We are convinced that climate change is the biggest challenge of our time. For greenhouse gas reduction it is literally “now or never”. Scientists agree that only holding warming to 1.5°C above pre-industrial levels can limit the most dangerous and irreversible effects of climate change. Unlike in the 80s, when mankind was first becoming fully aware of man-made climate change, Greenhouse Gas (GHG) emissions are no longer a problem of the far future. It is happening right here, right now. For example, the last two years have been marked by catastrophic wildfires in the Western United States and frequent floodings in Central Europe. Scientists agree that these extreme conditions and rising temperatures are effects of man-made climate change and pose grave risks to communities and our environment already today – and this is only the beginning! Action taken now – and in the next decade – towards net-zero will be crucial for limiting warming to 1.5° C. And a net-zero future will require massive decarbonization-driven changes – not only of energy-intensive industries but from every business.

“Net Zero” is our hero

To limit the impact of global warming below catastrophic effects, “ net zero ” has become the benchmark for corporate environmental ambition. While a lot has been written about the concept of net zero per se , net zero often is less than clear in practical terms. 

In our opinion, net zero should be the ambition for almost all businesses (the reasons for this are summarized here). While there are many pathways across industries and companies, we believe that the following drivers should be considered by all companies that are serious about reducing their GHG emissions: 

• Creating a clear and meaningful vision : One of the first challenges is the definition of meaningful, long-term goals – combined with realistic, short- and mid-term goals for action. This leads to the next step: 
• Creating transparency: Most of our customers are lacking transparency on their GHG footprint. For them, measuring greenhouse gas emissions and reductions is the first step – and it must be done right. 
• Reduction of emissions: The journey towards net zero typically starts with “quick win” GHG reductions, such as the improvement in energy efficiency, eg lowering the consumption for primary fossil sources and “green” electrification (of heat, cars, etc.). Some sources of GHG emissions can be eliminated entirely at the source by making the switch to renewable energy, like solar, wind, geothermal, biomass, and blue / green hydrogen. Others can be significantly reduced, eg by building insulation. 
• Collaboration with partners: To get full transparency on the GHG footprint of the entire value chain, collaboration with partners such as suppliers, customers and stakeholders is key. Getting theses partners on board with net zero is essential to developing low-carbon products 
• Communication : Companies should communicate their actions to promote awareness and encourage behavior change for others. This should include the communication of goals and progress made, so that stakeholders (like customers, potential employees and investors) can support businesses with high ESG standards
• Offsetting : GHG reductions should be leveraged to the max before moving to offsetting. However, not for every industry a reduction to net zero is technically or economically feasible. In several industries (steel, cement, etc), at least some GHG emissions will continue to be part of the production process. Investing in high quality, certified and audited carbon reduction projects to offset remaining GHG emissions
  can nonetheless help these players in achieving net zero. However, it is important to stress that mitigation, or limiting emissions, should be the primary strategy for any company aiming for net zero.

Measure what matters

As long-term Star Wars buffs, we like to borrow from Yoda here: ” Only what measured is, done gets “(often wrongfully attributed to Peter Drucker who – according to the Drucker institute – never actually wrote that). We believe that measuring Greenhouse gas emissions and reductions is an imperative for all companies – but it must be done right. Obviously, all businesses need metrics to measure their performance. But measuring – and managing – the wrong metrics can lead to very unintended consequences. Not only for Greenhouse gas emissions and reductions. Therefore we like to invest into strategy and vision as well as the best “steering logic”, ie priorizing and defining the right KPI for our customers. 

Measuring Greenhouse gas emissions and reductions also becomes more and more important for company stakeholders , including: 

• Investors : Nonfinancial reports – especially reporting of Greenhouse gas emissions and reductions – help sustainable investing, one of the fastest-growing trends in financing and investment of the last year. Investors are questioning current reporting practices — and calling for changes that management will have to understand.
  Furthermore, climate change also poses major risks for businesses, leading to financial risks. Climate change implications are interlinked and pose various risk to environmental, economic, social and technological aspects across industries. One prominent example is the San Francisco-based Pacific Gas and Electric Company which filed for bankruptcy in 2019 after it was hit with tens of billions of dollars in claims for its role in the California wildfires. Climate change has become a major topic for investors, who understand that climate risk is urgent and the time to act is now. 
• Customers : Customers, especially end users (consumers) are generally concerned and alerted about climate change. They have a well-documented interest in carbon labels based on accurately measured greenhouse gas emissions which can support them in making educated decisions to purchase climate-friendly products
• Suppliers : Even suppliers may ask for accurately measured greenhouse gas emissions, eg for their own Scope 3 emission calculation 
• Current and future employees : For both employee engagement and the acquisition of top talent, ESG ratings are increasingly important 

However, it is important to stress that “what matters” requires a clear, meaningful vision. As mentioned before, one of the challenges businesses face in sustainability efforts is articulating a meaningful long-term vision, and combining this with realistic, short- and mid-term goals for action.

How to put this into practice?

What does it mean in practice to “measure what matters” in greenhouse gas emissions and reductions? In our view, this is a simple, five-step process, that starts with process review, a definition of the scope and boundaries of the calculation, the collection of data followed by the core calculation of the GHG footprint and its verification:

We have described the details of this five-step process here.In our opinion, the Corporate Carbon Footprint (CCF) should be calculated first, to obtain an overview of all emissions generated by your company, including direct and indirect emissions. After this analysis, we identify reduction measures, typically with the objective to make the entire company carbon neutral through reductions and – where these are not practical or too expensive – through offsetting remaining emissions. Based on the Corporate Carbon Footprint, a Product Carbon Footprint (PCF) can be calculated using a contribution margin calculation logic, similar to well-known controlling tools. To avoid unnecessary layers of complexity in this, developing a reporting framework supported by enterprise-level technology is paramount. Already existing data sources can be used for accurate, timely and actionable insights that drive GHG improvements. This also means that teams, product managers and designers, controlling and management can spend less time searching and entering data and more time working with information. Our framework helps to gather relevant data points fast.

Carbon Footprint improvements – quick wins vs strategic improvements

Levers for greenhouse gas reductions can – and should – include “quick wins”, but often require long term adjustments to corporate and purchasing strategy, as well as the implementation of new technologies.
To prioritize improvement levers, we often use client-specific greenhouse gas abatement cost curves, as developed by McKinsey & Company. Insofar, it is important to stress that greenhouse gas abatement is a fast moving environment. With unit cost for new, climate-friendly technologies falling fast, additional levers will become available and economically feasible in the near future.