When it comes to climate action, private equity firms and portfolio companies need progress over perfection.
With limited time and resources, the idea of greenhouse gas data gathering and carbon footprinting can seem daunting, but a rough estimate of the baseline is good enough to make progress where it counts: setting a credible target and making real progress on decarbonization.
What a carbon footprint is, and isn’t
Corporate carbon emissions change over time for many reasons. Company growth, operational changes and regional expansion/consolidation can all have major impacts on GHG emissions, irrespective of a company’s climate agenda.
For example, moving operations from Western Europe to Eastern Europe for labor cost savings can increase emissions by a factor of 20x simply due to more carbon-intensive power grids. That’s like taking 20 steps backward when your target requires 10 steps forward, making it far more difficult to reach corporate climate goals.
But it’s not all bad news: ambitious national policies and supply chain decarbonization activity can create tailwinds to reach GHG targets in certain regions and sectors. These trends may appear subtly today but can gather speed and help contribute to much of the decarbonization needed by certain companies to align with a 1.5°C target pathway.
With emissions changing dynamically over time for all kinds of reasons, it doesn’t make sense to focus on getting that baseline snapshot perfect. Instead, get it ‘good enough’ for setting a target and forming an initial sense for where the key decarbonization opportunities lie – this will get you ahead with real progress, not stuck in analysis paralysis with a footprint that will never be perfect.
A basic carbon footprint only needs to be good enough to identify the GHG hotspots. These are the emissions sources that dominate. This will vary with business operations; for example, the most relevant emission categories for food & beverage companies tend to be purchased goods & services, transportation/distribution, business travel and waste treatment:
The examples above are all from within a company’s value chain which means they are considered Scope 3 emissions. These emissions can be difficult to quantify accurately due to the nature of Scope 3 data, in that it requires engaging directly with actors within the supply chain to access their data.
As an example, Scope 3 emissions often arise from shipping & logistics. A basic way to start estimating these emissions would be based on the company’s spend for each mode of shipment. Over time, by collaborating with suppliers to get details of shipping distances and weights, these granular details can be used to estimate emissions more accurately. Eventually the company could then strive for best practice by collecting data on the type and quantity of fuels used in its transport vehicles for the highest possible accuracy – but this is not necessary to get started. Many software platforms now exist to support this process, often specializing in different sectors and use cases, so rest assured there are tools to help reduce the workload on your sustainability team.
For small and medium-sized enterprises this process is even more straightforward. The Science-Based Targets initiative (SBTi) has guidelines for SMEs that do not require a strong understanding of its Scope 3 emission baseline, simply a commitment to measure and reduce them over time. Instead, SMEs are encouraged to focus on near-term Scope 1 & 2 emissions which can be quantified with relative ease, often from simply getting access to utility (power and fuel) invoices. Scope 1 & 2 decarbonization opportunities are also relatively easy to identify and can be prioritized and optimized for a given company to make immediate progress toward its near-term target.
