The recently concluded COP27 climate summit in Egypt positioned itself as the COP of implementation, with the goal of putting bold plans to address the climate crisis into action. While it may not have broadly delivered on its objective, this shift in focus from ambition to action remains urgent and the message is clear: Time is running out. Rapid reduction of greenhouse gas emissions needs to start now in order to avoid global temperatures rising beyond dangerous levels.
This year, many witnessed around the world the dramatic and costly impacts of more frequent and severe weather events caused by a warming atmosphere — from historic flooding in Pakistan to record low water levels at crucial reservoirs in the Southwestern U.S., devastating wildfires in Spain and Portugal and more. In fact, climate change is estimated to cost $2 trillion annually for the U.S. alone. The threat of a runaway climate is so clear that even in the fragile post-pandemic and multi-crisis economy, decarbonization remains high on the agenda for many businesses. And in the aftermath of the disappointing results of COP27, which did not see the hoped-for increase in ambition and action from governments to reduce emissions, companies will be under even greater pressure to deliver emission reductions in the economy. The good news is that leading companies have already found the key. They must become carbon intelligent.
Carbon-smart organizations integrate emissions-related data and information into operational and financial decision-making. A carbon intelligent business develops and deploys a series of capabilities that allow it to identify, prioritize, execute and scale decarbonization interventions across its supply chains, operations or products and services, in an effective and efficient manner.
Those companies that can make decisions on carbon performance in the same way they do for financial and operational matters will be in a much stronger position to demonstrate how and why their actions generate value for shareholders and stakeholders. Here’s how carbon intelligence has benefited different industries in their journeys to reach net-zero.
Seizing new opportunities
Thanks to the transition to net zero, opportunities are emerging for new products and services, and those companies that develop carbon intelligent capabilities will be in a better position to capture new value. These opportunities include: new markets for carbon credits and other environmental attribute certificates; new value pools in differentiated energy and materials commodities; and new industries and business models delivering cleaner residential, industrial, energy and transport systems. The journey to decarbonization presents important business and employment opportunities throughout the economy.
Companies need the ability to identify the real carbon ‘hot spots,’ those defined not only by emissions volumes, but more importantly by their associated value.
For example, S&P Global Platts and Xpansiv launched a new benchmark for methane performance in natural gas production in the United States. Methane Performance Certificates (MPCs) allow a U.S. producer to differentiate and accurately price cleanly produced, or responsibly sourced natural gas. The production and transportation of natural gas can emit large volumes of methane — a substantially more potent greenhouse gas than carbon dioxide. MPCs provide a tradable instrument for achieving a lower intensity, unlocking the market value of reducing the impact of gas production. We are already seeing this concept extend to other energy and materials commodities as well, from steel to hydrogen.
Reimagining how business is run
What is better measured is better managed. Understanding an organization’s detailed inventories of carbon emissions, contextualized and integrated with financial and operational data, provides the business with a new perspective. This new view gives companies the ability to identify the real carbon “hot spots,” those defined not only by emissions volumes, but more importantly by their associated value. This information will drive business decisions and most critically, action. Carbon intelligence gives organizations the ability to make decisions informed by carbon just like they would any other financial or operational business metric, improving risk management and capital and resource allocation.
Carbon intelligent companies are also better able to develop and deliver comprehensive decarbonization strategies because of these enhanced capabilities. For example, Schneider Electric’s plan to become a net zero business includes multiple objectives — from sourcing electricity from renewables, converting sites to zero-emissions, to transitioning their fleet of vehicles to EVs. These intermediate targets were developed by combining carbon, operational and financial data and have allowed Schneider Electric to transition towards net zero at a faster pace.
Carbon intelligence will get you there
One thing is clear as we look to COP28 next year: The number of companies publicly committing to decarbonization will increase. The macroeconomic crisis has not mitigated this trend; on the contrary, it has reinforced it. To achieve the rapid emissions reductions required to avert the worse consequences of climate change, businesses will have to multiply their decarbonization speed several times. By deploying and enhancing carbon intelligence capabilities across an organization’s people, processes and tools, a business will be better equipped to efficiently identify, deploy and accelerate its efforts to reduce emissions, now.