6 Feb 2022
Green glass globe in green grass

Decarbonising our way into the future

Every company should devise a forward-looking plan to decarbonise. Climate change is indeed happening more rapidly and drastically than we ever anticipated.

Melting ice caps, mass-extinction events and ever-depleting ecosystems have often been seen in National Geographic or David Attenborough documentaries over the years, but undoubtedly recent global events are starting to drive home a very real message.

Rising global sea levels, flash floods, forest fires and repeated heatwaves, are just a few of the erratic weather conditions being witnessed. These confirm the IPCC’s warnings that climate change is indeed happening more rapidly and drastically than we ever anticipated. 

Leaving our anthropogenic activities unbridled is making our world uninhabitable. Action is therefore a must. Last November, the eyes of the world were turned upon Glasgow, whereby the UN Climate Change conference (COP26) was held.  Despite it being a positive event in that it brought together several stakeholders to set common goals, many were disappointed that the national commitments agreed upon fell short from the original COP21, 1.5-2°C increase in temperatures (now being set at 1.8°C to 2.4°C).

Yet, while policymakers are still disagreeing on whether we should slightly simmer or else sear our planet in the years to come, businesses are being pushed to embark on a decarbonisation journey through a number of different drivers.

Companies are being asked to disclose their carbon emissions through Environmental, Social and Governance (ESG) reporting. End-users are shifting towards less carbon-intensive products, with studies showing customer niches are also willing to pay a premium for sustainable goods.

Finance providers, including institutional investors and financial intermediaries, are facing various regulations pushing them towards greening their portfolios. And short-term profits are gradually being replaced by the mantra of longer-term earnings, and hence allowing for stakeholder capitalism to take a role in economic development.

However, such a shift is no simple task. We are currently witnessing companies frantically scrambling to get on the decarbonisation bandwagon, committing to becoming ‘carbon neutral’, ‘carbon negative’, ‘net zero’ or ‘carbon positive’, often being unaware of what this truly entails, the costs and benefits, or how this should be implemented.

Yet, what is not measured cannot be managed. Hence, it is advisable that even before setting any targets, companies should take stock of their current carbon footprint, to at least understand their starting point. Companies should typically measure both their direct and indirect carbon emissions segmented into Scope 1, Scope 2 and Scope 3 emissions, under international standards or guidance such as the Greenhouse Gas (GHG) Protocol.

renewable energy with wind turbines and flock of birds

Scope 1 emissions are those occurring from sources owned and controlled by a company, while Scope 2 emissions are related to the purchase of electricity, steam, heating, and cooling for industry use. These two categories are ‘simpler’ to calculate, being internal emissions. On the other hand, Scope 3 emissions are more complex, in that they include all other indirect emissions caused within the supply chain.

Equipped with such knowledge, companies can choose to disclose their carbon-footprint in their reporting (this is increasingly going to become mandatory, starting off from larger firms) and develop a carbon-reducing policy, which could include setting targets with international accreditation organisations, such as the Science Based Targets initiative (SBTi), making them both more accountable as well as credible.

Companies can decide to commit to carbon neutrality, whereby companies pledge not to increase their carbon emissions while reducing their carbon footprint through a combination of efficiency measures (reductions) and off-setting of the remaining portion of emissions.

Net zero is a higher ambition whereby first, all possible reductions are made, such as shifting to e-vehicles (Scope 1), buying renewable energy (Scope 2) and using low-carbon-intensive suppliers (Scope 3). Then, for the unavoidable emissions, carbon offsets can be bought through certified projects.

It is therefore up to each company to set their level of ambition and devise a forward-looking plan to decarbonise. Even though the degree and impacts of climate change remain uncertain, it is clear that the cost of inaction is increasing year-on-year and hence, the sooner we act, the smoother and more controlled our transition to a low-carbon society can be.

Further discussion on the decarbonisation journey and measurement aspects will be discussed during EY’s Carbon Footprint: principles and methods webinar taking place on February 17.

 

Maria Giulia Pace

EY Malta, Economic Advisory and Climate Change and Sustainability, Manager 

Summary

Climate change is indeed happening more rapidly and drastically than we ever anticipated. Every company should devise a forward-looking plan to decarbonise.

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