Decarbonization can spur Transformation and Innovation

The pressure on organizations to reduce their production of atmospheric carbon has never been greater. The growing perception of the dangers of extreme climate events and increased scrutiny and activism from activists, shareholders, and investors has brought the issue of an organization’s carbon impact - and what it is doing about it - to the foreground.  Having a well articulated carbon strategy can help leaders by both preparing for  questions from stakeholders and spurring innovation and transformation within their organizations.  

For the past two decades a common strategy has been to purchase carbon offsets, which were intended to enable a business to reduce their carbon impact by purchasing sequestered carbon through a market mechanism. A recent study by Trove found that companies purchasing carbon credits as part of their carbon impact strategy decarbonized at twice the rate of those that did nor. However, research into the carbon markets, including of Verra, one of the largest voluntary carbon markets, has estimated that up to 90% of the offsets were misstated. Relying on this approach as the mainstay of a carbon strategy now looks increasingly risky for executives.

The CEO of Shell recently announced it was pulling back on commitments to buy carbon offsets in order to "continue to drive my nature-based solutions organization, not to spend the certain amount or not to spend at any cost to get a certain number of credits, but to actually drive what was going to be a viable business for us as a company”. While this may be partly in response to an attempt by activists to personally sue Shell directors for failing to have an adequate climate strategy, it’s also indicative of a broader move for companies - even those in the fossil fuel sector - to take more substantive and considered action. 

In other industries, such as freight logistics, perceived or impending regulatory requirements are spurring the consideration of new mechanisms for carbon accounting during a transition to greener operations. Further, governments are developing regulations tightening reporting and accountability relating to carbon which will broadly affect businesses and other organizations.

What is Decarbonization? In a business context, decarbonization is the reduction or elimination of carbon dioxide emissions from a process, such as manufacturing or the production of energy. In its broadest application, this can be extended to include the carbon impact of the business’s processes, operation, services, products, supply chain, and even materials back to the method of resource extraction, such as described by the EPA’s scope 1,2 and 3 carbon inventory method.

Why Decarbonize? The primary driver for decarbonization is to establish a viable, sustainable, and compliant organization equipped and able to perform in the current and future economy. To achieve this requires an honest and in-depth examination of the existing organization and determining how and where actions can be taken.

For many organizations, the challenges associated with decarbonization may seem overwhelming. Even assessing activities in the EPA’s scope 1 and scope 2 model may involve substantial effort and cost. Pressure from customers, consumers, shareholders, and suppliers to keep costs down, remain profitable, and fend off competition acts to dampen enthusiasm for any substantial change.  

This has been the case for the past decade or so, where the risks of doing nothing were seen as much lower than the risk of doing something. Carbon offsets were the corporate “easy button” to appear to be doing something, while actually doing very little. The calculus has now shifted to spurring organizations to not only do something, but to do something substantial about their carbon impact.

Changing the Perception of Decarbonization: Like any big shift in regulation and technology, decarbonization can be both disruptive and transformative. As with the invention of machinery, electricity, industrialization, the combustion engine, and information technology, some organizations will embrace and evolve with the new ideas, technologies, and processes while others will not.

It’s not always the “early adopters” who reap the greatest competitive advantage. Often the larger cohort of “fast followers” can learn from the first movers and identify what works best and then employ and adopt innovations at scale. This often requires shifting the mindset from the risks and costs of adaptation to focusing on the opportunities and benefits.

How to Decarbonize Strategically: The first step to developing a comprehensive carbon strategy is to be clear about why the organization needs to take action. In simple terms, there are generally three primary drivers: 

• Minimization; This approach seeks to avoid the perceived disruption and cost of substantive action, either to delay while waiting to see what happens with stakeholders, the market, or regulation, or to buy time to develop a more comprehensive response. This has been the understandable approach for many organizations and the rationale for buying carbon offsets rather than making significant changes to the organization. 

• Mitigation; Where an organization has determined that the cost and risk of doing nothing is greater than taking action, an approach is to minimize disruption to the organization by assessing the current carbon impact and identifying the most high-value, low cost, and timely actions to take. As more organizations take action, best practices emerge and the effectiveness of tools and techniques is better understood, enabling the organization to continuously adapt.

• Transformation; Some leaders may choose to fully embrace the opportunity for change and commit to a broad program of adaptation and modernization spurred by the evolving economic and technological environment. This approach goes beyond mitigation to actively seek solutions and innovations to improve the organization, including piloting new ideas and being prepared to take considered risks in the search for competitive advantage. 

Developing an effective Decarbonization Strategy: One of the key purposes of having a strategy is to answer questions with tangible answers both internally and externally. The structure of a decarbonization strategy is no different from any other execution plan:

• Set out the rationale for decarbonization aligned with the vision and mission

• Connect decarbonization to the organization’s overall business strategy

• Articulate objectives and goals

• Determine the scope and timeline

• Define workstreams and activities

• Assign leaders, teams, and resources

• Measure and monitor for results

Early activities will include auditing and benchmarking the organization’s current carbon impact, documenting current processes and products, reviewing existing programs and initiatives, and researching and identifying potential alternatives and options. These can be used to create a portfolio of projects which can be evaluated based on strategic fit, cost, benefit, complexity, and resource requirements. 

Having a well-defined carbon or decarbonization strategy provides a leader with a clearly articulated response to questions regarding the organization's carbon actions. Further, it can be a vehicle to spur investigation and innovation into improving the organization while delivering both short-term mitigations and longer-term transformation to enhance performance, resilience, and compliance.

If you would like to know more about carbon offsets and creating a comprehensive decarbonization strategy, please contact info@deepblue.institute. The Deep Blue Institute is committed to working with businesses, innovators, communities, and activists to architect lasting sustainable solutions to the world’s most complex challenges. Discover more at www.deepblue.institute or check out The Blue Economy Primer podcast.

Author:

Liam Speden
Senior Advisor; Deep Blue Institute

Liam is an experienced business leader with over 25 years’ experience shaping and implementing transformative business solutions which deliver innovation and improved performance in both public and private sectors.

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