Five Actions for Sustainable Business
Manage Carbon and Climate Exposure Throughout the Business
Reduce your financial and reputational risks by accounting for and managing climate-related emissions across all parts of your value chain, down to the individual product and service level.
Establish an internal carbon price
Carbon emissions in the form of climate change is costly. Placing an internal price on carbon serves to “internalize” the potential external costs of climate change. Governments have developed more than 60 carbon pricing programs around the world. But an internal carbon price is increasingly being used by companies across sectors and geographies to translate the risks and opportunities of a low-carbon economy into their particular business and decision-making.
Companies use internal carbon pricing to prepare for future regulation, reduce greenhouse gas emissions, respond to shareholder concerns, build more resilient supply chains, gain a competitive edge, and showcase their sustainability progress. More than 2,000 companies, including nearly half of the world’s biggest companies, disclosed that they are currently using or planning to implement an internal carbon price by 2022.
Some companies set a theoretical price on carbon, or a “shadow price,” to evaluate investments, test assumptions, and guide business strategy. Some use “carbon fee” to assign an explicit monetary value to emissions from business units to change behaviors and raise funds for clean energy and energy efficiency projects. Still, others use a combination of these or other approaches.
Setting an internal carbon price can provide businesses with the financial clarity to guide decision-making and investments needed to accelerate sustainable business action and innovation.
Manage your carbon emissions across all scopes
Carbon emissions are an increasing liability and companies need to act to protect their financial and reputational value. Businesses should explore how to effectively manage carbon across all scopes – the emissions they create in operations, the emissions created through the energy they use, and the emissions involved in their extended business activities, including travel, distribution, and purchased goods and services. They must avoid creating new emissions, reduce their existing emissions, and potentially compensate for those they cannot avoid or reduce.
But many businesses have moved forward without reassessing their business models or focusing on the underlying process, data, and governance changes they must make to accurately measure, manage, and reduce their carbon emissions. Merely focusing on individual operational emissions is no longer enough. Sustainable business leaders must now calculate the environmental and social impacts across the entirety of their company’s product and service lifecycles. This is complicated but important. Supply chain emissions are on average 11.4 times higher than operational emissions. Just as greenhouse emissions go beyond the four walls of a company, efforts to reduce those emissions must also extend beyond individual companies into the network of companies.
While every company can start by focusing on its own individual supply chains, those further down the path to sustainability can use business networks as a pathway to scale. Programs like WBCSD’s Value Chain Carbon Transparency Pathfinder is dedicated to enhancing transparency in corporate Scope 3 carbon emissions with the objective to ultimately decarbonize supply chains.
Businesses should align emissions disclosures with the Greenhouse Gas Protocol, the international standard for best practice carbon accounting. They should also pursue external appraisal of emissions targets to enhance credibility. Connecting with organizations, like CDP and the Science Based Targets initiative (SBTi), can help businesses set emissions reduction targets in-line with leading climate science.
Account for carbon emissions down to the product level
Sustainable business leaders must have transparency on the carbon emissions of a product across the entire value chain, including production, raw materials, energy use, and transport. Producers can also integrate data from product databases and third-party solutions to analyze and understand the emissions breakdowns. If a specific product is made in more than one location, for example, comparisons can be made for each activity of the value chain to determine the amount of CO2 it takes to produce the product in each location.
Producers can use the data to run simulations to optimize the carbon footprint. The more data a company has about its carbon footprint, the better it can use that data to reduce emissions across its value chains. It can better identify and reduce the cost-accounting “footprint” of each individual product or service throughout its lifecycle. As they gain better visibility across functions, companies can use the insights and information about suppliers and materials to optimize their supply chains, achieve more sustainable outcomes, and share their practices to accelerate positive, systematic change.