Climate risk is at the forefront of financial risk and business insecurity. Meanwhile, businesses are facing increased pressure from stakeholders to meet environmental, social, and governance (ESG) goals. Yet, many business leaders still struggle to effectively communicate their decarbonization journey and how they will not only mitigate financial risks, but unlock new business potential on their path to net zero.
In a new paper, The Decarbonization Journey: Five Pillars to Achieving Net Zero, KPMG outlined five pillars that can help advance an organization’s net zero imperatives and help to provide a more transparent and ethical emissions footprint report.
1 Decarbonize with strategic foresight
Previously, Fortune 500 companies have heavily relied on developing new product offerings, shifting to more renewable resources, re-locating facilities, investing in carbon capture and optimizing tax credits, but there are much more effective steps toward low carbon and net zero operations. Among these include accelerating the shift to renewables, developing new product offerings, relocating facilities, investing in carbon capture and optimizing tax credits.
“There is no right or wrong way to set a decarbonization goal for your organization,” said Arun Ghosh, Principal, Advisory, Enterprise Innovation—Climate Data and Technology at KPMG. “Meeting your stakeholders’ growth, profitability, reporting, disclosure expectations and emission targets may be an adequate enough strategy to use branding to optimize their balance sheets.”
2 Operationalize sustainable behavior
Activating an effective net zero strategy requires infusing a net zero mindset across the organization, which is impacting the way day-to-day operations are managed.
While carbon offsets and Renewable Energy Credits (RECs) remain prominent, there is particular emphasis on making the transition to renewables, via Purchase Power Agreements (PPAs) as well as investment in onsite or offsite generation. Increasingly, organizations are exploring building carbon pricing into their internal operations, as well as prioritizing sustainable finance strategies with green bonds.
3 Gain regulatory agility
Executive orders on climate change began on the first days of the Biden administration when we reentered the Paris Climate Agreement, which states that 200 countries will aim to hold global average temperature well below 2°C above pre-industrial levels. Those same executive orders declared the US economy would strive for net zero emissions by 2050, decarbonize the power sector by 2035, and raised the possibility of corporate reporting on climate risk and calculating the social cost of carbon.
Without the mechanism in place to reliably report emissions reductions, many organizations risk getting caught flat-footed as regulations and standards tighten.
By complying with regulatory standards on carbon emissions, organizations that remain vigilant and proactive instead of reactive will maintain or achieve competitive advantage in the marketplace, all while reducing costs across complex operations and supply chains.
4 Establish coalitions and partnerships
Many of the world’s leading brands are laying the foundations to eliminate GHG (Greenhouse gas) emissions and are actively pursuing partnerships with industry peers and establishing peer group coalitions to weave in ESG (environmental social governance) into their business frameworks.
“By seeking out partners and alliances across varying sectors and industries, there is increased opportunity for collaboration based on action to spark ideas on innovation and accelerate progress toward helping to achieve larger societal goals,” said Tegan Keele, Managing Director, Enterprise Innovation—Climate Data and Technology at KPMG.
5 Digitize data and processes to build trust and prove results
With precise data across emission footprint, companies can begin to assess where and how to act with the right reporting and analytics databases and tools to measure the verifiable data.
By gathering and ingesting asset-level and enterprise data, preferably in near real-time, organizations will be able to detect their progress in reducing emissions and understand where the gaps are in near real-time.
Having this level of granular data also helps to detect patterns of consumption and emissions; which allows the opportunity for more proactive changes to take effect such as adjusting HVAC systems and knowing when to turn the lights on to enhance operational efficiency, reduce costs, and ultimately lower emissions.
At its core, the COVID-19 pandemic presented an opportunity for organizations to accelerate their technologic advancement with the onset of digital transformation journeys and the implementation of artificial intelligence, but there is continued importance on ESG initiatives and reducing emissions.
“Organizations should strategize today, whether it starts as a small-scale program or industry-wide initiative, to jumpstart their decarbonization journey to meet ESG goals, mitigating financial risk and realizing new business potential,” Keele said.
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