A Wake-Up Call for Sustainability Decision Makers
In the face of the accelerating climate crisis, this blog post offers a guide to corporate decarbonization, particularly focusing on product decarbonization. We discuss the rising tide of transparency in corporate carbon accounting and reveal that nearly half of global market capitalization now actively discloses carbon footprints. Carbon accounting and decarbonization efforts are not just ethical moves but strategic imperatives for gaining a competitive advantage. This is underscored by the changing business landscape where clients—especially in B2B sectors—are demanding transparency and actionable plans for future decarbonization. Regulatory changes like the EU’s Carbon Border Adjustment Mechanism and the U.S.’ Inflation Reduction Act are additional driving forces. This post also delves into the challenges and complexities of Scope 3 emissions and Life-Cycle Analyses (LCAs), and argues that a new, less resource-intensive approach is essential. Anticipating this need, we introduce Terralytiq’s Low-Carbon Products (LCP), a forthcoming SaaS tool aimed at simplifying carbon footprint data collection and analysis. The central message is that proactive decarbonization is not just environmentally responsible but a multifaceted strategy that offers businesses operational, financial, and reputational gains.
Introduction
Today, decarbonization is more than a mere buzzword or a supplemental line item in a corporate social responsibility report; it’s an urgent priority with far-reaching implications for both our planet and your business. In the face of climate change and a heightened global awareness of its impacts, setting your sights on decarbonization is no longer an optional undertaking. This blog post endeavours to provide sustainability decision-makers, particularly in sectors with a high share of their overall carbon footprint in their value chain, a substantive overview of the complexity, challenges, and ultimate imperatives of product decarbonization. The road to a carbon-neutral product line is undoubtedly fraught with challenges, but the silver lining is that it’s navigable—and it can even offer competitive advantages for businesses willing to invest in sustainability.
The Wave of Transparency
Transparency in corporate carbon accounting has transitioned from being a marginal concept to becoming a central focus for stakeholders. As of 2023, a staggering 18,600 companies that make up nearly half of the global market capitalization are actively disclosing their carbon footprints through the Carbon Disclosure Project (CDP). This remarkable shift in corporate culture doesn’t just reflect a broadening ethical stance; it signals a collective acknowledgment of the need for immediate and coordinated action. When half of the world’s businesses by market value are transparently sharing their environmental impact data, it should send a decisive message to any sustainability decision-maker that carbon accounting and reporting has moved from the periphery to the mainstream of business operations.
The Changing Winds
Initially propelled by regulatory mandates and investor scrutiny, the trend toward enhanced transparency in carbon accounting has evolved to incorporate substantial customer influence, especially in B2B interactions. Clients are not merely content with knowing your current carbon footprint; they now increasingly demand transparent, verifiable data, along with a credible roadmap for future decarbonization. This shift goes beyond a mere change in consumer preferences and signifies a transformation that’s redefining industry norms. Indeed, a company’s environmental impact is rapidly becoming a critical factor in procurement decisions, serving as a decisive competitive differentiator. This is further underscored by the dramatic increase in companies publicly committing to decarbonization or even net-zero targets through organizations like the Science-Based Targets initiative (SBTi). In 2023 alone, the number of companies submitting their decarbonization targets to SBTi has surged by over 60% compared to the previous year, totalling more than 2,300 submissions so far (with 4 months to go in 2023). This significant uptick underlines the growing importance of demonstrating not only current sustainability efforts but also future commitments to reducing carbon footprints.
The Other Side of the Equation: Benefits of Sustainable Companies
Reducing your company’s environmental footprint isn’t just about compliance or safeguarding against future risks; it’s a multidimensional strategy that can drive significant business benefits. By offering green products, you can unlock new revenue streams, such as selling to eco-conscious Original Equipment Manufacturers (OEMs), potentially even at a price premium. This also positions your company favourably in public tenders in many countries and makes you eligible for certain government subsidies and grants. On the operational side, ROI-positive investments in sustainability can simultaneously cut costs and carbon emissions. Financially, a robust sustainability agenda can open doors to green financing, from ESG-linked loans to green bonds, potentially increasing your company’s valuation multiple. From a policy perspective, proactivity in decarbonization helps to minimize the risk of future penalties, such as carbon taxes or duties. Additionally, leading in sustainability makes your firm more attractive to top talent in fields like engineering and technology, as more professionals seek employers that align with their values. Lastly, by being proactive, you mitigate two key types of risks: those related to stranded assets, which could lose value dramatically as low-carbon regulations tighten, and reputational risks that come from lagging in the increasingly important field of corporate sustainability. In short, a low environmental footprint isn’t just good for the planet; it’s a comprehensive strategy for creating multifaceted business value.
