Actively managing greenhouse gas (GHG) emissions has proven to result in direct economic gains for companies. A 2013 KPMG study of the S&P 500 companies found that firm value decreases on average by $212,000 for every additional thousand metric tons of carbon emissions produced. CDP’s Global 500 Climate Change Report 2013 showed that companies who are leaders of sustainability reporting have higher overall returns than companies of the Global 500. Furthermore, companies that systematically track their carbon emissions across product lifecycles find ways to improve resource allocation, eliminate waste, and reduce inefficiencies. The CDP also found that 79 percent of US companies earn more from investments aimed at reducing carbon emissions than their average overall capital expenditures.
Despite the economic incentives, many companies are still failing to adequately analyze and reduce GHG emissions. Reasons for this include:
- Businesses fail to understand the direct economic benefit to their bottom line and valuation by reducing their GHG emissions
- Businesses lack an understanding of how to effectively align their operations with their carbon emission goals.
- Businesses lack the tools required to accurately collect and analyze carbon emission data across their operations and distribution channels.
Why is it important for companies to understand their carbon footprint?
1. Economic Drivers
To limit global warming to 2°C annual global greenhouse gas emissions must peak by 2020, and reduce steeply thereafter. A joint 2013 report by CDP and the World Wildlife Fund (WWF) in 2013 showed that by reducing annual GHG emission by 3 percent, the US corporate companies sector can save up to $190 billion by 2020.
Companies that systematically track their GHG emissions across lifecycles, while keeping an eye on the bottom line, find ways to improve resource allocation, eliminate waste, and reduce inefficiencies. As described by Wim Bartels, the global head of sustainability services at KPMG: “As soon as you start collecting information on any topic, companies will see ways to improve performance. If the subject is energy use, then a company will look at ways to reduce consumption. So reporting becomes the basis for innovation. Companies can learn from it.”
By accurately measuring the impact of their sustainability efforts, companies are able to allocate their capital and resources in the most cost-efficient manner as they make strides to reduce their GHG emissions.
2. Regulatory Requirements
As the discourse on global GHG emission levels continues to evolve, both the public and private sectors have increased the pressure on companies to disclose emission data. In addition to mandatory disclosure requirements, companies with best-in-class sustainability practices have led the way in producing sustainability reports with more detailed information on emissions and resource efficiency management. Along with satisfying regulatory bodies’ requirements, these reports stimulate innovation by highlighting areas where efficiency might be increased.
NGO initiatives are also calling for better corporate sustainability reporting. The International Integrated Reporting Council launched the Corporate Reporting Dialogue (CRD) in June 2014 to align global standards on sustainability reporting frameworks for sustainability in response to market demands. The CRD includes participants from multiple international and national regulatory bodies such as the Climate Disclosure Standards Board (CDSB), Financial Accounting Standards Board (FASB), and International Accounting Standards Board (IASB).
The Global Reporting Initiative (GRI) released its G4 Sustainability Reporting Guidelines in 2013. Subsequently, the GRI framework has been adopted by government agencies, and companies worldwide as the standard reporting format used to comply with policy and regulatory requirements.
In addition to the more detailed and stringent reporting guidelines, international institutions such as the EU are imposing stricter regulations on the private sector. On April 25, the EU announced that product-level LCA disclosure will become mandatory by 2017 to qualify for eco-labeling.
The private sector has also led the way in increased emissions reporting. The number of companies that issued sustainability reports increased from less than 500 in 1999 to close to 5800 in 2011, constituting an increase of 23 percent annually, according to GRI.
3. 2020 Vision
The year 2020 marks a milestone in several global environmental campaigns:
- The general consensus of governments and scientists globally is that a world warmer than 2°C above pre-industrial averages will bring about dangerous and potentially irreversible climate change. To avoid that, the developed world needs to reduce carbon emissions by 25-40 percent below 1990 levels by 2020.
- The EU 2020 strategy has three objectives: 20 percent reduction in greenhouse gas emissions from their 1990 levels; raising the share of renewable energy to 20 percent; and improving the EU’s energy efficiency by 20 percent. The EU Eco-label project is an important part of the strategy and identifies products whose environmental impact has been reduced throughout their life cycle.
- The UN calculates that one-third of the world’s population is suffering from water shortages. By 2020, water use is expected to increase by 40 percent. According to a recent report by the Center for Naval Analyses (CNA), our current rate of water usage will lead to water scarcity that would affect 30-40 percent of the world’s population by 2020.
How can carbon accounting software help?
Powerful applications on the market allow companies to integrate their environmental and financial metrics. Benefits include the ability to:
- Share metrics throughout company departments
- Build brand integrity, differentiation & leadership
- Export reports for annual, sustainability or regulatory requirements
- Inform business strategy with financial and environmental metrics
- Track annual performance
Andrea Asch, Manager of Natural Resources at Ben & Jerry’s, has said that using such an application has “Provided us excellent insight and information regarding our carbon emissions. From the study we can set goals for emissions reductions focusing on the appropriate targeted areas.”
By analyzing GHG emissions and implementing reduction strategies into management processes, companies will gain substantial economic benefit while reducing their environmental impact.