All-in for 1.5 °C: The pressure to meet climate protection targets and corresponding, verifiable measures is coming from all sides and is increasing at an unprecedented rate. The compulsion for companies to face these requirements is without alternative. But which measures are a priority? And which steps toward a climate strategy are sufficiently practicable and recognized to withstand the increasingly rigid expectations? We give you five tried-and-tested recommendations, list first steps without sorcery, and a tip on funding opportunities.
The 26th UN Climate Change Conference of the Parties (COP26) in Glasgow in early November last year focused the attention of all stakeholders on limiting the global temperature increase to 1.5°C. To achieve this goal, global climate gas emissions must be halved by 2030.
The Glasgow Climate Pact has made it clear that the days of coal, fossil fuels and deforestation are numbered. Investors, regulators, clients, suppliers and customers are all pulling in the same direction. The pressure and compulsion for verifiable results have reached historically unprecedented levels. The fight against climate change belongs at the top of the agenda, without alternative or delay.
Climate check points
In order to achieve the climate targets, measuring sticks and check points are being erected in rapid succession. They come from regulators and consumers, but also directly from the business community. Three examples are briefly mentioned here:
- The EU taxonomy affects all listed companies since 2022. But lack of size only has a delaying effect, not a repealing one. Because from 2024, all companies with 250 or more employees will have to report on climate-relevant financial and sustainability data as part of the European Corporate Sustainability Reporting Directive (CSRD).
- More and more companies and suppliers from the B2C sector are advertising climate-friendly products. In some cases, they have set themselves very ambitious targets and have also made these binding for their supply chain. This also applies in large measure to the packaging industry.
- On March 30, 2022, the EU Sustainability Product Initiative will be published. This also includes the Green Claim Regulation. It will make the Product Environmental Footprint (PEF) the mandatory basis for sustainability claims in the future.
This raises two crucial questions: What measures should companies prioritize? And what are proven steps toward an effective climate strategy?
Proven measures with priority
Based on our experience working with companies to create climate strategies, we recommend five actions. They ensure that your company’s climate goals are consistent with scientific evidence. And they ensure that your activities are comprehensive enough to withstand growing public attention.
1. Setting recognized and substantiated goals
More than 2,200 companies from 53 industries and 60 countries had already set science-based targets to reduce harmful climate gas emissions by November 2021. The 1.5 °C target of the Science Based Targets initiative (SBTi) serves as the framework. In fact, more than 1,000 companies have committed to the ambitious net zero (Nzero) emissions target for which SBTi introduced the first credible and independent assessment at COP26, the Net Zero Standard.
Against this background, we can only recommend that every company set itself SBTi climate targets. This is the only way they can provide recognized evidence and communicate that they have taken meaningful and effective climate protection measures. Depending on the framework conditions, companies should either reach for the “normal” (near-term) 1.5 °C SBTi target, or pursue the net zero target.
The public commitment to reduce emissions under SBTi sets a standard that impacts the entire value chain and is reinforced by required reporting under the Carbon Disclosure Project (CDP).
2. Including the entire value chain
The challenges for decarbonizing the value chain are incomparably greater than for reducing emissions in one’s own company. Nevertheless, there is no way around it, because emissions in the supply chain are on average 11.4 times higher than operational emissions in the company itself. So there is massive potential here that needs to be leveraged.
Precisely because a large percentage of the emissions attributed to the company or its products are generated in the relevant value chain, major players cannot achieve their climate targets without action from their SME suppliers. The more of the world’s leading companies commit to decarbonization, the greater the pressure along the entire chain. Loopholes and climate anomalies disappear. It’s do or die.
We recommend focusing on reduction measures that address major sources of emissions and thus lead to a significant result. And we recommend measures for the areas over which your company can exert at least partial influence, such as the area of suppliers or the topic of business travel.
3. Cooperation between the finance and sustainability teams
At COP26, a consolidation and merging of the various global financial and sustainability reporting systems such as GRI (Global Reporting Standard), TCFD (Task Force on Climate-related Financial Disclosures), EU Taxonomy and the CDP was announced. It is expected to make it easier for companies to report on their climate and sustainability performance in a recognized and verifiable way from October 2022. In addition, it will be easier for “the outside world” to track and understand corresponding progress. In light of consolidation, the inevitable result for companies is that their own financial and sustainability reporting will have to be much more inclusive. Finance and sustainability teams will have to work together much more closely than before.
A GAP analysis based on international standards such as TCFD, GRI or ISSB (International Sustainability Standards Board) is recommended as a concrete starting point for assessing the current status of a company’s own data collection and reporting structure. Companies that act with foresight in this way will gain a clear advantage when it comes to reporting in accordance with the new, consolidated system from 2024.
Finance teams are good at establishing a rigorous reporting process with solid evidence on the data side, while sustainability teams are critical to validating the evidence. Companies should ensure closer linkages between the two teams. This is the only way they can best leverage the capabilities of both teams to meet the new requirements.
4. Renewable energies
The message from COP26 was clear: fossil fuels have a (near) expiration date. Corresponding measures by governments to move away from coal-fired power generation and mobility based on fossil fuels will become more frequent in 2022. This does not only affect Europe. In the U.S., this trend also accelerated even in December 2021 with President Biden’s announcement that government procurement would shift to renewable energy and electric vehicles. This action by the state, as the largest electricity buyer in the U.S., will have a huge impact.
Companies can also achieve significant reductions by switching to renewable energies and electric vehicle fleets. Especially in Scope 1 & 2, company-related emissions can thus be significantly reduced.
5. Aligning public affairs goals
Membership in business associations whose climate position runs counter to their own goals is becoming increasingly counterproductive. Stakeholders are increasingly paying attention to holistic and “honest” action. Companies should therefore align their sustainability goals with their public affairs goals and avoid contradictions. Communications and public affairs teams must be on the same page when it comes to climate policy.
Get active now! With funding and without sorcery
2022 is the year to tackle serious and recognized climate reporting. This is the only way companies can be prepared for customer demands and legal reporting requirements.
The creation of a climate strategy including a Greenhouse Gas Inventory (GHG Inventory) and CCF (Company Carbon Footprint) does not have to be rocket-science. Not every company needs new software for this. Our experience shows that companies can also take the first steps effectively with Excel.
Subsidies are also in the realm of possibility. If you are considering tackling your SBTi-compliant climate strategy now, the new funding from the German Federal Office of Economics and Export Control (BAFA) could be an option for you. From November 1, 2021, it will support companies based in Germany in planning and implementing their transformation towards climate neutrality.
This funding is of particular interest to all companies that intend to make energy-saving and energy-efficiency-enhancing investments in 2022 anyway.
Make 2022 your climate year! We will be happy to support you on your way – from the creation of your climate strategy and the determination of your product carbon footprint to the use of funding opportunities.