The pandemic has challenged the world in many ways, and one of them has been to push the boundaries of what is possible in business operations. The ingenuity it takes for companies to invest a penny and move to remote business operations has been unprecedented, as has the significant global reduction in carbon emissions.
Although the effect was temporary, the reduction in carbon emissions achieved in such a short period of time through a concerted global effort has inspired many companies to continue down the path to carbon neutrality and better sustainability practices. Over the past year, we have seen an increasing number of governments and large corporations set net-zero emissions targets to be achieved by 2050. ESG-focused funds have also seen record growth globally, more than doubling in two years, with inflows from $285 billion in 2019 to more than $649 billion in 2021, according to Refinitiv Lipper.
Financial considerations for sustainable business practices
While ESG efforts have recently gained significant momentum for companies worldwide, the volatility of today’s economic conditions has raised questions about whether ESG initiatives should be re-examined in the face of tightening budgets. CFOs, many of whom have become the de facto sustainability leaders of their organizations, must either make difficult decisions or change the discourse. However, it is important to remember that many sustainability efforts are not costly and some can actually help a company reduce costs if implemented. For example, reducing business travel has a positive impact on sustainability goals and the bottom line. As we all learned at the height of the pandemic, virtual meetings can also be very productive and a great way to reduce emissions.
There are also indirect costs of de-prioritizing ESG efforts. A company that is perceived to be cutting costs at the expense of green practices could suffer reputational damage, resulting in fewer customer deals, shying away investment money and not attracting top talent.
Make the carbon neutral choice
Despite economic fluctuations, it is essential for CFOs to look at the big picture in terms of the long-term sustainability of the company. In a way, this approach is analogous to marketing in a weak economy. Historically, companies that halted all branding efforts during recessions have lost. Similarly with sustainability goals, it takes time to build momentum and if the organization falls short, it will fall behind with those 2050 carbon emissions targets.
In fact, decarbonization is a long-term goal that can inform a company’s philosophy on business sustainability in general. The decision to go “carbon neutral” requires commitment from corporate leadership and stakeholders. It also takes a committed leader (often the CFO, as confirmed by 68% of executives surveyed in an Accenture survey) to achieve this.
Half-hearted initiatives can be perceived as “greenwashing” or the idea that a company is giving the false pretense of being environmentally conscious. However, once management and stakeholders are fully aligned and onboard, engagement internally sets an expectation and becomes an ingrained team effort.
For those CFOs who plan to continue to prioritize business sustainability, and who are particularly interested in how to achieve carbon neutrality, here are five lessons I learned in my role leading the recent (and successful) initiative of our company to become CO2 neutral.
1. Know where to start. Of the CFOs taking the lead, some may already have a background in ESG and others may not. Find a good sustainability consultancy to guide you through the project from start to finish. During our trip we chose Avieco, part of Accenture, but of course there are other options that may be a better fit for your business.
Once your support is in place, the first major undertaking is to collect key internal data and all the necessary details to determine the carbon footprint of the company you are offsetting. For example, what kind of energy is used in your office space? Does this also apply to other office locations? What is the volume? How variable is it? This is a very detail-oriented process, but it is necessary to establish a baseline.
2. Evaluation of project options on how to offset your carbon footprint. Once you have established your carbon emissions benchmarks, the next step is to find worthy projects that have a tangible and quantifiable impact in offsetting the company’s annual carbon footprint in accordance with PAS 2060, the globally recognized standard for carbon neutrality , to have. Here, too, sustainability advice can provide support.
In Blanco Technology’s case, we wanted to seize the opportunity to invest in initiatives that “keep giving”. We shortlisted four projects, which we then submitted to a staff vote on which they would prefer to support us. We felt that employee involvement would be key to engaging in the project. In line with corporate voting, we have selected two renewable wind energy projects in India that would help generate clean, low-carbon renewable electricity to replace approximately 498,536 tCO2e (tonnes of carbon dioxide equivalent) in greenhouse gas (GHG) emissions annually. These efforts would displace electricity from the generation mix from power plants connected to India’s grid, which is dominated by thermal/fossil-based power plants.
3. Implement a carbon offset plan and achieve carbon neutrality. Next comes the implementation of an effective carbon footprint offset plan. This includes setting carbon intensity targets, determining the appropriate amount of carbon credits needed to offset the company’s footprint (for us it was 3,622 carbon credits verified against the Verified Carbon Standard), purchasing those credits and working on the company’s carbon neutrality target. The plan involved many organizational components, ranging from stakeholder meetings to disbursement of investment funds to coordination with the sustainability agency to ensure compliance.
Although there is no formal certification for offsetting a carbon footprint, you can have your results verified by a third party, who in our case was our sustainability consultant, to confirm your carbon neutrality status. The entire process (from start to finish) can take several months. It took us about six months, most of which was spent on data collection, to fully understand our carbon footprint. At the end of the project there was the selection of the project and the creation of the decarbonization plan.
4. Establish a future-proof decarbonization plan. A carbon neutrality status is only valid for one year; Maintenance requires additional effort every year. The effort is significantly reduced when the organization has a forward-thinking strategy from the start: the goal should always be not only to offset your footprint, but also to set up a decarbonization plan that reduces your footprint over time.
Remember that as the organization grows, the footprint will only increase. Management has to plan for that, and not just for the next 12 months. One way to reduce intensity measures is to reduce the carbon footprint per employee, per square foot of office space, or per million dollars in revenue. These actions allow a company to reduce its footprint even as the business potentially grows rapidly.
Another important strategy for maintaining carbon neutral status is to engage your suppliers to get better data, and possibly even swap out your suppliers if they are not following sustainability best practices. In our case, our largest footprint is the computer equipment we buy for clients and employers, so the manufacturers’ footprint was important to us. Switching suppliers may seem like a hassle, but it can help reduce the number of credits you would need to buy to offset a less sustainable supplier. Businesses are actively looking for the most sustainable partners, which means suppliers with the largest carbon footprints may fall behind their competitors.
5. Expand environmentally responsible practices to other areas of your business. Whether it’s reuse, recycling or reducing energy consumption, going carbon neutral inspires us to act sustainably across the business – embrace it as part of corporate culture.
The pandemic has shown us what is possible in an extreme situation, but it has also taught us to adopt more agile and flexible approaches to business operations. CFOs at the forefront of carbon reduction initiatives have the opportunity to use their talent to make cost-effective business decisions that make a real difference.
Adam Moloney is CFO of Blancco Technology Group, a provider of data erasure and mobile lifecycle solutions.