The scientific and political communities are unanimous: with the Intergovernmental Panel on Climate Change (IPCC) predicting a rise in temperatures of over 4°C by 2100 at the current rate, and anticipating catastrophic consequences for populations, managing the climate crisis is a matter of urgency. While all players in society are called upon to act, the transition to decarbonization of businesses, a key link in our society, must be initiated rapidly, using pragmatic methods. Knowing that different milieus are taking action, what are companies doing to promote and participate in the ecological transition? How do small and medium-sized enterprises (SMEs) have a powerful influence on reducing emissions? This article aims to explain how SMEs will play a predominant role in the current climate movement, and how their involvement will have a positive impact.
The effects of climate change are already being felt in our daily lives, year after year. Increasingly frequent heatwaves are a case in point. On a global scale, the damage is even greater, with the World Economic Forum (WEF) estimating that 6.5 million people die every year as a result of poor air quality. Soil degradation, mainly caused by global warming, also threatens the quality of life of 3.2 billion people, so much so that 10% of the annual global GDP is affected (WEF, 2020).
The Intergovernmental Panel on Climate Change (IPCC) estimates that there are at most ten years left to limit global warming to 1.5°C, the target of the Paris Agreement, whereas it has already reached 1.1 degrees (IPCC, 2020). The target looks increasingly difficult to reach, so there remains a narrow window of opportunity to limit the consequences of global warming.
As we become aware of the measures needed - to reduce global emissions by 50% by 2030 and achieve net zero by 2050 - in which all players have an important part to play, it becomes clear that we are now talking about a climate emergency.
SMEs face several challenges when it comes to taking action to combat climate change. Whether it's a lack of expertise, the availability of in-house human capital, or uncertainty over the economic benefits of potential monetary investments to ensure the transition, SME managers face numerous obstacles toward climate action. However, initiating a decarbonization process will generate major benefits for companies that decide to follow suit and accelerate the transition.
The production and consumption activities generated by our human societies are largely responsible for the increase in GHG emissions at the heart of global warming. As such, the WEF has identified the eight major sectors of activity that alone generate 50% of emissions. Agriculture ranks first, followed by construction, clothing, plastic products, electronics, etc.
Emissions are intertwined through the activities of companies, since the product sold is impregnated with emissions from the entire value chain. Companies, like governments, therefore have the opportunity to directly reduce emissions from their products through decarbonization.
Realizing that emissions are distributed across a complex network unique to each company, it becomes essential to understand how emissions are categorized. The authority on GHG calculation and reduction, the Greenhouse Gas Protocol (GHGP), breaks down emissions into 3 perimeters (scopes).
Partial representation of scope 3 categories. The scope also includes franchises, product use, end-of-life management and leased assets.
The Carbon Disclosure Project (CDP), an entity comprising over 10,000 companies, reveals that Scope 3 emissions for products sold account for between 77% and 90% of total emissions, depending on the industrial sector (CDP, 2019).
Given that GHG emissions are distributed across a complex corporate value chain, which may even include more than 1,000 suppliers, it is incumbent on companies to develop concrete strategies for including the value chain in their climate strategy.
To achieve positive change, all companies need to reduce emissions at source, i.e. from scopes 1 and 2, as well as interact with suppliers across the value chain to decarbonize scope 3. How is it possible to sell a low-carbon finished product if the raw materials received or the transport of the product is not low-emission? This question shows the importance of acquiring knowledge of the entire value chain to be able to reduce the problem globally. One company's scope 3, being another's scope 1 and 2, represents the interrelation between companies and their suppliers to bring about concrete change.
The WEF has drawn up a 4-point, 8-action guide to help companies decarbonize their value chain.
The various actions demonstrate the constant interrelationship between companies and their suppliers, working towards a global solution to the problem. The actions promote transparency for all companies. By promoting GHG reduction, they will become suppliers of choice for other companies wishing to reduce the emissions of their products.
As the sense of urgency grows, more and more companies are deciding to take part in solving the problem by developing strategies with measures to pragmatically reduce emissions.
