How can companies use an energy strategy to unlock value for their organization? And why do so many fail to get started at all?
In their article “Energy Strategy for the C-Suite”, Andrew Winston, George Favoloro and Tim Healy look at how companies can create competitive advantage by influencing their cost structure through the choices they make about how they buy and use their energy.
Companies in sectors such as ICT, agriculture and the food industry are developing energy strategies and setting targets to cut energy and carbon in their supply chains.
Most of them, however, are doing this without an explicit framework or playbook.
The authors suggest that a systematic approach is needed.
The biggest obstacle to progress is not having a clear mandate in place. The CEO needs to lead on this.
Commitment from the top with the right resources allocated to a team is key to developing a strategy and guiding execution.
Once a team is in place, it needs to understand how the company uses energy, develop an energy and emissions reduction plan and set targets that are based on climate change science.
The team then needs to implement the plan, integrating it into operations and creating incentives for people in the company to work on energy reduction.
In particular, the people who buy energy need to work with the people who use energy to reduce risk and cost.
An important step is to record, monitor and analyse energy data. This needs to happen not just in the company’s own facilities also along the supply chain to see how it can work with suppliers and customers.
Companies need to understand their options when it comes to clean energy technology.
This includes working out which technology mix, whether generation or energy efficiency measures, will provide a least cost solution to the company, taking all costs into account.
In particular, companies need to understand how going green can increase the amount of business they do with other companies that have also committed to greening their supply chain.
A shift to local energy generation and consumption means that companies will need to engage much more with their local stakeholders and communities.
In addition, analysts are increasingly looking at how good and effective companies’ sustainability strategies are when they recommend them to investors.
Engaging employees is crucial to executing an energy strategy.
Inviting them to participate in searching for energy efficiency opportunities and communicating with them about how the company is going to meet its climate change commitments is going to cut costs and increase employee commitment to the organisation.
In summary, creating and implementing an energy strategy can unlock value for an organisation – but you have to do it the right way.
Science based targets are set to achieve the carbon reductions needed to limit global temperature increases to below 2 degrees
Science Based Targets are an initiative set up by WWF, the World Resources Institute, the UN Global Compact and CDP.
The group define science-based targets as follows:
“Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to pre- industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC AR5).”
The CDP holds and provides data on consumption and emissions from companies and cities around the world.
Some of these datasets are free to access.
For example you can view and chart Scope 2 emissions (emissions from purchased electricity, heat, steam and cooling).
This shows that major emitters include miners, steel makers and retailers.
Scope 2 emissions are important because they are caused as a result of activities that companies can control and change.
Transparent information on the level of Scope 2 emissions could cause companies to increase their purchases of renewable energy and step up energy efficiency measures.
Corporations have a clear role to play in the transition
The corporate sector is the world’s largest source of emissions.
80% of the world’s 500 largest companies have targets in place.
Over 200 companies have signed up to the science based targets initiative
But the Guardian says that most global companies still don’t have any obligation to cut emissions. They do try, but what they do isn’t enough to make a real difference.
Advocates of Science Based Targets argue that the benefits of setting targets include:
Building long term value
Becoming more competitive
Being credible and influential
The pressure on companies to have some form of commitment, target and measurement and verification system is likely to continue as countries recognize the need to reduce emissions and decouple GDP growth from energy usage.
How do you set Science Based Targets?
There are 7 methods put forward by the group
1. The Sectoral Decarbonization Approach (SDA)
The SDA looks at how similar energy intensive companies can choose the lowest cost technology mix to meet their energy demand.
The SDA looks at how sectors differ from each other, the potential for reductions and how quickly each sector grows over time. A free web-based tool has been developed for companies to use but is currently offline.
2. The 3% solution
Developed by McKinsey, WWF, CDP and Point 380, US corporates would cut emissions by 3% per year overall, while individual corporates would have tailored targets using a tool called the Carbon Target Profit Calculator.
This tool tells you how much you could save if you followed its guidance.
3. BT – CSI
BT (British Telecom) have come up with a Carbon Stabilization Intensity (CSI) target in 2008 is calculated by comparing its emissions with how much it as a corporation contributes to GDP.
The contribution to GDP is defined as “value-added”, and the CSI is measured as the emissions per unit of value added.
BT’s CSI target is to reduce CSI by 20% by 2020.
Corporate Finance Approach to Climate-Stabilizing Targets (C-FACT) is a relative target that divides a company’s greenhouse gas emissions footprint by its GDP contribution (measured by gross profit) and calculates a Carbon Intensity Reduction Rate that takes into account growth rate.
