Will calculating carbon footprint accelerate industrial transformation?
Climate change is a decisive challenge of our times, fueling a major social, political, and economic transformation, which affects everything that humans do. This transformation gives rise to a number of complex questions and creates new challenges related e.g. to the emergence of new professions, the development of new technologies, an increase in innovativeness, and the need to adapt the existing policies and models to new regulatory obligations and meet the requirements of stakeholders. The experts at Dalkia Polska are having a look at how regulatory obligations will affect this process.
How business responds to ESG challenges
The year 2023 turns out to be a breakthrough moment in the public debate on sustainable development: regulatory obligations are moving from the sphere of plans to the sphere of actions; the nature of business is changing. Following up on this process, the context of ESG (environmental, social, and governance) reporting is growing in importance, becoming a key element of the responsibility and the strategies of companies.
“In 2022, we saw the topic of sustainable development enter the mainstream. In 2023, we witness how commitments are being transformed into swift and tangible actions.Obligations in terms of sustainable development reporting will surely speed up the ongoing changes.These obligations concern annual financial statements, including the consolidated ones.First, they will apply to large entities, but in time, medium and small companies, including insurance companies and banks, will also be covered,” Dr. Natalia Stradomska, Chief Regulatory Affairs Officer at Dalkia, explains.
Starting in 2023, in addition to a short description of their business model and business strategy, listed companies will have to present their financial and investment plans, demonstrating that their business model envisages moving to sustainable economy. The obligation to report on ESG issues is one of the mechanisms that are intended to move European economy towards the goals of the Paris Agreement and slow down the negative consequences of global warming. These goals cannot be achieved without decarbonizing industrial activities. Decarbonization will bring a major change in the way in which we produce and consume. However, for this change to be possible, the European industry needs to be modernized in the spirit of green transition, since it is responsible for approx. 20% of emissions of greenhouse gases in the EU. Therefore, if the assumptions of the European Green Deal are to be implemented, the use of fossil fuels should be replaced with clean (including renewable) sources of energy. Decarbonization concerns all of the actions taken in the private and public sectors in order to reduce the carbon footprint of an organization or a product.
Calculating carbon footprint will accelerate decarbonization
In the race to achieve climate neutrality, enterprises want to accelerate investments based on ESG indicators. The environmental pillar of ESG is more and more often perceived as a method of adjusting investments to low-carbon transition. In spite of the criticism from the financial sector, which claims that there are too many ways of measuring ESG results, all of the main systems use the same principal measure: the organization’s carbon footprint.
Carbon footprint is defined as emissions of greenhouse gases caused by human activities; it is usually measured in CO2-equivalent (CO2e) kilograms. This system allows for taking into account all greenhouse gases, at the same time considering their varying potentials in terms of the impact on global warming. For instance, an emission of 1 kg of methane is equivalent to an emission of 25 kg of carbon dioxide, meaning that it corresponds to 25 kg CO2e.
When it comes to methodology, organizations produce three main types of emissions:
- direct emissions, which originate from the enterprise’s own sources or from sources operated by the enterprise in spite of it not being their owner; these include e.g. emissions from a plant’s boilers or furnaces and technological processes;
- indirect emissions, which originate in connection with the use of purchased or externally delivered electrical energy, heat, technological steam, cold, compressed air, and other power utilities;
- emissions occurring over the entire value chain, e.g. in connection with the manufacture of semi-finished products, utilization of waste, or the use of products by customers.
“Compiling a detailed list of emissions allows for precisely defining the point of departure and for planning the next steps.Data concerning emissions can be compared with the results of other organizations and can be used in external communication on carbon footprint, becoming an element of ESG reporting.Information regarding carbon footprint affects the perception of an organization by its stakeholders and its reputation. Achievements in this respect are, for instance, published in global rankings produced by recognized entities, such as the Carbon Disclosure Project,” Dr. Stradomska adds.
Monitoring carbon footprint also increases the awareness of senior executives, leading to emission goals being taken into account when making key business decisions, e.g. those related to the development of new products or services. Setting emission goals in an organization is a natural consequence of carrying out a baseline scenario analysis, since emission reduction goals are typically defined as a percent decrease in emissions, below the level recorded in the baseline year. Harmful emissions may be reduced thanks to decarbonization projects, for instance those related to changing the fuels used, limiting heat losses, using waste heat, ensuring energy efficiency, investing in renewable sources of energy, etc.
Issues related to decarbonization are crucial for all sectors of global economy. Reducing CO2 emissions is a challenge that requires integrated actions across sectors, regulatory support, and high social awareness.
ESG: real actions
Many industrial enterprises perceive the optimization of energy consumption as an integral part of not only their decarbonization strategy, but also of their general business strategy. Decarbonization concerns all of the actions taken in the private and public sectors, resulting in a smaller carbon footprint of an organization or a product. Entities that will take advantage of this opportunity and integrate a combination of tried and tested solutions, in terms of producing green energy and managing its consumption, will gain a competitive edge and win over conscious stakeholders. One of the best methods of decarbonization could be summarized with “consume less, consume better.”
Experienced partners, providing energy-related services for the industry, can be a source of support in identifying areas that could be transformed.
“When starting an energy transition process of an enterprise, we look for areas that can be modernized.We analyze the options in terms of moving away from fossil fuels towards renewable sources of energy, propose investments in internal sources of energy, calculate the funds to be assigned for investments, bringing the plant closer to decarbonization goals, and choose technologies and tools that will be the most efficient for that purpose,” Dr. Stradomska says. “Industrial enterprises have a wide range of options at their disposal when it comes to decarbonization. For instance, they can install photovoltaic systems, use biomass and biofuels, store energy, etc,” she adds.
Even though the decarbonization process itself may often require for production processes to be redesigned or for elements of existing plants to be redeveloped or modernized, these actions will surely produce positive results. It should be noted that the companies that implement low-emission production processes may initially record higher costs, but ultimately, they will pay off. Depending on the changing market conditions, this offset could be visible right away, for instance thanks to the use of a system of white certificates and other available support options. Market changeability should never be a reason to delay decarbonization actions; the faster actions are taken, the sooner we can expect results, and these will come both in the economic dimension and the environmental dimension.
Many actions – common goal
We cannot forget that, although linking financial statements to ESG reporting and the monitoring of carbon footprint are important elements of fighting the climate crisis, there are many other tools for achieving this goal. Real changes will require actions on a number of levels: from politicians laying down regulatory frameworks, through companies that actively implement sustainable development strategies, to consumers, who more and more frequently choose products and services that are in line with the principles of sustainable development.
One thing is certain: future belongs to those, who will recognize the importance of sustainable economy and are ready to adapt to it. According to Peter Drucker, a well-known management theoretician, “the best way to predict future is to create it.” In the case of decarbonization, this future starts today.
Last Updated on October 26, 2023 by Anastazja