parameters and assumptions behind their decarbonization plan consider technology evolution and uncertainties. However, only a fourth of companies were confident on the matter. Adopting these practices makes leaders feel comfortable selecting the right mix of decarbonization levers and helps them advance quickly to the execution phase, resulting in elevated confidence levels to deliver on ambition.
How DS Smith’s Roadmap Enabled an Ambitious Science-Aligned Target
DS Smith, a leading supplier of sustainable packaging solutions, paper products and recycling services worldwide, turned to ENGIE Impact to support with setting a science-based target and building an emissions reduction roadmap. With thermal energy needs accounting for over 80% of its emissions, a deep understanding of available technologies and corresponding cost curves was critical to finding a feasible solution for DS Smith. Therefore, ENGIE performed a robust, site-based analysis of the emissions data to determine when and how to deploy decarbonization levers. This costed roadmap laid the foundation for DS Smith to commit to an ambitious 1.5°C-aligned science-based target.
Impact
1.5°C-aligned target set requiring 46% emission reduction vs. 2019, as well as a commitment to Net Zero by 2050.
Once equipped with an ambitious yet credible vision backed by a pragmatic roadmap, businesses must track data on at least an annual basis to demonstrate progress against their goals. During this continuous monitoring stage, data enables teams to drive an optimal, resource-efficient transformation and impactful emissions reduction and inform continuous improvements and refinements in both the GHG footprint and the decarbonization plan, thereby meeting the expectations of key internal and external stakeholders. Companies that adopt a robust data management strategy can maximize the value of executing their decarbonization plan.
I need to adopt the latest and greatest digital solution available in order to deliver impactful emissions reductions.
Leveraging digital technology can help unlock value when delivering on the decarbonization plan in three main ways:
1. Accelerated pace of decarbonization, by making decisions based on the most recent data and efficiently reaching more suppliers and customers.
2. Cost savings, from more streamlined data collection, consolidation, auditing and reporting processes.
3. Improved quality of the GHG reporting, through a reduction in human error and the reliance on more accurate accounting methods.
Yet, it appears companies face a data reluctance syndrome. Based on our Net Zero Corporate Readiness report, less than 15% of leaders surveyed expressed confidence in integrating digital solutions into their decarbonization plans. This low level of confidence is reinforced by the fact that companies today don’t sufficiently rely on digital tools to track their progress and update their GHG inventories, especially when it comes to Scope 3 emissions. We found that two-thirds of companies use digital tools to manage their operational emissions (Scope 1 and Scope 2), compared to just around a third (35%) investing in technology to track Scope 3 emissions.
In our experience, the low trust in technology lies in the fact that the landscape of carbon data management software is still in its early stages today, from both a maturity and value proposition standpoints. However, as the market matures, companies that fail to adopt a clear digital strategy face significant long-term risk, including lagging on their decarbonization ambitions and failing to comply with increasingly stringent external reporting requirements.
Companies that adopt a strategic approach to executing their plan, tracking progress and managing their GHG data over time are better positioned to unlock value along the decarbonization pathway.
To deliver effectively on my decarbonization plan and take credit for the progress achieved, I need to select the digital tool(s) that aligns with my business context, organizational structure, and overall maturity of my team.
To successfully implement decarbonization strategies, firms can invest in an enterprise-wide carbon management digital solution. Innovative disruptors in the carbon management software ecosystem are offering solutions that apply to all companies, no matter where they stand in their decarbonization journey. For companies at the implementation phase, the key objectives of data management are to track progress against their carbon goals, identify areas for improvement in their decarbonization plan and refine their GHG inventory.
Tools can play a powerful role in helping companies deliver on these objectives simultaneously. For example, tackling Scope 3 emissions associated with their purchased goods and services and capital equipment, companies can rely on a supplier engagement module that encourage vendors to align their own businesses along a science-based trajectory and, in parallel, provide the requesting organization with more granular and specific GHG data (including their own GHG inventory information and activity-based data). This allows the company to account for supply chain decarbonization (and thus progress against its Scope 3 reduction goals), better understand which supplier segments to target, and refine the accuracy of its Scope 3 inventory over time.
While an end-to-end software can enable companies to meet these three objectives, strategic questions leaders should consider when assessing tools include:
The company’s context should also be factored into the decision-making, particularly looking at size, geographical presence, human and financial resources available for GHG data management, longer-term business growth projections and data needs.
How a Fortune 100 Financial Company Selected the Right Digital Tool to Build a Robust ESG program
A leading asset manager looking to establish foundations for a robust ESG program turned to ENGIE Impact to select an off-the-shelf tool to collect ESG data across its fund to allow the company to track performance and report externally. To accelerate the ESG data rollout, ENGIE Impact worked with the company to adopt a 5 step purpose-driven approach:
The bad news: fighting climate change requires an immediate, dramatic shift in mindsets, particularly when it comes to carbon data management. The good news: there are proven models, technologies, and digital solutions that build a compelling case for decarbonization and a clear path forward. Leaders need to smartly approach their carbon data strategies to unlock the full potential of their decarbonization journey. Successful companies have adopted a pragmatic mindset, which has helped them find the right balance in making decisions grounded in data amid uncertainty. The three key pre-requisites to achieving this balance include:
Companies that execute intentional, coordinated strategies and capture synergies of data management and execution are better positioned to unlock value along the decarbonization pathway, thereby accelerating their contribution to the global climate agenda.
The authors would like to thank Melanie Wilneder for her contributions to this article.
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