The Hidden Dragon: Scope 3 Emissions
When companies begin their journey toward sustainability, one of the most sobering realizations often lies in unpacking their indirect, or scope 3, emissions. For most, these are 8-9 times higher than their direct scope 1 and 2 emissions, which include only the energy and resources consumed within the company’s own operational boundaries. The magnitude of scope 3 emissions is a wake-up call to organizations and particularly problematic for SMEs. Achieving significant decarbonization requires far more than just optimizing internal processes; it requires a systemic approach that encompasses the entire supply chain, from raw materials to end-of-life product management.
Regulatory Hurdles
The regulatory landscape is quickly catching up to reflect these urgent environmental imperatives. The European Union’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Inflation Reduction Act (IRA) have recently set new benchmarks for corporate carbon accounting and reductions. These regulatory changes amplify the urgency of understanding your complete carbon footprint, not only to comply with legal requirements, but also to secure a competitive edge in a market that increasingly values sustainability. For an in-depth understanding of how these specific regulations could shape your business landscape, we recommend exploring our previous blog post focused on these emerging laws, specifically the CBAM and its impact on prices of imported commodities such as steel, aluminium, and cement.
The Current State: Life-Cycle Analyses (LCAs)
At present, many companies use Life-Cycle Analyses (LCAs) as the go-to tool to understand their products’ carbon footprints. While LCAs provide highly detailed and comprehensive insights, they come with their own set of challenges. These analyses are often resource-intensive, requiring external expertise and a significant investment of both time and money. They also require elaborate data collection from various departments, an exercise that can strain already stretched organizational resources. Further complicating matters, the extensive detail provided by LCAs often exceeds what most clients currently demand or find actionable. Finally, most LCAs are static reports that are difficult to update and that don’t offer future scenario planning or actionable strategies for reducing your footprint.
The Looming Challenge
As regulatory and customer pressures ramp up, the requirement for companies to conduct LCAs on an ever-expanding range of products will become unsustainable. Imagine having to manage the logistical, financial, and temporal commitments involved in commissioning LCAs for thousands of individual products. The scale of the challenge becomes a significant barrier, particularly for SMEs that may not have the resource bandwidth to keep up. The urgency of the situation demands a different approach—one that balances the need for comprehensive foot printing with the realities of limited organizational resources.
A New Approach
The need of the hour is a streamlined, cost-effective approach that still provides reliable and actionable carbon footprint data. Such an approach should allow businesses to utilize primary data sources but not be as exhaustive or resource-intensive as LCAs. It needs to be easily scalable so that even SMEs can implement it across their full range of products without getting bogged down by complexities. Additionally, this new method should allow for periodic updates to reflect the latest data and incorporate scenario planning to help companies understand future implications under varying conditions. Finally, it should offer actionable insights that come with timeframes, impact assessments, and cost estimates for implementing decarbonization strategies.
Introducing Terralytiq's Low-Carbon Products (LCP)
Anticipating these needs, Terralytiq is in the process of developing a SaaS tool called Low-Carbon Products (LCP). This tool is being designed with user-friendly interfaces and streamlined functionalities to enable easier data collection and analysis, scenario forecasting, and actionable insight generation. Terralytiq is offering pilot projects to help companies make a meaningful start to their product decarbonization journey. These pilots are fully customized to your operations and supply chain and can be integrated into your existing systems, making it easier than ever to make informed sustainability decisions.
Conclusion
In the current climate—both metaphorically and literally—the question is not whether to invest in decarbonization but how quickly you can start. Achieving a carbon-neutral footprint has transitioned from a distant aspiration to an immediate business necessity. Tools like Terralytiq’s LCP are stepping in to make this complex journey more manageable and straightforward. The challenge facing sustainability decision-makers, especially those in the manufacturing sector, is monumental, but the cost of inaction is even more significant. The imperative is clear: to secure a sustainable future for your business and the planet, decisive action on product decarbonization is not just advisable; it’s essential.