The company then commits to the target, creates an annualized pathway and works its plan.
5. CSO’s context-based carbon metric
The Center for Sustainable Organization’s (CSO) developed a context-based carbon metric along with Ben & Jerry’s in 2006.
The metric compares emissions from an organization to targets based on climate change mitigation scenarios. It works out an individual target that looks at how the organization will grow and is updated based on what others are doing and the change in global emissions over time.
6. GEVA (Greenhouse gas emissions per unit of value added)
The GEVA analysis suggests reducing greenhouses gases per unit of GDP by 5% a year to meet the 2 degree target, which then translates into a corporate target of 5% reduction in GEVA per year. This seems similar in form to the BT-CSI at first glance.
7. MARS Method
The MARS method targets Scope 1 and Scope 2 emissions, where it has direct control and selects to “overdeliver” on targets on these emissions by targeting a reduction of -100% in 2040 rather than -80% in 2050. This takes pressure off Scope 3 emissions that cover agriculture and are harder to influence.
It is also based on an absolute reduction, with the objective to reduce Mars’ emissions by 8-% from its level of around 14 MT.
What about carbon budgets in the UK?
The one method missing from the Science Based Targets initiative is the system of carbon budgets in the UK – although the difference is that the initiative targets global companies.
The Climate Change Act in the UK set a target for the country to cut emissions by at least 80% by 2050 from 1990 levels in order to limit global temperature increase to as little as possible above 2 degrees C.
The first five carbon budgets covering the period to 2032 are now set in law.
For UK companies, these are targets that guide the policies introduced by the government such as subsidies and carbon taxes.
The Climate Change Committee (CCC) in the UK has looked at how emissions can be reduced at the lowest cost, given the available technology and policy. It recommends that:
Energy efficiency improvements are cost effective and save money.
Supporting innovation in technology will increase costs in the short term but help in long term.
As we move towards the long-term target, we should use measures that cost less than the carbon price projected by the government if available.
The budget is set to be consistent with EU targets – but we will need to wait and see how EU and UK climate change policy evolves after Brexit.
Summary and conclusion
The Science Based Targets initiative is a significant step in the right direction with commitment from some major companies.
Implementation by some of the largest companies in the world will cause a ripple effect through their supply chains and reduce emissions far beyond their own companies.
But there are concerns over whether the voluntary targets can be met and whether companies are even reporting their carbon footprint correctly.
Finally, companies in the UK should consider whether they should align their targets with UK policy or a global initiative – and to a large extent this will depend on whether their emissions are created in the UK or internationally.
2017 is nearly here and working on your organization’s energy management plan is key to making sure you reduce consumption and emissions this year.
Planning can take time and effort, but is well worth your time.
When done properly you will set your organization on the right course to achieving your energy management goals this year.
Energy management is a complex activity that involves taking action from the plantroom to the boardroom. Energy mangers need to understand technology, budgets, finance, planning and strategy in addition to emissions targets, corporate social responsibility and financial reporting.
Success in effectively managing this complex area will only come from detailed planning and preparation. To be useful an energy management plan needs to be:
Relevant: The plan must focus on areas that are directly applicable to the kind of organization you work in.
Realistic: The plan needs to be achievable with the resources and capabilities you have in place.
Useable: To be of any benefit at all, the plan must be a useful document that can guide your actions day to day.
A good energy management plan is like a map, helping you show people in your organisation where you are heading and the best way to get there.
That’s why we created this comprehensive guide with free templates to get you up and running for 2017. It contains everything you need to create an annual energy management plan including checklists and questionnaires to get started.
Smart meters are becoming a reality, and increasingly meters will be built into the equipment we buy.
Large energy using devices, such as air conditioners and chillers will be able to feed data directly into building management systems.
2. Leadership from corporations
Businesses see that going green is good business.
Not only do you cut costs, consumers are changing from passively buying to actively engaging with brands and companies that show they are committed to creating social value.
3. Unsubsidized renewables
The costs of solar energy have dropped to the point where they are comparable to fossil fuel generation without subsidies.
The business cases for green energy look increasingly viable without subsidy.
4. Professional energy managers
The need for professional energy managers has been recognized for some time, but with the roll out of energy efficiency legislation in Europe, the number of energy managers has exploded – which is good news for business and the public sector.
5. Energy management software
The number of software packages that support energy management continues to grow.
These packages cover a range of applications from energy usage analysis to energy market tracking – and 2017 will see even more of them.
6. Wavering governments
Recent elections and referendums could potentially lead to less government support for renewables and carbon reductions.
The momentum built up over the last decade needs to be sustained by businesses and social enterprises.