The goal of carbon accounting is for businesses to adopt target reduction goals for their greenhouse gas (GHG) emissions. We can only track what we measure. To get to the point of setting carbon reduction goals, companies need to establish an emissions trend line. Makes sense. A company needs to know whether its GHG emissions are increasing or declining over time. To develop a trend line, at least two points of data need to be available to plot the progression of corporate emissions.
SETTING A BASELINE
Before any GHG reduction targets can be set, a company must set a carbon baseline. Specifically, a baseline year represents the initial level of greenhouse gas emissions for a company against which all future carbon inventories are compared. Think of a company’s baseline as business stasis by which future efforts to pursue energy efficiencies, technology upgrades, process changes, and product design innovations are measured. Ideally, efforts made by a company to decarbonize and resource optimize will reflect declining carbon totals from a baseline year equating to “progress made”.
Setting a baseline year is arbitrary. Some public companies and many nations and trading blocs such as the EU-15, use the year 1990, a baseline emissions year established by the Kyoto Protocol in 1997. Most companies set their baselines to a year when either their first carbon inventory was conducted or when the confidence level in the available data was high and the carbon accounting data, complete.
“STRUCTURAL CHANGE” RECALCULATIONS
Just as baseline years from company to company are non-standard, they can be also relative. Guidance from the GHG Protocol requires baseline recalculations when “structural changes” occur for a company. Some of the more typical structural changes include a new company acquisition or business unit divestment. Years in which companies register unusual drops in carbon inventory totals due to an acute economic contraction, such as during the 2007-2009 Great Recession, can arguably be considered exogenous structural changes that warrant baseline recalculations as well.
With Covid-19 we are experiencing a virtual halt in economic activity worldwide. This crisis will register as a period of significant reductions in GHG emissions worldwide. Business baseline year recalculations are in order.
THE RELEVANCE OF COVID-19
We should acknowledge that the novel coronavirus poses an incredible health threat to human populations. And, it will inflict lasting damage on national economies. The number of small business deaths will be shocking. Individuals will remain fearful of infection until a vaccine is identified and rolled-out en masse. Understandably, this apprehension will tamp down consumer demand for non-essential goods for several years to come. A more relaxed version of social distancing will be the de facto norm over the medium-term as individuals pursue activities such as shopping, recreation, and travel in their everyday lives while seeking to avoid contracting the virus.
SERENDIPITY & THE CORONAVIRUS
By most accounts, the “time of Covid-19” is terrible: uncertain, scary, prolonged, disruptive and isolating. And we remain squarely in the middle of it with little ability to maneuver forward or wiggle free of the economic malaise. As Ram Dass might say, we are living this moment, right here, right now. Without discounting our concentric circles of pain: job losses, disappearing cash flows, halted economies, and lack of clarity or uniformity for how to re-open communities, there remain spots of good news and useful learnings to be applied. This author’s ask is for businesses to acknowledge the data and synthesize it into their strategic business planning.
CLEARER SKIES, CLEANER AIR
One major environmental outcome from the novel coronavirus is clearer skies and better air quality from reduced carbon emissions into the atmosphere. In Los Angeles where 80% of its air pollution is caused by transportation-related emissions, the air is so clear and smog-free that people are enjoying views of the coastline, long obscured by pollution, anew. Aclima, a California-based company that studies local air quality, studied greenhouse gas emissions levels in San Francisco for a two week period in March (9th– 20th, exempting weekends) as compared to three prior years and noted that total CO2 levels were down 10% and nitrous oxide (N2O),emitted from combusting vehicle engines, was down a whopping 56%. On the other side of the world, NASA reported China’s N2O levels for March were down 30% from prior years. More stunningly, a CarbonBrief study concluded that China’s CO2 levels were cut 25% because of the impact from coronavirus. The near complete halt on daily commutes and reliance on telecommuting for work has had a dramatic effect on local air particulates that contribute to climate change.
MAJOR CARBON REDUCTIONS
There is an opportunity to be seized here. Before the current administration decided to announce the United States’ withdrawal from The Paris Climate Accord (COP21), America had set itself a target to cut emissions at least 26 percent by 2025 and to target 80 percent emissions reductions by 2050. For China, the largest GHG emitting country in the world contributing 27% of the world’s carbon emissions, having it meet a leveling in its national CO2 emissions before 2030 would be a welcome achievement. Significantly, Covid-19 has been a catalyst for measurably impactful climate change mitigation. Without discounting the individual and economic toll the virus is exacting on thousands of communities nationwide, can we consider adjusting our business sites to a middle-view and incorporate this opportunity to recalibrate our carbon inventory baselines?
As a business community, we can take a proactive stance to set new carbon baselines using early 2020 GHG emissions numbers. During this economic pause, all kind and manner of scenario planning, business pivots, new product innovations, work process digitalization, and supply chain agility work is occurring. Businesses are developing strategic plans for how to navigate this quiet time and push the start button when national and state policymakers decide to wave the checkered flag signaling an economic reboot. None of these plans are a continuation of existing ones, pre-March 2020. These planning iterations are not to get business back to “normal”, but to set a course forward in consideration of a new normal.
