How to work strategically to mitigate your climate impact

Working strategically to address your company’s climate impact is more important than ever. In this article, we explore how to turn ambition into action.

In brief

• Managing completeness, quality and complexity of your climate account allows you to use it for identifying emission hotspots and tracking your progress.
• Setting the right short-term and long-term targets and developing a robust transition plan is essential to achieving your climate ambitions.
• Beyond value chain mitigation may be business critical to reach your climate targets and may set you apart from others.
  

Turning ambitions into actions related to climate has never been more important. This article presents our recommendations for working strategically to address your climate impact, divided into four main pillars: preparing a climate account, setting ambitious decarbonization targets, developing a climate transition plan and enabling the net-zero transformation.

Preparing a climate account

“You can’t manage what you don’t measure”. We experience that companies who work strategically with their climate accounts are the ones who have the most success in reducing their climate impact. But how do you work strategically with your climate account?

• The most important step is the first step: We recommend that any company working on their climate impact starts out by mapping all emissions related to its own operations and value chain. No company, however, begins with an entirely accurate climate account. Companies should find the right balance between accuracy and completeness that allows them to use their climate account for identifying and mitigating their emissions. We advise that completeness is prioritized in the beginning, even if this might result in lower accuracy at first. 
  
  
• Data quality is a lever on its own: Completeness should be prioritized first, but increased accuracy is essential for tracking mitigation initiatives. Improving data quality often goes hand in hand with increased collaboration with suppliers on both improved data as well as lower product carbon footprint. Therefore, improving data quality is often a decarbonization lever on its own by incentivizing innovation and collaboration.
  
  
• The work is never done: The climate account is not supposed to be a static inventory. Restatements to ensure consistency with the target base year are essential for using a climate account for tracking progress. Restatement should be done when updated methodology, data sources, historical misstatements, or, structural changes no longer allow for a reasonable representation of the emission trend.
  
  
• Managing the complexity of a maturing climate account: Transitioning to supplier-specific and product-specific data is essential for working strategically with your climate account; however, this also increases the complexity and thereby adds further inherent risks to the climate account. As your climate account matures, you will introduce data inputs of various maturity and quality, making it necessary to ensure the right competencies among the people responsible for the collection, calculation, and improvement of data. Moreover, it is recommended, and in some instances required, to obtain third-party assurance on your climate account. In this case, you should engage your auditor to ensure the data is aligned with the required standards.
  

Setting ambitious decarbonization targets

Committing to climate targets can lead to opportunities – and risks – with suppliers, investors, employees and other stakeholders. Setting the right targets and working strategically towards your targets is crucial for your company’s overall climate strategy:

• Separate targets for Scope 1, 2 and 3: To acknowledge the inherent differences between the different scopes of emissions, companies are advised to set separate targets for Scope 1, 2 and 3. This includes separate targets for Scope 2 location-based and market-based approaches, which offer different ways of driving climate mitigation of your energy use. Companies should furthermore consider establishing specific Scope 3 targets for their most material Scope 3 categories as well as the categories where the potential impact is greatest.
  
  
• Nuanced target setting and tracking: It can be challenging to obtain accurate emission data – especially across the value chain. While the landscape of data quality matures, using both emission-metrics and non-emission metrics in the target setting (e.g., share of renewable energy or share of suppliers with climate targets) ensures focus on emission reductions and allows for more easily tracked progress. Moreover, it is highly encouraged to engage in target settings on both a short- and long-term time horizon to ensure timely efforts.
  
  
• Continued assessment of targets: As for the climate account, target setting should not be considered a static exercise, but a continuous activity. This is especially important when progress fails to align with targets and emission gaps need to be bridged. Furthermore, a continued focus on updating targets is just as relevant when companies manage to reach their targets ahead of time, as this enables companies to move even further in the fight against climate change. Assessing your company’s progress and targets on a continuous basis is therefore essential to maintain trustworthy, realistic and ambitious climate goals.
  
  
• Carbon removal strategy: Emission reductions should always be the prioritized mitigation choice for tackling emissions.  However, a lot of companies still expect a certain number of residual emissions after having utilized all identified decarbonization levers. As there is a big difference in the quality, availability and price of different carbon removal solutions, we advise having a separate strategy for your carbon removal activities, where removal targets can be a tangible way to work strategically with this.

Developing a climate transition plan

The climate transition plan is often perceived as the most instrumental part of working actively with climate mitigation, as it sets the direction for how your company should reach its targets. A proper transition plan should, in our view, therefore include the following elements: 

• Baseline and ambition: A transition plan is defined by outlining the transition from your current state to the state of your ambitions and goals. It is therefore important to have a clear overview of the company’s ambitions, goals and timelines on the climate agenda, and how these feed into the overall strategy of the company.
  
  
• Levers and actions: Decarbonization levers are the overall drivers of the emission reductions, and actions are the steps that are needed to enable the levers. Actions should be clearly defined; their impacts quantified and be embedded into suitable governance structures. Moreover, the connection to the climate account should be ensured. This can include ensuring that the effect of the decarbonization actions can be reflected by the climate account.
  
  
• Financial plan and internal validation: Like other strategic priorities, investments are often needed to ensure the strategy gets off the ground. Thus, it is important to identify the needed investments and ensure internal commitment to secure the robustness of the plan. At the same time, financial savings and opportunities should be assessed and quantified.
  
  
• Plan for barriers and opportunities: There might be barriers in enabling the identified levers, which can relate to, e.g., technology, policy and consumer behavior. By identifying potential barriers early, it allows you to mitigate these or adjust the strategy. Similarly, it is often possible to identify opportunities from the analysis of barriers, including opportunities related to product development, new markets or collaborations.
  
  
• Internal foundation and accountability: In the end, all the points listed above have little chance of success if the organization does not have a setup to ensure that the strategic ambitions are carried out. It is therefore of the utmost importance that the activities, decarbonization levers and overall responsibility of reaching the climate goals are anchored throughout the entire organization.

Enabling the net-zero transformation

Most companies are reliant on certain technologies, skills or other circumstances beyond their own operations and value chain, to deliver on their transition plan. This could entail having access to high-quality carbon removal credits, low-carbon technology or resilient ecosystems. Companies are therefore recommended to think ahead and potentially engage in so-called beyond value chain mitigation (BVCM) activities as an integral part of their climate strategy.