Donavan Hornsby is chief market and strategy officer at Mason, Ohio-based Benchmark Gensuite. Views are the author's own.
With the Intergovernmental Panel on Climate Change’s latest report calling for collective global effort on reducing greenhouse gas emissions, discussions around concrete actions to be taken by corporations are heating up.
While many companies have communicated climate change transition plans, recent developments and data from CDP, a not-for-profit that runs a disclosure system that helps entities manage their environmental impacts, suggests that too few of the plans are “credible.” Simply put: It is not enough to just account for emissions. Companies have to actually reduce them.
For too long, corporates have focused on the regulatory drivers including the looming SEC rules or appeasing the debaters within the realm of environmental, social and governance issues as the basis for action, rather than on the true enterprise value that credible emissions accounting and, more importantly, management can deliver. There is opportunity in the challenge.
While disclosure frameworks and climate plans are helpful guideposts for organizations, fulfilling them is not often top of mind for CEOs and CFOs. The vast majority of executives see the increased value of sustainability initiatives, and know that companies with a strong sustainability track record fetch higher valuation from investors. A whole-of-company emissions tracking management approach begins by understanding what environmental, health and safety, ESG and sustainability issues are unique to their operations, stakeholders, and broader brand. This first step, while it may unearth some unpleasant realities, is crucial in the journey to increasing both the sustainability and value of a company.
As a large majority of surveyed companies are failing to disclose information about board-level oversight, financial planning, and scenario analysis, they’re missing out on a multitude of business value-enhancing opportunities too. Climate risk scenario analysis creates improved financial planning by mapping the long-term impacts of potential future climate- and health-related events on your company. A growing number of corporations and investors agree on its importance. Yet while risk mitigation can bring business value, so too can the opportunities discoverable with thorough emissions accounting methods.
Accounting of operational emissions and other inward sustainability risks, such as water scarcity and environmental degradation, equips companies with more insight into the risks against their operational efficiency, health and safety outcomes, and other dollars and cents indicators of enterprise performance. Such holistic accounting will help to delineate pathways toward opportunities for value creation.
Identification and evaluation of value creation opportunities is only possible with reliable data assembly, analytics, and stakeholder engagement. Unfortunately, much of the needed data and functional collaboration are held hostage by patchworks of systems and spreadsheets that do not talk to each other. A pivot to a value creation mindset requires a view to resource usage and carbon footprint, which is most accessible via an integrated data management and reporting platform. This kind of platform draws together various data streams (e.g., energy use, GHG, sub-optimal equipment, etc.) and helps to quantify potential investments and projects in terms of sustainability measures and financial measures which, for all intents and purposes, are one in the same.
Take for example a semiconductor manufacturer, part of an industry whose operational energy and water intensities have begun to draw the ire of sustainability-focused investors. Provided that our chipmaker has access to verifiable emissions data from its network of water suppliers, a cloud-supported emissions accounting system will enable useful analysis.
For instance, the business will be able to compare emissions profiles of different water suppliers and qualify those findings with a supplier spend analysis to determine Scope 3 emissions management priorities. The ensuing supplier engagement, then, will help the business to determine whether their upstream emissions can be affordably and quickly reduced, or whether they should look to cut emissions elsewhere.
Companies can realize business value when measuring and tracking their direct and indirect contributions towards non-emissions related issues. Investors, existing and prospective employees, customers and other stakeholders are more in-tune than ever to how companies are taking on issues like biodiversity, EHS and sustainability. By implementing a system-wide software to collect and interpret data on value chain risks and trends, companies can provide concrete evidence that show their seriousness to shaping their sustainability approach.
All this to say, reorienting the viewpoint of emissions tracking and broader EHS and sustainability management to how much value it can bring your business is essential — and an important way to cut through the noise of headlines. And while the task may seem daunting, it doesn’t have to be if companies utilize an accurate and amendable sustainability approach driven by data analytics.
Hats off to the growing number of organizations that are facing the music when it comes to these complex issues. If they want to ensure the process is beneficial to both their stakeholders and investors now and in the future, a mindset shift is in order.