Governance: the key to unlocking climate action

Companies can’t achieve their climate goals without collaboration. 

The difficulties of measuring and reducing a business carbon footprint no longer lie in Scopes 1 and 2. For these two emission scopes, primary data is available, as well as accurate emission factors – so the reduction strategies are in most cases relatively straightforward to implement. 

When it comes to climate action, the real challenge lies in Scope 3, the indirect emissions that occur in a company's value chain, beyond its own operational boundaries.

According to the CDP, your company’s value chain emissions are more than 11 times greater than the emissions from your operational activities. The challenge is therefore considerable in view of its size, but also due to its specific nature: responsibility for Scope 3 emissions is shared. 

As we’re interdependent to take climate action, dialogue is essential. The slightest change in the carbon footprint of one company is clearly visible in that of another. This means that you won’t achieve your science-based targets without working with the stakeholders who share your carbon footprint. 

This climate action collaboration has many faces – it can take place between large enterprises and small companies, within the same industry or between different sectors, and even across countries. 

Responsibility should also be shared within companies, with each team member playing their own part in the climate strategy related to their business area. In this new forward-thinking organization, certain figures are emerging, such as the Chief Procurement Office or the IT Director, who help the Chief Sustainability Officer to achieve a collective objective. 

To meet the challenge of effective collaboration, governance is necessary. This corporate climate governance aims at setting rules, facilitating decision-making and effectively sharing information.

The ultimate goal is to make your company’s climate action more effective and therefore more legitimate

The days of sustainability experts sitting in their ivory towers are long over. In recent years, the well-trained brains of the big carbon consulting firms have migrated to companies that have internalized their carbon accounting and climate strategy skills. 

This is a clear move away from a dependence on consulting firms and an effective way to be closer to the decision-making and strategic bodies. 

Consulting firms haven’t become obsolete, but their scope of work is different. On the carbon accounting side, they provide support and train teams. When it comes to business transformation, consultants remain indispensable to set a roadmap in line with the latest climate science. Here, the role of change management is fundamental.

But while carbon expertise has become internal, the challenge of coordinating action remains. Thus, when you start to dig into the key categories of Greenhouse Gas (GHG)inventory, such as purchased goods and services, usage of sold products or investment, you’ll quickly realize that your Chief Sustainability Officer must become the conductor of an orchestra, the architect of action, and the disseminator of knowledge and responsibilities. 

Large multinationals have made climate action commitments and have mostly validated their science-based targets. One of the major challenges for leadership at the corporate level is to cascade this target to brands and subsidiaries. These architects must also be able to aggregate trajectories and track progress at any given moment, to adjust the roadmap in real time. The difficulty lies in the fact that the subsidiaries have different levels of maturity when it comes to carbon. The integration of financial data is often not homogeneous, making it difficult to get an accurate calculation of a product carbon footprint  among thousands of references. In short, governance within large groups is like gymnastics where flexibility and adaptation will be key to achieving collective objectives.

For a climate strategy to be understood and implemented, employees must feel that they’re part of it. It’s most important to involve those team members who are responsible for the main sources of your business emissions. Once they’re well trained, these key players should have full visibility of their impact to feel fully engaged. 

Platforms such as Sweep enable this visibility. We use a tree structure of emissions, which makes it easy to assign and track tasks – and visualize progress. 

The Climate Suite: The Climate Action Dream Team

When discussing climate change with a company, it’s no longer unusual to talk directly to the Head of IT or the finance department. And this is one of the most obvious signs that companies are taking decarbonization into account from a strategic perspective. 

Since its creation, the carbon footprint has required the collection of activity data. Therefore, information holders were the first to be asked to measure emissions and produce a top-level picture of a company's carbon footprint.  

Now, as companies make decisions to invest in decarbonization and as extra-financial reporting frameworks evolve, a Climate Action Dream Team within companies has emerged. Each team player is the master of the emissions within their own area of the business – and therefore the most capable of reducing them. 

Here’s an overview of some of the roles that you’ll find in the new C (Climate)-Suite: 

• The Chief Executive Officer (CEO): Your CEO is accountable for the entire group, so they must be educated and trained on climate issues. Their decisions should take into account risks and opportunities, and they must be aware of the company's decarbonization trajectory at any given moment in time. 

• The Chief Operating Officer (COO): the COO is the wizard, turning vision into action. They ensure that the company's operations are aligned with the decarbonization trajectory and that good practices are put in place. They also ensure that employees are well trained on climate issues.

• The Chief Sustainability Officer (CSO): Your CSO is the conductor, the guru, and the architect of climate action. But at the same time, they must know how to delegate tasks, and lead the broader community. Their role is to disseminate climate knowledge and then drive implementation. 

• The Chief Finance Officer (CFO): If carbon is to become as significant strategically to companies as the dollar, then your CFO becomes the master of the game. They are experienced in financial reporting, which means that they’re also the right person for extra financial reporting. They’re a key decision maker when it comes to investing in decarbonization, and the MAC Curve is their best friend. 

• The Chief Information Officer (CIO): In the enterprise resource planning (ERP) era, the CIO is the master of data, the heart of the matrix. Their knowledge of IT processes and technologies is a weapon of mass action. They ensure that the company is on track, according to its trajectory. 

