Navigating Climate Transition with a Clear Path for Decarbonization
Companies are increasingly committing to ambitious short- and long-term greenhouse gas (GHG) reduction targets. This raises the question of how to reach these targets and closing the “gap-to-target” between the current carbon footprint and communicated GHG reduction ambition. The challenges of translating these targets into tangible decarbonization measures are becoming even more demanding as financial pressure increases.
To address this, companies need a well-balanced roadmap outlining their individual route to sustainability and ultimately “net zero”: The climate transition path.
Efficient decarbonization focuses on economic and ecological benefit
The optimal climate transition path has an ecological impact, is financially viable and supports the overall company strategy. This requires:
Carbon reduction measures addressing the entire value chain and product lifecycle
Enabling measures, that lay the foundation for change, and steering the company on the path to sustainability in the long-term
A robust financial assessment of required costs and achievable savings for all identified measures
A prioritized roadmap, aligning resources with committed targets
Measure identification requires a holistic approach
To achieve reduction, measures across GHG Scope 1, 2, and 3 emissions should be identified. Following this structure, not only direct emissions of the company are relevant, but also indirect emissions in the upstream and downstream value chain, such as emissions from upstream purchased materials and the downstream use of sold products.
A lot of activities to reduce GHG emissions fall into the responsibility of individual functional departments, especially procurement, R&D and plant operations. However, experience shows that major levers lie in cross-functional initiatives and even at the interface between suppliers and customers, such as in specification management.
One approach does not fit all
Each industry and business model presents individual challenges and opportunities for decarbonization. Understanding company specific focus areas and emission hotspots is essential to achieve a transition path, that has a high impact and is moderate in cost.
Within the manufacturing industry, for instance, the energy mix, availability of sustainable raw materials or services, as well as regulatory environments and governmental support are highly relevant and differ across regions. Hence, a plant in Germany with a high percentage of renewable energy in its grid mix may focus on electrifying its operations, while a plant in India with limited renewable options might prioritize energy efficiency and local renewable energy projects.
Specific decarbonization measures are not the sole components of a comprehensive climate transition path. Equally important are enabling measures that set the foundation for long-term target achievement. One pillar is anchoring sustainability aspects within decision processes and governance mechanisms including management incentivization. Another is providing sufficient data transparency and meaningful reporting to steer target achievement.
Enabling measures on the climate transition path include, for example, anchoring qualitative sustainability criteria during awarding decisions in procurement, developing a concept to introduce an internal CO2e-price, and introducing environmental decision bodies during product development. These elements are bringing the transition into day-to-day operations and introduce sustainability into the governance of functions – in addition to the existing dimensions of time, cost, and quality.
Prioritizing measures through defining a value for CO2e-reduction
Establishing a basis for comparison and prioritizing decarbonization measures presents a challenge for most companies. Assessing the potential impact, feasibility and cost-effectiveness within the measure portfolio provides a definitive value of decarbonization in form of cost per kilogram CO2e of potential GHGreductions. Based on this transparent prioritization concept and evaluation of reduction scenarios for Scope 1-2 and Scope 3, a climate transition path can be outlined that answers not only the question “what should we focus on to achieve our targets?” but also “what do we need to invest?”
Starting the journey on the climate transition path
In order to move from plan to execution, we recommend a binding timeline considering the prioritized measure portfolio, available resources and parallel initiatives. In addition to these internal aspects, also external aspects such as customer requirements, technological advancements, and governmental subsidies need to be considered.
As regulatory requirements and technical solutions are evolving, our experience shows, that an ideal climate transition path has to be re-evaluated and steered continuously following the guideline: central coordination and local execution.
Horváth is your partner for developing a clear climate transition path, which ensures the desired decarbonization effects in the short- and long-term through reduction and enabling measures as well as an efficient allocation of resources. Please feel free to contact us for insights.
