Every business wants to decarbonise, or rather, needs to. Between the overall impact on the environment and regulatory expectations, there’s an urgency to do so.
Working out what a realistic decarbonisation target is and reaching it is where things become more complex. This is why many companies seek external advice to optimise their decarbonisation strategies.
“The first steps in developing decarbonisation targets are to collect accurate emissions data across your operations and to clearly understand as an organisation what your decarbonisation ambition is,” says Derarca Dennis, EY Ireland assurance partner and sustainability services lead. “This ambition should be linked to your overall organisational sustainability strategy, where you would communicate to stakeholders what your target year for transformation is.”
There is no standard approach to setting decarbonisation targets, and this can often catch companies off guard. They start out with good intentions but risk focusing on the wrong aspect of the strategy.
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Meaningful targets
“Very often when we talk about decarbonisation, we start the conversation with emissions reduction targets,” says Mary Whitelaw, chief strategy and sustainability officer at AIB.
“While setting these targets is critical, what is equally important is that we know how to set meaningful decarbonisation targets that are most relevant to the organisation’s objectives and understand what we have to do to get to those targets. It’s important that we see decarbonisation as a transition to a sustainable and more resilient business model.”
Whitelaw encourages companies to treat this with a positive mindset, recognising each step forward as a success.
“Every step that an organisation takes to decarbonise their business can be a contribution to climate action, whether that’s making your business more energy efficient, reducing your waste, electrifying your vehicle fleet or supporting your employees to choose more sustainable ways to get to and from work,” she says.
“We began reducing emissions for our own operations in 2016. In 2020, AIB became the first Irish bank to make decarbonisation commitments, including our commitment to decarbonise our own operations by 2030 and to decarbonise our lending portfolio by 2050.”
There are resources in the public domain that can help companies work out the optimal standard to build around. According to Dennis, this can help businesses to hone their strategy and strive for ambitious targets.
“The most frequently adopted standard is the Science-Based Targets initiative (SBTi) that has produced sector-specific guidance that aligns with the goals of the Paris Agreement. The SBTi essentially sets minimum thresholds that companies need to meet to ensure that global warming is limited to well below 1.5 degree increases on pre-industrial levels,” she says.
“Science-based targets are, by design, the most ambitious types of targets that are set by organisations, and result in the greatest emissions reduction over time when compared to other target-setting standards.”
Whatever approach a company takes towards its sustainability strategy, it is vital that the plan is built around the unique nature of that business.
“There is no one-size-fits-all all approach, and having a trusted adviser to walk you through the correct process steps will ensure that your targets are attainable, strategy-aligned and action-oriented,” says Dennis.
“Stakeholder engagement is also a pivotal aspect in understanding what your employees, supply chain, consumers and affected communities see as material impacts that your organisation might have on the environment and livelihoods.”
Whitelaw holds a similar view and advises businesses to use the wealth of information available to aid them in developing a strategy.
“Because decarbonisation is such a business imperative now, there are many places where businesses can go for advice on how they can start or progress their transition to decarbonisation, from the Government of Ireland to Enterprise Ireland to Skillnet, for example,” she says.
“The most important thing is to look for the information and support that suits your business needs most and get started on your journey to decarbonisation.”
Strategy implementation
Dennis warns that companies can’t slack when it comes to implementing a strategy. The goals must be clear and defined for the strategy to be effective.
“Decarbonisation targets should ideally be defined as absolute targets, meaning that they will focus on reducing the actual volume of emissions generated regardless of the organisation’s size or output,” she says.
“Organisations have the opportunity to set intensity-based targets. However, there is growing public scrutiny of the greenwashing potential associated with intensity-based targets.”
According to David McGee, ESG leader with PwC Ireland, the decarbonisation target-setting process should be driven by four overarching considerations. “Are targets aligned with regulatory requirements? Do they meet stakeholder expectations? How do they interact with commercial strategy? And do they make business sense and create business value?”
Climate change along with social challenges and events have the potential to impact an organisation’s commercial strategy, operations and performance, he adds. “Organisations should start to consider how these challenges interact with and impact on their value and resilience. Risk and resilience scenario analysis can help organisations identify material financial risks triggered by climate or social issues in the value chain. Scenario analysis can be used to support strategic decision making and help organisations to mitigate emerging risks and maximise potential opportunities.”
