So, how can a company reduce its carbon footprint?
At a broad level, there are three options – create low carbon products, manufacture in a way that cuts down on emissions and low carbon logistics for sourcing raw materials and supplying to end consumers. Carbon auditing or footprinting is seen as the first step to including carbon emissions reduction in the management of supply chains. Since the impacts of these decisions are so far reaching, a move towards low carbon can then involve every aspect of the company – product design, operations, logistics, marketing, finance and everyone in between. Mapping the impact of these decisions also needs a framework that is technology enabled. This is especially true of large companies with hundreds of suppliers and consumers cutting across geographical locations.
The UN Environment Programme’s Emissions Gap Report 2019 found that global greenhouse gas (GHG) emissions, including from land-use changes such as deforestation, hit a new high of 55.3 gigatonnes (Gt) of CO2 equivalent in 2018. Should this pattern continue, the world is projected to warm by 3°C to 5°C by 2100, with catastrophic effects on human civilization. A large part of the world carbon footprint is due to industrial activity, and people have realised that this must be addressed. Over the past few years, the climate discussion has picked up an increasing number of supporters but what has been missing is the urgency and the tools to scale.
But some important things have happened in the last few days.
First, SAP the German software giant announced a carbon footprinting tool to track carbon dioxide emissions in production, raw materials, energy use, and transport. SAP Carbon Footprint Analytics, will get smarter as more SAP customers adopt it, and will drive product ratings and support audits of a firm’s carbon footprint.1
Second, Unilever one of the world’s largest FMCG companies said that each of the company’s 70,000 products would show on their labels how much greenhouse gas was emitted in the process of manufacturing and shipping them to consumers.2
These two important announcements highlight that the business models that drive much of the world economy are now changing. Previous business models have been based on unique capabilities – either better design, sourcing strengths, service innovation and more. Over time, these strengths have coalesced to how well an organization can develop a market positioning ahead of its competitors. For companies this has led to focusing on building brands while outsourcing to anyone who could manufacture cheaper and supply quicker. Mapping of carbon emissions was considered an ‘externality’, which the business could easily ignore. However, with leading businesses now starting to put carbon labels on their products, carbon emissions are now core to business and even the brand value proposition.
Now with market leaders creating products, communication and tools to map carbon impacts, there is hope that we might be able to cut carbon at scale. The carbon conversation is now part of the brand and the following activities are now likely to pick up both pace and scale.
- Carbon compliance in manufacturing both inhouse and outsourced
- Capturing emissions in the direct and indirect supply chain
- Reporting on carbon
- Collaborations to reduce emissions
- Employee KRA’s will feature carbon and compliance
- Consumer awareness and carbon based communication
- Recyclable and Bio degradable packaging
- IOT for capturing environmental parameters – waste, water, air, energy
Further, corporate decisions around carbon footprinting aren’t just based on the desire to do good, they have genuine business benefits. Industry leaders are of the view that CO2 efficiency will become a differentiator for companies as customers become more aware of the impact of their decisions. This also means, that empowering people to build carbon efficiency in supply chains will help build cost savings and can minimize or reduce the need for companies to invest in reverse logistics to minimize consumer waste.
However, creating industry-wide transformation in large businesses requires intervention in markets, technology, and people. To do this, there are four primary levers for change:
- Markets – Create public awareness and a demand for low-carbon goods
- Technology – Measure, map and enable at scale
- People – Motivate people in the company as well as suppliers to accept the changes
- Collaboration – Cross industry collaborations and benchmarks are needed as supply chains are interlinked
This seems to have been the thinking behind the SAP Product Carbon Footprint Analytics as it delivers carbon emission insights for a company’s products by plant, profit center, or cost center. Producers can also integrate data from product databases and third-party solutions to analyze and understand the emissions breakdowns. If a specific product is made in more than one location place, for example, comparisons can be made for each activity of the value chain to determine the amount of CO2 it takes to produce the product in each location. Transparency about the carbon footprint lays the foundation to minimize carbon emissions. Producers can use the data to run simulations to optimize the carbon footprint according to buyer requirements.
With the use of technology, companies can create brands with purpose which can do a lot more to decarbonize and transform business models. A strong positive business case and shareholder returns can empower big business to make big carbon reductions.
Carbon is now, on its way out.