Summary
Every company needs a smart climate strategy to guide and accelerate their decarbonization projects. Sustainability leaders should look for these five milestones to know they are on track: a granular emissions inventory, internal alignment, prioritized projects, a funding plan, and readiness to iterate.
Companies are under mounting pressure to slash greenhouse gas emissions. But broad, meaningful climate action is a daunting task, requiring corporate leaders to rethink procurement, operations, and in some cases, entire business models.
A variety of existing and emerging solutions are available to help you achieve your goals. However, sustainability teams often face two common pitfalls: pursuing solutions opportunistically rather than following a thoughtful decarbonization strategy and sinking loads of time into a project only to be shut down by finance leadership.
It is critical that sustainability teams devise a data-driven strategy that maps out which low-carbon solutions to implement and when, based on their company’s unique carbon profile and economics. They must also practice excellent change management from the very beginning to build buy-in from finance and other relevant departments. Through our work with clients, Coho has identified five key milestones that indicate whether you are on track.
Don’t have goals yet? No problem. The milestones outlined below are helpful whether you’ve already set public commitments, such as science-based or net zero targets, or you’re just getting started on your climate journey.
Milestone 1: You Have an Emissions Inventory with Granular and Accurate Data
Collect greenhouse gas (GHG) emissions data by site, source (e.g., type of fuel or refrigerant), scope, and process. Granularity is key, as it’s not enough to simply know how much power or fuel you use. Solution types often depend on exactly where the emissions are coming from and how the fuel is being used.
For example, to reduce emissions from natural gas used for space heating, organizations can consider geothermal and/or air source heat pumps, which can be economically competitive in some situations. On the other hand, natural gas used for industrial purposes may require a more similar replacement, such as renewable natural gas produced from landfills, agriculture waste, or other organic sources.
The same idea holds true for other fuel types and regions: Propane could be used either to heat facilities or to power forklifts, with each having a different set of workable low-carbon alternatives. Additionally, renewable electricity solutions in California differ from those available in New Jersey or Europe.
Companies should always refer to the GHG Protocol standards and guidance documents when completing an emissions inventory, but we advise that companies go beyond what the standard requires in terms of detail.
Before moving on to Milestone Two, we should acknowledge that developing a complete GHG inventory can be a challenge, especially for organizations with many sites distributed across the globe. Sometimes, facilities don’t have the type of granular data you need, at least not in an organized and accessible format. There are a few steps to follow if you find yourself confronting data gaps:
- Use proxy data and/or make logical assumptions to fill data gaps.
- Clearly note your assumptions for transparency.
- Strive to improve data access each year.
- Explore data reporting platforms that allow you to more easily track GHG inventory data from year to year.
- Consult an expert, like the Coho/ERM team.
Milestone 2: You Have Rallied all Relevant Internal Decision-makers
Meaningful carbon reductions often require significant changes for colleagues in facilities, procurement, finance, accounting, supply chain, and more. Diligent change management may be the lynchpin to the success of your decarbonization agenda.
Sustainability teams must first identify who across the business will be needed to plan, approve, and implement a decarbonization project. Plan to communicate with these colleagues—both to inform, and to learn—early and often.
To manage input across stakeholder groups, establish a steering committee of key decision makers from all relevant departments who know the organization’s goals, strengths, and limitations and can support complex problem solving.
Understanding that the committee members will have varying levels of exposure to sustainability, you can provide necessary support with tailored economic analysis, risk analysis, and market intel, creating a common set of information with which to make decisions. One of the first decisions for the group is how the company will evaluate and compare opportunities, which we discuss in more detail in Milestone Three.
Ultimately, the steering committee will ensure that the completed strategy has the backing required to move into implementation. For a deeper discussion of what strong change management looks like for a decarbonization initiative, read Renewable Energy Procurement: How to Set Your Company Up for Success.
Milestone 3: You Have Prioritized and Sequenced Potential Emissions-Cutting Projects
There is a large landscape of opportunities to reduce carbon emissions, so to avoid being overwhelmed with endless options, it can be helpful to quickly determine which solutions are most impactful, and then focus efforts accordingly. Defining “impact” will look different for each organization, but may depend on factors such as:
- Amount of emissions reduced
- Expected savings/cost
- Implementation complexity (and general feasibility)
- Risk to business operations
- Reputational benefits and risks
- Other strategic benefits
Green hydrogen, for example, may not be considered a “high impact” solution today because it has higher costs than alternatives and isn’t widely available in the market (although this may change in the coming years). On the other hand, electric vehicles are becoming more common, and when paired with renewable electricity can help organizations drastically cut their transportation emissions.
Reviewing these factors is an ideal early conversation with the steering committee so that the organization can define its priorities, “must-haves” vs. “nice-to-haves,” and acceptable tradeoffs. Once defined, the criteria will enable you to assign scores to each solution, identifying the top opportunities. Keep in mind that analysis can be both quantitative and qualitative, so it’s important to capture both effectively in your scoring.
While the top scoring solutions are typically implemented first, don’t lose sight of lower-scoring solutions for future evaluations as business practices and the carbon reduction industry evolve.
To see how these analyses can be visually represented, see this presentation that our VP of Climate Solutions Jaafar Rizvi delivered to the Masterclassing Net Zero event in New York in June 2023:
Milestone 4: You Have Developed a Funding Plan
Companies typically like to allocate capital to projects with high internal rates of return (IRRs) and fast payback. While carbon reduction projects can have positive economics, they struggle to compete with economically attractive projects that are seen as more directly related to the core business. In this situation, identifying strong projects is not enough, and sustainability teams must also work with Finance to develop a funding plan.
Some companies choose to update existing budgeting processes to accommodate and support sustainability projects. This could mean creating a sustainability fund or implementing an internal carbon tax. We have also seen clients use cost savings from one sustainability project to fund added costs of another. For example, an energy efficiency initiative may save $100k/year which justifies the company spending an extra $100k/year on another low-carbon solution. Tax credit transfers and renegotiated retail energy contracts can also free up funds.
Alternatively, companies can leverage third-party capital, where another company covers capital costs in exchange for some type of recurring payment. This is how power purchase agreements (PPAs) work; the renewable energy project developer secures financing for the cost of building a wind or solar farm and the corporate energy buyer pays the developer a flat monthly payment with no upfront costs. Water processing agreements (WPAs) work the same way and are a new, innovative way for companies to adopt sustainable water technologies.
Navigating this type of decision is why Milestone Two is so important. The CFO’s buy-in is essential.
Milestone 5: You Have a Plan for Iterating on Your Plan
While companies are refining their approach to holistic sustainability, new solutions are being developed and matured every year. For these reasons, it’s important to refresh your climate strategy regularly and ask these questions and more:
- How has your organization’s emissions footprint changed?
- Does your organization have larger climate aspirations than it did previously?
- Which implemented solutions can be successfully scaled across the company?
- What solutions are newly available or feasible in the market?
We believe that companies need ambitious climate goals paired with pragmatic strategies. That’s how we will successfully reduce global emissions and transition to a sustainable and thriving low-carbon economy.
Once you reach these five milestones, your company will be well-positioned to pursue a science-based emissions reduction target or net zero emissions target — both ambitious yet necessary for companies operating today.