The Science-Based Target initiative (SBTi) is a prestigious certification requiring companies to account for GHG emissions throughout their value chain, and then to reduce them in line with the objectives of the Paris Agreement. More than 1,000 companies have already signed up, setting in motion a real movement across the various value chains to involve their suppliers.
Unilever, for example, is asking all its suppliers to become certified by the Science-Based Target initiative (SBTi) over the next few years. With these measures, the company will be able to reduce the emissions of the products it sells. The impact thus goes beyond the direct limits of the company, for a global reduction effect. In December, three other multinationals - Nestlé, Telefonica and Rang-Sells - announced that they were joining the commitment to a net-zero supply chain, as BT, Telia and Ericsson had done earlier in 2020. Virtually every week, other multinationals join the movement. Coca-Cola, Apple, Microsoft, Amazon, Facebook, Nike, Google and others are examples of companies that have decided to take part in solving the problem by opting for concrete measures to reduce GHG emissions across their entire value chain.
This strategy is becoming increasingly widespread, and the number of participating companies is set to explode over the next few years. Microsoft, for example, is forcing its suppliers to become carbon neutral. They, in turn, will have to decarbonize and then ask their own suppliers to do the same. This technique is highly effective, since it has a snowball effect that will spread to more and more organizations. It's possible to imagine the vast majority of companies across the planet accounting for their emissions and reporting them in order to gain access to certain sales markets with high environmental standards.
While multinationals are developing concrete strategies to curb global warming, SMEs also have a responsibility to make efforts in this direction. Given that around 90% of companies are SMEs, according to the WEF, the opportunities are high, and a shift in environmental priorities will bring many benefits.
Starting a decarbonization initiative gives SMEs a head start in a market where initiatives will become increasingly recognized, and even mandatory and restrictive. As more and more multinationals unveil binding decarbonization plans, SMEs already taking steps to reduce their environmental impact will have access to a market of buyers with restrictive purchasing standards. Looking at the opposite situation, making a conscious decision not to take part in this effort for monetary reasons will lead to an increasing reduction in the company's market share, as sales opportunities become slimmer as a greater proportion of buyers turn to companies with eco-responsible business practices.
A few other results observed during decarbonization initiatives show that a multitude of positive externalities await tomorrow's climate leaders.
The decarbonization process is broken down into a number of specific phases that lead the company to achieve science-based reduction targets.
The aim is to give companies the tools they need to reduce their emissions.
The COESIO approach can be broken down into 4 main phases:
The first step in any decarbonization process is the creation of a GHG inventory. This step enables the company to account for its GHG emissions across its value chain. The company will have the opportunity to establish methods for recording the data required for the inventory so that it can be tracked year after year using a digital calculator.
The GHG inventory shows the emission hotspots, i.e. the places in the value chain where decarbonization actions will have the greatest impact, in order to provide pragmatic solutions and aim for a constant reduction in GHG emissions.
As the company establishes its GHG inventory, it will have the opportunity to set reduction targets based on various international standards, such as the Paris Agreement. As the company calculates its GHG inventory, it will be able to continue the steps towards achieving a certification such as SBTi to demonstrate the efforts made to reduce its impact. Several other certifications are available to meet different corporate requirements. COESIO offers to help companies align themselves with the standards that best correspond to their reality.
4. Reduction actions
COESIO proposes improvement points tailored to the company's reality, based on the analysis carried out. The various actions, whether in energy efficiency, internal policies, eco-design, or choice of suppliers can be drawn up with the guidance of experts in the field. This roadmap for reducing GHG emissions will be drawn up using a pragmatic approach combining financial data, capacity to adapt to change, and GHG reduction targets.
Overall, the COESIO approach helps companies consolidate their understanding of their environmental impact. Participating companies will have the opportunity to extend the study to obtain certification, broaden their horizons, promote the approach with a marketing campaign, and improve or promote their image as a climate leader.
Written by :
Paul-Antoine Dostie-Guindon, GHG Consultant
Adèle Renon, Management Consultant