• The Chief Procurement Officer (CPO): The CPO holds 80% of the carbon footprint in their pocket! That’s why they’re essential to achieving your company’s carbon targets and must be perfectly equipped and capable of mobilizing your entire supply chain. Your company’s achievement of its climate objectives ultimately depends on them. 

• The Chief Communication Officer (CCO): CCOs are the last line of defense against crisis situations. They're responsible for understanding the climate issues at stake in order to limit your company’s reputational risk. The key to their success is a combination of transparency and a good dose of humility.

If it seems logical to rely on a multi-disciplinary team for climate action, each of whom is responsible for – and able to act on – the emissions in their area of the business, governance reaches even further, beyond the company's borders. Here, the responsibility for emissions is fundamentally shared. Collaboration is crucial and the knock-on effect is almost instantaneous.

Promoting action

Climate stability is a common good on which we all depend. 

A climate-conscious business that’s addressing its own carbon footprint positively impacts other businesses, notably by increasing its resilience. In other words, limiting the impact of your company on the climate today means limiting the impact that the climate is likely to have on your business (and other businesses) in the future. 

By engaging your entire ecosystem of partners in your decarbonization journey, your company is creating important conditions for the success of its reduction objectives. 

One of the key challenges is the number and variety of partners in any such ecosystem – and note that ‘partners’ is the right word to use here. You only need to consider the categories of the GHG protocol to realize their diversity.

When we’re talking about ‘sold products’, we’re encouraging the end customers to take responsibility for their consumption choices. When considering a franchise, we expect the parent company to set the climate roadmap for its franchisees. 

If we consider the transport policies within a given region, or the transformation of the automotive sector – we can see that these have a direct impact on the employee travel category of a company's Scope 3 emissions. And in the financial sector, investors are asked to align themselves with a maximum 2°C trajectory (in line with the Paris Agreement), so that the same can be done at a portfolio level.

In short, carbon footprints are interconnected and coordinating action beyond your company's borders is essential.

But one particular type of partner has the largest influence on the ripple effect that a company can have on its ecosystem: the supply chain.

Supply: A chain reaction

The supply chain is aptly named when considered as a key component of climate action. Indeed, if major clients depend on their suppliers for the continuity of their business, they’re just as dependent on these suppliers to achieve their climate objectives. This new dependence is giving rise to frameworks for dialogue and mutual support that are largely changing the classic customer-supplier relationship. 

Since 2018 and the release of the Intergovernmental Panel on Climate Change (IPCC)'s special 1.5°C report, major companies have committed to ambitious targets in an unprecedented "race to zero". According to the Science-Based Target Initiative, 2,300 companies have committed to targets validated by SBTi, including 1,700 with net-zero pledges. But in the aftermath of the big target announcements, company leaders have realized the key role that suppliers play in achieving these. 

Many small and medium-sized companies have seen their client's targets cascade down to their business. The trouble is that they often have no idea what scopes and emissions targets are, nor do they understand the meaning of a 2°C trajectory. 

Any company that offers a finished product for sale and is interested in its carbon footprint knows that two thirds of its emissions come from its supply chain. Every client is responsible for what he buys and every supplier passes on part of his carbon footprint to his customer. This shared responsibility calls for large-scale cooperation across the value chain. Put another way, large manufacturing companies will not achieve their climate goals without getting their suppliers on board with their own climate strategy. 

Maturity level is a central challenge in engaging suppliers. And an excel spreadsheet and a phone call simply won’t do the trick. 

The goal is for business leaders to become influencers and help smaller companies to get a foothold in the carbon world. That’s why asking them for emission data won’t be enough. Large companies have a duty to provide their suppliers with the best climate commitment tools. 

And the good news is that carbon management platforms such as Sweep offer a much more user-friendly way of measuring and reducing the emissions generated by your supply chain. 

Here’s our step-by-step advice to engage your suppliers and organize a climate governance that covers your entire supply chain:

• Map suppliers and organize them into categories: by purchasing group, by lease etc. 

• Adopt the Pareto principle and be strategic. Use spend-based emission data for your smaller suppliers (80%).

• Send customized surveys to the 20% of suppliers that represent 80% of your carbon footprint

• Set joint reduction targets with your suppliers and define decarbonization initiatives

• Engage your suppliers further by classifying their level of commitment

Of course the key to achieving all of the above is the ability to convince your suppliers of the need to take climate action. It’s important to highlight to them that as soon as they act, their carbon data (CO2 emissions per product sold) is worth its weight in gold.

And it’ll give them a definite competitive advantage when customers start to compare the carbon embedded in the products they buy. What it means in a nutshell, is that they risk a downturn in business if they don't get their act together. On the flipside, they have a real opportunity to win over new markets if they do.  

Provide your suppliers with a tool that incorporates all the steps of a climate journey – measurement, reduction, contribution, reporting – and is capable of proposing workflows and sending reminders. In doing so, you’ll drive climate action across your entire value chain, while creating new business opportunities. 

Strong governance strengthens multi-stakeholder collaboration, supports your company’s strategic direction, and ensures that goals are met. Applied to climate action, governance becomes a formidable weapon of efficiency to achieve global carbon neutrality – a collective project that is much more than just a sum of its parts. Simply put, no company will be aligned with a carbon-neutral world if its neighbor isn’t.

This interdependence of climate action must be remembered in every form of climate collaboration. There must be solidarity throughout every value chain, with the leaders supporting the laggards. 

The race towards global net zero will never be won by a single company. The only way we can succeed is together.