TLDR
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In the transition to net-zero, in certain jurisdictions, companies are now required to provide climate disclosures and more clients are asking companies to improve their carbon management and climate disclosures.
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“Carbon management” is a broad term for measuring, reporting on, and reducing your carbon emissions.
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Carbon management can be a challenge, particularly as many businesses are approaching it for the first time. However, with the right tools and guidance, companies can take steps to reduce their carbon emissions.
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Carbon management can benefit businesses with operational efficiencies, cost savings, and a positive reputation.
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Clarity around a business’ carbon emissions profile can help to identify risk, protect investors, and unlock access to capital.
As the world economy transitions to net-zero, more businesses are measuring, reporting on, and working to reduce their carbon emissions. While some companies are choosing to voluntarily disclose their emissions data, businesses could be impacted by mandatory regulations that require them to report on Scope 1, 2 and 3 emissions. Scope 3 includes supply chain emissions, meaning that companies are starting to turn to suppliers to gather this information.
And regulatory standards are being set around the world, which impacts companies with global supply chains and operations: In the United States, California has passed two laws requiring businesses to disclose their greenhouse gas (GHG) emissions and disclose climate-related financial risk (Bill SB-253 and Bill 251). The European Union’s Carbon Border Adjustment Mechanism applies a carbon price to goods imported into the EU, and Canada’s Bill-59 aims to mitigate greenwashing by requiring companies to back up environmental claims with data and reporting.
Getting a clear picture of your company’s carbon emissions is not an overnight task, nor should it be taken on without a plan and clear understanding of the process. In this article, we’ll explore what carbon management means, what it entails.
What is carbon management?
Carbon management is the process of measuring and reducing the greenhouse gas (GHG) emissions produced by your business activities, which is sometimes referred to as a “carbon footprint”. This is one part of your company’s broader environmental impact, which can also encompass water consumption, material use, waste management, biodiversity considerations, and much more.
In this article, we’ll help you start thinking of carbon management as a multi-step process for your business. It involves first measuring your emissions, which helps set a baseline year that will give you a snapshot of your emissions at a particular point in time. From there, your new emissions data will help you understand your hotspots (that is, your most carbon-intense activities). You can focus on these to set targets for reduction, and then track these reductions over time.
Carbon management is about more than just measuring emissions, but knowing these levels is a critical first step. It lays the foundation for your company’s environmental sustainability strategy, allowing you to set achievable reduction targets, identify relevant next steps, and report credibly on your environmental sustainability progress.
What are the business benefits of carbon management?
In many cases, carbon management is simply a business necessity. For example, carbon reporting requirements have recently become mandatory in several regions globally, such as the EU and California. But carbon management is more than just complying with regulations — it can be good for business for a number of reasons:
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Understanding the scope and scale of your carbon emissions could help to improve operational efficiency, leading to cost savings through reduced energy consumption and streamlined processes.
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Sharing information about your environmental sustainability strategy and actions can build brand trust and reputation, attracting like-minded customers and investors.
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Companies with a genuine commitment to corporate responsibility have higher productivity. Climate action can also help to attract new talent, particularly as more people look for purpose in their work.
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Climate action can also improve access to capital, as banks and insurers look to provide support for carbon-cutting projects through special interest rates and sustainability-linked financing.
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Beyond meeting regulatory standards, having a clear picture of your company’s GHG emissions could help to identify risks in your value chain that investors could view as a liability, such as increased costs or reduced sales.
Are there any drawbacks to carbon management?
Companies might fear that measuring and disclosing their total carbon emissions could expose them to reputational risks. However, transparency should be considered a key part of your environmental sustainability strategy in order to build long-term trust with stakeholders. Avoiding disclosure could actually increase risk for businesses, as a lack of transparency can leave stakeholders and investors vulnerable to undisclosed climate risks. Even if you’re starting from zero, being upfront about your current impact and your commitment to improvement can help to build trust and credibility.
How to create a carbon management plan
To get your company’s carbon management plan underway, it can help to have the right team and tools in place from the outset: Find experts who can guide you through the process, helping you navigate complexities of collecting accurate data, and choose the most effective approach to reducing GHGs.
Here are steps to consider as you plan to launch and operate a carbon management plan:
1. Calculate your company’s baseline emissions
The first step in any carbon management plan is understanding your starting point: Your baseline emissions. To do this, you’ll need to collect accurate data on the activities that contribute to your total carbon emissions. The type of data you’ll need depends on the business you’re in, but might include things like receipts and invoices from suppliers, energy bills, business travel data, surveys to learn about how employees commute to work, details on company vehicles and fuel purchases, and so on.
Generally, anything you pay for or do within the business has an associated carbon footprint. Don’t be overly ambitious about how quickly you can gather all this data. It’s not always obvious up front which data (and how much of it) you’ll need, and scope creep is a common experience. Getting the right tools or partners involved early can help manage expectations here.
Once you’ve collected the data, the next step is to convert it into carbon emissions. This means using standard conversion factors to translate activity data (like kilowatt-hours of electricity or liters of fuel) into greenhouse gas emissions. There are many tools and resources available to help with this process.
2. Set an emissions reduction target
With your baseline emissions in hand, the next step is to set a reduction target. Make sure this target is science-based and aligned with credible organizations, such as the Science-Based Targets initiative (SBTi). A credible target ensures your efforts will have a meaningful impact and be taken seriously by others.
When setting your target, strike a balance between ambition and reality. An ambitious target can energize your team and create momentum, but it’s important to remain practical. Reducing carbon emissions is a long-term project, so ensure your goals are achievable over time. If in doubt, start small. It’s better to reach for higher goals over time than to have to publicly (or privately) walk back your goals.
3. Identify emissions hotspots
Using your baseline emissions data, pinpoint activities that contribute the most to your total carbon emissions count. These are your emissions hotspots. It’s worth comparing your data to industry benchmarks or competitors (you can learn a lot from greenhouse gas data tables in sustainability reports). These comparisons can help you determine where you might have a competitive ‘carbon’ advantage and where your emissions are unnecessarily high.
Understanding these hotspots will allow you to focus your initial efforts where they’ll have the greatest impact.
4. Get started!
Once you’ve identified your emissions hotspots, move into action. Begin by addressing hotspots that can be easily, quickly and cost-effectively reduced. These might include actions like switching to renewable energy providers, implementing sustainable travel policies or upgrading to energy-efficient equipment like LED lightbulbs, heat pumps or improved insulation.
Securing a few quick wins is helpful to the success of your program,. It can also become a source of cost savings. For example, revising your company’s travel policy might reduce both emissions and travel expenses, making it a win for both your carbon management plan and your bottom line.
5. Set regular intervals for monitoring and reporting
Carbon management is like budget management — it’s an ongoing activity. Decide how often you’ll collect new data and report on your carbon reduction progress.
Regular reporting is vital for maintaining momentum and accountability internally, and it can also unlock business benefits externally.
Carbon management is a journey for your business
Preparing your company for the net-zero economy is not a one-and-done activity, and neither is carbon management. The process of measuring and reporting greenhouse gas emissions is a journey that can equip your business to meet regulatory standards, gain access to investors and capital, and identify potential risks and opportunities for your business in the long- and short-term.
To support clients on their journey to net-zero, RBC works with Carbonhound, a climate action platform that helps companies measure and track their environmental impact. Speak to your RBC relationship manager today to learn more.
