Climate Action

I had the opportunity to revisit this critical topic at the NTT DATA CxO event in KL. I decided to commit it to an article.

Wake up call

In early 2020, the world experienced a pandemic that put the entire human population on lockdown. These were challenging times that claimed many precious lives. However, it was also a time when we reflected on what was most important to us - family, health and Mother Nature. A remarkable transformation took place as we all stayed home and shifted our activities online. Mother Nature began to heal and reclaim her territory. For the first time, we could hear nature, breathe cleaner air, and see animals roaming the city streets. This hopeful change left a more profound impression on us than all the articles and documentaries about climate change. The lockdowns have also brought about positive shifts, such as the widespread acceptance of online education, the reevaluation of global supply chain networks, the implementation of hybrid working arrangements, and a renewed focus on sustainability efforts.

Climate action

One of the 17 UN sustainability goals is goal number 13 - Climate Action. The objective of Climate Action is straightforward - to reduce greenhouse gas (GHG) emissions and curb the rise in global temperature. The call to action for businesses is clear and powerful - to invest in more sustainable methods and approaches, use more sustainable sources of energy and materials, and participate in the circular economy. These approaches will require significant investments in research and development, implementing new technology and eliminating waste. By taking these steps, businesses can play a crucial and empowering role in shaping a more sustainable future.

Starting point

Businesses will need insights to know which sustainability initiatives to pursue. The first step is to understand where the biggest bang for the buck is. For example, if the business is to manufacture a particular product, there are opportunities to explore:

1. If production can use more sustainable or recyclable materials
2. If the production process could use less energy and water consumption
3. If the distribution channels can be more fuel-efficient
4. If the use of the end product can have less impact on the environment
5. If the disposal of the used product in landfills and burning can be avoided

Carbon accounting

It is common for any business to evaluate the economic cost of any business activity to maximize profits. Investment and return on investments are the common denominator. Similarly, management can apply the same principle and discipline to GHG emissions. This process, known as 'carbon accounting ', involves measuring and tracking a company's greenhouse gas emissions, typically in metric tons of carbon dioxide equivalent (CO2e), to understand and manage its environmental impact. This practice is not only crucial for environmental sustainability but also for the long-term profitability and resilience of businesses.

Similar to direct costs, CO2e can also be associated with a product directly - these are the emissions tied to the volume of material used, direct emissions released to produce each item, packaging material, transportation and material handling. Some of these measurements must be apportioned to the number of products produced.

There are also indirect CO2e due to operations and administration - business travel, procurement of consumable materials, lease of equipment and space, maintenance operations and even depreciation. These indirect CO2e can be allocated to various facets of the business, such as sales channels, market segments, product categories, and territory.

With economic costs/savings reported next to CO2e emissions, management will have better insights into the ratio of profits vs impacts. When the new CO2e denominator can be allocated down and aggregated up, management can make conscious decisions on planet vs profit at any dimension.

Standardized rating

First, the Greenhouse Gas Protocol has established a framework to identify, classify and measure GHG emissions. It provided the guidelines to measure emissions in 3 scopes - Scope 1 Direct Emissions, Scope 2 Indirect Electricity Emissions, and Scope 3 Value Chain Emissions (upstream for suppliers and downstream for buyers). This standardized rating system ensures transparency and comparability, giving businesses the confidence that their efforts are being measured and recognized in a fair and consistent manner.

Second, we have the ISO 14000 series for Environmental Management to help organizations set up a system to manage and improve environmental performance. Also, I came across an article highlighting standards ISO 14064 - organizational level quantification and ISO 14067 - product level quantification.

A Guide for Company Decision Makers: Choosing Between ISO 14064 and ISO 14067

Recording and rating process

Before any business can start to rate and quantify CO2e, it needs to record its activities - materials procured, energy consumed, products made, products sold, delivery fulfilled, etc. With the help of standards, these activities are rated and quantified based on the scope of the business activity. The quantified CO2e can be apportioned, allocated and aggregated by adopting the same financial principles for audit and reporting.

Available systems today

To accurately do carbon accounting, companies must digitize the recording, quantification and reporting based on the prevailing standards and guidelines. Many analytical platforms in the market ingest business activities and calculate the environmental impact. The platform provides insights to management if a strategy is helping meet the company's net zero goals.

However, the drawback of analytical platforms is that they do not offer any form of control as with ERP systems. Companies need the capability to automate checks and balances to prevent procurement or execution of a plan that exceeds CO2e emission thresholds and approval processes where decision-makers take ownership. This way, best practices can be adapted to have an additional denominator to evaluate who to buy from, when to consolidate a shipment and how to manage a production plan.