GETTING BACK TO NORMAL
Are we craving for business to “get back to normal”? Yes, we are. It’s an understandable desire: to fall back on the known, the expected, and to rely on the processes and systems that were in place to guide business decision-making, set strategy, and meet the demands of the marketplace. There is comfort in talking about ‘business as usual’. It connotes that the business of business is important, life is productive, and the world as we know it has a relative sense of certainty and order.
The problem though is that our way of operating, up to this point, has become anachronistic, if not entirely unrealistic. The existence of climate change began the (invisible) march of death for industry’s linear, neo-classical, negative externality-dependent, extractive material throughput, economic production model. The growing threat of climate change to global supply chains; human-dependent natural resources; and economic and human productivity levels has revealed the mirage we view as success and well-being. It feels more comfortable to fall back to a known way of operating, than to embrace change, which requires a new way of doing, being, measuring and goal-setting. And yet, here we are in a moment when the time before now is gone, irrevocably altered.
A NEW NORMAL
We are operating in unchartered territory. The acute economic crisis we continue to face with Covid-19 is going to wane in the coming months but not entirely disappear until a vaccine is readily available for human populations. This is not a “V” curve recovery. It’s not even a long “U” shaped one, like that of a bathtub where we could expect a drawn-out period of economic silence with a medium-term recovery that is quick and back to pre-coronavirus levels. No, what the financial analysts at JP Morgan are predicting is more of a “W” shaped curve of recovery. We should expect iterations of economic productivity alongside retractions that could last a half-decade or more. The world economies are not going to snap back into action. The system of global value chains and corporate interdependencies has gone dark. Similar to a manufacturing facility, rebooting the economy will be a process, often slow, requiring re-calibrations, and process dependent.
These are not normal times. In fact, they are extraordinary. Unprecedented. For the foreseeable future, the landscape ahead will be new and unchartered.
This author is asking businesses, in consideration of that reality, to recalibrate their expectations of:
- how they should operate,
- what products and services will be offered,
- how employees will engage, and
- in what ways will consumers be serviced?
A NEW BUSINESS BASELINE
In this new normal can, nay, will businesses set a new baseline for what it means to be market-driven, carbon neutral, purpose-driven, multi-stakeholder serving entities? Can companies embrace the silver-lining of this acute economic crisis? That from disruption can rise business transformations that are economically-viable, environmentally-stabilizing, and socially, equity-enhancing?
Here is the opportunity: to take the “progress” of steep carbon reductions seen across the globe, in Italy, China, the U.S. and other nations, place them in context (that it was simultaneously driven by economic shut-downs (not good) and telecommuting workforces (good)), and map a strategic business plan that uses those GHG totals as a baseline for future carbon emissions reductions for businesses across all industries and sectors. What business transformations would that new carbon inventory downward trend line require as economies re-open and businesses start producing goods and services for the market? Applying a rubric to our decision-making may aid our thought-process.
CARBON EMISSIONS REDUCTION RUBRIC
First, identify the carbon benefits (economic, societal, environmental) that have materialized from the continued Covid-19 crisis. Determine what to keep and to develop further, as business assets or standard processes. Examples of benefits could be product innovations like digitalized product and service offerings, as well as a predominate telecommuting workforce.
Second, look back to the time before the coronavirus and aggregate the sustainability initiatives that had merit but were deemed hard to implement or for which it was difficult to identify a short-or-medium-run path forward. One example of this could be sourcing a majority of one’s energy from renewable energy sources. Think outside the box. Consider the installation of a solar microgrid or the implementation of a community solar array, where both the investment expense and energy savings are shared across a community. Another example is to take the leap and conduct a full carbon inventory for your business, to suss out areas of quick energy efficiencies, new technology deployments, and operational process changes that fundamentally make a company smarter and more attractive to investors and consumers alike.
Third, chart a sustainable path forward, not in parallel to your business goals, but embedded within them. The embrace of business sustainability imparts competitive advantage. There are cost savings to be realized, increased access to capital driven by socially- and environmentally-conscious investors, swelling brand ambassadorship by employees, sustained consumer loyalty, and long-lasting product differentiation.
A TREND LINE OF BUSINESS TRANSFORMATION
Climate change impacts to your business and value chain are material. Just as 100-year floods are occurring yearly in some parts of the U.S., and wildfires have become year-long “phenomena” in dryer, windier climates; acute economic crises brought on by Covid-19 and extreme weather events driven by global warming, are not one-and-done occurrences. There lies opportunity in this moment. As we rejigger our businesses to come-out from under coronavirus, simultaneously, we can transform how we operate in support of significant corporate carbon reductions and a sustainable future by:
- driving deep energy efficiencies within our operations,
- sourcing near-100% renewable energy,
- developing processes and standards that reinforce carbon minimization within the value chain,
- dematerializing and revalorizing materials within the supply chain, and
- embracing a circular business model that for product companies means, developing a service-model to manufacturing.
This is a key moment for companies to double-down on their carbon mitigation goals and set a new baseline for business ‘normal’. This author hopes that’s a trend every business can get behind.
TripleWin Advisory develops sustainable business cases and supports strategic decision-making through value-chain mapping and Scope 3 inventories of companies’ greenhouse gas emissions. In so doing, it unlocks opportunities for greater profitability, relevancy, and longevity for businesses. Learn more.