According to the Intergovernmental Panel on Climate Change (IPCC), if we are to limit global warming to 1.5°C we need to reduce net emissions of greenhouse gases (GHG) by 45% by 2030 and achieve carbon neutrality by 2050.[1]. Even limiting the temperature increase to 2°C would require emissions to decrease by 25% by 2030. However, and despite government commitments, GHG emissions increased by 1.5% per year over the last decade (2009-2018) and in 2018 reached 51.8 gigatonnes (GT) of CO2 equivalent (UNEP, 2019)[2]. If this continues, the world is projected to reach a temperature increase of between 3°C and 5°C by 2100.
Those companies that have recognized the benefits of taking early action are developing ambitious plans to decarbonize their operations and value chains. In this way they safeguard future licenses to operate, shield themselves against future stricter regulations and develop innovative business models. Most companies are focused on reducing GHG emissions under their direct control, which relates to Scope 1 and 2 of the Carbon Footprint.
It is important to understand that GHG emissions are categorized as follows 3 scopes:
- Scope 1: Direct emissions or emissions from sources controlled by the organization.
- Scope 2: Indirect emissions from electricity, heating or steam consumption.
- Scope 3: Indirect emissions from sources not owned or controlled by the organization but related to its activities.
That is, Scope 1 and 2 is mainly the burning of fuels in its operation and the consumption of electrical energy. However, eventually, companies tend to be less rigorous in the measurement of their indirect emissions (scope 3) since they have no direct control over them. “For example, if an executive of a Peruvian financial company has an airplane trip from Lima to New York, that issue will be scope 1 of the aviation company, but scope 3 of the financial company. It is scope 1 of the aviation company, because they have direct control of the operation, they choose the flight technology, the airplane, the software, they buy the fuel, they are the pilots” employers, etc. At the same time, it is scope 3 of the financial company because they demand the flight service and the aviation company responds to that demand," explains Javier Perla, sustainable business manager at Dragonfly.
This differentiation between scopes has been used by organizations as a justification for not taking responsibility for their indirect GHG emissions. According to the WEF “less than 1 in 10 companies reporting to the CDP has a reduction target on them” (2020) [3]
Despite the challenges of addressing indirect emissions, Scope 3 emission reductions can be achieved by generate substantial commercial benefits. For example, mitigating risks within value chains, generating new innovations and collaborations could enable organizations to respond to increasing pressure from investors, customers and civil society for more sustainable management (Science Based Targets, 2018).[4].
What are the best practices in emissions reduction?
According to Science Based Targets[5] three actions are recommended:
1. Set a corporate emissions reduction target aligned with science.....
This implies that, at the very least, they should be aligned with the percentage reduction in absolute global GHG emissions. Additionally, targets should be defined in two ways: absolute (percentage reduction in emissions in a target year versus a base year) and/or intensity (percentage reduction in emissions formulated in an indicator of a target year versus a base year) to have information on target ambition as well as improvements in GHG intensity.
... and encourage their suppliers to align themselves with their suppliers
Another way to drive emissions reductions is for the company to influence its suppliers to commit to improving their environmental performance, starting with a report on current emissions. “For example, if two companies ask a supplier to report its environmental impact to the Carbon Disclosure Project (CDP), there is a 68% probability that the supplier will do so. If three companies send this request, then there is a 76% probability. The more requests a supplier receives, the more likely they are to take action and the more likely these companies are to achieve their shared goal of value chain emissions reduction targets.” (Science Based Targets, 2018) [6]
3. Activating “levers” in emissions reduction
Levers“ can be projects, programs, business decisions or other actions that reduce an organization's GHG emissions in a cross-cutting manner. Some examples are: innovation in business models, product and service design, operating policies, impact investment strategy and consumer involvement. The important thing is to understand that in order to reduce emissions, it is necessary to propose a challenge and answer some questions such as: How can I do it in less time, how can I do it with less resources, how can I do it with less budget? This allows us to understand the challenge and evaluate options for approaching it, with an innovation scheme.
Companies are already demonstrating that it is possible to address Scope 3 indirect emissions reductions. More than 8,400 companies reported to CDP during 2019, these represent a 20% increase over the previous year. The opportunity for companies to use their leverage within value chains to act as catalysts for the decarbonization of the global economy is immense. This is also particularly relevant in those segments where other drivers for emissions reduction have difficulty in reaching. The ripple effect that can be generated is enormous, as are the business and global benefits.
Sources:
[1] Intergovernmental Panel on Climate Change (IPCC), 2018. Global Warming of 1.5°C.
An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty.
[2] UNEP, 2019. Emissions Gap Report 2019.
[3] World Economic Forum, 2020. The Net-Zero challenge: Fast-Forward to Decisive Climate Action.
[4] Science Based targets, 2018. Value change in the value chain: best practices in scope 3 greenhouse gas management.
[5] The science-based objectives provide companies with a clearly defined path to future-proof growth by specifying how much and how fast they need to reduce their greenhouse gas emissions.
[6] Science Based targets, 2018. Value change in the value chain: best practices in scope 3 greenhouse gas management.
