Organisational design | Nov 20

The importance of the E in ESG for SMEs

Organisational design | Nov 20

Running a successful business and keeping the planet healthy shouldn’t be mutually exclusive. However, it is a situation that many business leaders find themselves in.

Reading Time 6 minutes

As most people know, the E in ESG stands for environment. It is a commitment to a more environmentally friendly way of doing business. However, it remains one of the most pertinent and, in many ways, one of the most challenging problems that businesses face due to entrenched and outdated procedures and ways of thinking.

Christoph Geppert is the founder and Joint Managing Director at Grain Sustainability, a consultancy that helps companies implement and maintain sustainable practices. He argues that whilst there are macro factors that directly impact the current state of the planet, SMEs make up a significant proportion of economic output and therefore need to start looking at their own footprint.

‘There seems to be a prevailing thought that as big companies have such huge carbon footprints, they should be the ones making the change first. But 90% of businesses are SMEs and make up 50% of the UK’s turnover. The environment is at breaking point. We need to stop thinking about money first and start reducing our emissions and transitioning to a circular economy.’

Christoph Geppert
Joint Managing Director, Grain Sustainability

Carbon neutral, net zero, SBTi

The Paris Agreement is a legally binding international treaty on climate change that was agreed at the UN Climate Change Conference (COP21) in Paris, France on December 12, 2015. Its overarching goal is to hold the increase of the global average temperature well below 2ºC above pre-industrial levels by reducing greenhouse gas emissions across the planet.

To achieve this, businesses need to make substantial changes to the way they operate. As part of their desire to cut emissions there are three commitments listed below that create different degrees of ambitions and accountability: carbon neutral, net zero, and SBTi.

  • Carbon neutral – is largely focused on Scope 1 and 2 emissions and is a snapshot in time that aims to balance carbon emissions by offsetting the emissions reported. According to the Centre for Climate and Energy Solutions, carbon emissions can be referring strictly to Carbon Dioxide, but in most cases when talking about carbon emissions this includes all seven greenhouse gases and are referred to as CO2e (equivalent), as some less common GHGs are much more potent than CO2.
  • Net zero – focuses on all emissions, direct and indirect, covering Scope 1, 2 and 3 emissions and all seven GHGs. It is a target state when emissions released due to human activity are counterbalanced by removals. Offsets are not counted towards the progress but only at the end of the efforts to reduce emissions can residual emissions be offset. It is, therefore, a far more holistic approach to tackling climate change but requires implementing more sustainable practices.
  • SBTi – Science Based Targets initiative (SBTi) is a quantified commitment to a clearly-defined pathway for emission reduction that aligns with the latest climate science and is the only one of the three that is strictly defined and policed by SBTi. It also requires a completely transparent approach to carbon emission reporting. This is considered the most impactful when it comes to greenhouse gas emissions reductions.

Setting a science-based target is a five-step process with a more simplified process for SMEs:

  1. Commit: submit a letter to the SBTi establishing your intent to set a science-based target.
  2. Develop: work on an emissions reduction target in line with the SBTi’s criteria.
  3. Submit: present your target to the SBTi for official validation.
  4. Communicate: announce your target and inform your stakeholders.
  5. Disclose: report company-wide emissions and track target progress annually.

Geppert says that there are avenues businesses can take to offset carbon emissions over a longer term, such as investing in projects like tree planting, the building of solar/wind farms, or mangrove forests verified by organisations like Gold Standard and Verra. Direct air capture – a far more immediate solution – on the other hand is still in its infancy and difficult to achieve.

Carbon offsetting though is seen as a last resort. The focus must be on emission reduction or avoidance. However, whether it’s you or someone else offsetting your emissions, you need to be able to accurately measure the contribution the project makes, and third-party verification is key to achieve credibility. Knowing what emissions you produce allows you to create meaningful strategies to combat them, but it is also becoming a requirement for many companies or state bodies when engaging with them as a client or supplier. This can be seen in the UK Government’s Procurement Policy Note and the EU’s Corporate Sustainability Reporting Directive which both require businesses to demonstrate their commitment towards sustainable practices and supply chain management.

Scopes of measurement

Geppert says that one of the biggest barriers to making holistic change is measuring our collective carbon footprint. The reason this measurement is important is that it allows us to calculate the carbon emissions that must be reduced. If you cannot measure it, you cannot manage it. Greenhouse gas emissions are broken down into three scopes:

Scope 1: this covers direct emissions. If you have a boiler and you burn gas on site or own a vehicle which you drive for work, that’s a direct emission.

Scope 2: this is essentially asking someone to burn fuel for you. Scope 2 can be your electricity or heat provider.

Scope 3: the final scope is everything else. Every product or service has an emission attributed to it in some way. In the UK, this accounts for 60—90% of the purchasing company’s footprint.

Image: Scope 1, 2, 3 emissions. Source: GHG Protocol.

How to start recording

With the seemingly countless types of greenhouse emissions and ways your business can produce them, measuring your footprint to begin working towards a science-based target can be a daunting task. Geppert says there are two options for business leaders who wish to start the journey towards sustainability:

  • Self-record: this is simply getting to grips with every aspect of your business’s footprint. You will need to not only get a full understanding of your Scope 1 and Scope 2 emissions but also work on Scope 3 which will mean speaking to all your suppliers to get a full understanding of every service or product you consume. You can either use an Excel spreadsheet or use one of the online carbon footprinting software. While there are plenty of carbon calculators out there, Geppert mentioned Compare Your Footprint and Rio who offer full-scope carbon reporting.
  • Consultancies: a more expensive option are consultancies, like Grain Sustainability,. Depending on your level of expertise, sustainability consultancies can bridge the skills gap and efficiently deliver the insights needed to start measuring one’s carbon emissions and find ways to reduce them. It reduces the number of team hours substantially and reduces the need to train your own team. There is still plenty to do yourself, however. Sustainability needs to find its way to the core of the company and permeate all aspects of your business.  Consultancies will audit and assess your business, create strategies for all your sustainability actions, and help with the implementation of frameworks and standards like Science Based Target initiative, B Corp, CDP etc ahead of or in line with the Government’s net zero target of 2050.

Global and business minded

Implementing sustainable practices doesn’t just make sense for saving the planet, which should be a compelling enough reason, it also makes sense for the business. As the race to net zero begins to ramp up, governments around the world will start placing a heavier onus on businesses to prove they are taking meaningful steps to curb greenhouse emissions.

Beginning the journey towards a science-based target now may cost a few extra pounds, but it will put you in a more favourable position when negotiating with clients and will undoubtedly save you money in the long run as tougher legislation is pushed through by governments around the world.

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