The pandemic challenged the world in many ways, and that included pushing the limits of what is possible with regard to business operations. The ingenuity required for businesses to turn on a dime and shift to remote business operations was unprecedented, and so was the significant worldwide reduction of carbon emissions.
Even though it was a temporary effect, the reduction in carbon emissions that was possible to achieve in such a short time through a concerted worldwide effort has inspired many businesses to continue on the path to carbon neutrality and better sustainability practices. Last year, we saw more and more governments and major corporations establishing net zero emissions targets to hit by 2050. ESG-focused funds also experienced record growth worldwide, more than doubling in a two-year period with a flow of $285B in 2019 up to more than $649B in 2021, according to Refinitiv Lipper.
Financial Considerations of Sustainable Business Practices
While ESG efforts have lately gained significant momentum for businesses worldwide, the volatility of today’s economic conditions has raised questions about whether to revisit ESG initiatives as budgets tighten. CFOs, many of whom have become their organization’s de facto sustainability leaders, are faced with having to either make tough decisions or change the discourse. Yet, what’s important to keep in mind is that many sustainability efforts are not costly, and, in fact, some can actually help a business reduce costs when implemented. For instance, reducing business travel has a positive impact on both sustainability goals and the bottom line. As we all learned during the height of the pandemic, virtual meetings can also be quite productive and a great way to reduce emissions, too.
There are also indirect costs to de-prioritizing ESG efforts. A business perceived to be cutting costs at the expense of environmentally-friendly practices could face reputational damage, which could result in closing fewer customer deals, scaring away investment dollars, and failing to attract top talent.
Making the Carbon-Neutral Choice
Despite economic fluctuations, it’s imperative for CFOs to consider the bigger picture with regard to long-term business sustainability. In some ways, this approach is analogous to marketing in a down economy. Historically, businesses that have paused all their brand-building efforts during recessions have lost out. It’s similar with sustainability goals: It takes time to build momentum, and if the organization stops short, it will fall behind on those 2050 carbon emissions targets.
In fact, de-carbonization is a long-run objective that can shape a company’s philosophy around business sustainability in general. The decision to go “carbon neutral” requires commitment across company leadership and stakeholders. It also demands a dedicated leader (often the CFO, as echoed by 68% of executive respondents in an Accenture survey) to make it happen.
Half-hearted initiatives can be perceived as “greenwashing,” or the idea of a business creating a false pretense of being environmentally conscious. Yet, once management and stakeholders are fully aligned and on board, the commitment sets an expectation internally and becomes a deep-rooted team effort.
For those CFOs planning to continue to prioritize business sustainability, and specifically are interested in how to achieve carbon neutrality, here are five insights that I’ve gleaned in my role heading up our company’s own recent (and successful) carbon neutrality initiative.
1. Knowing where to start. For CFOs leading the charge, some may already have a background in ESG and some may not. Find a good sustainability consultancy to lead you in the project from beginning to end. In our journey, we selected Avieco, part of Accenture, but there are, of course, other options that may be more suitable for your company.
Once you support is in place, the first big undertaking will be to gather key internal data and all the necessary details to determine the company’s carbon footprint, which you’ll be offsetting. For example, what kind of energy is used in your office space? Is it the same for other office locations? What’s the volume? How variable is it? This is a highly detail-oriented process but necessary to determine a baseline.
2. Evaluating project options on how to offset your carbon footprint. Once you have established your carbon emissions benchmarks, the step that follows is finding worthy projects that have a tangible and quantifiable impact in offsetting the company's annual carbon footprint in accordance with PAS 2060, the globally accepted standard for carbon neutrality. This is another area where a sustainability consultancy can lend support.
In the case of Blanco Technology, we wanted to leverage the opportunity to invest in initiatives that would “keep on giving.” We short-listed four projects that we then put out to an employee vote on which they would prefer us to support. We felt that involving employees would be key in obtaining engagement in the project. In accordance with the company vote, we 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) per year in greenhouse gas (GHG) emissions. Those efforts would be displacing electricity from the generation mix of power plants connected to the Indian grid, which is dominated by thermal/fossil fuel-based power plants.
3. Implementing a carbon offsetting plan and achieving carbon neutrality. Next comes executing an effective carbon footprint offsetting plan. That includes setting carbon intensity targets, determining the appropriate quantity of carbon credits necessary to offset the company’s footprint (for us it was 3,622 carbon credits, verified in line with the Verified Carbon Standard), and then purchasing those credits and working towards the company’s carbon neutrality goal. The plan entailed many organizational components, ranging from stakeholder meetings to disbursing the investment funds to coordination with the sustainability agency to ensure compliance.
While there is no formal certification for offsetting a carbon footprint, you can verify your results through a third party, which in our case was our sustainability consultancy, to confirm your carbon neutrality status. The full process (from start to finish) can take several months. For us, it took about six months, the bulk of which was spent on the collection of data to fully understand our carbon footprint. The selection of the project and creation of the decarbonization plan came at the end of the project.
4. Putting in place a future-proof de-carbonization plan. A carbon neutrality status holds for only one year; maintaining it requires additional effort on an annual basis. The effort will be significantly less intensive if the organization followed a forward-looking strategy from the outset: the goal all along should not only be to offset your footprint, but also to put in place a de-carbonization plan that will reduce your footprint over time.
Keep in mind that as the organization grows, the footprint will get bigger and bigger. Management has to plan for that, not just for the upcoming 12 months. One way to reduce intensity measures is by reducing the carbon footprint per employee, per square foot of office space, or per million dollars of revenue. Those measures allow a company to show a reduction in its footprint even when the company may be growing fast.
Another important strategy in maintaining carbon neutrality status is to engage your suppliers to get better data and possibly even swap out your suppliers if they are not adhering to sustainability best practices. In our case, our biggest footprint is the computer equipment we buy for customers and employers, so the manufacturers' footprint has been important to us. Changing suppliers may seem like a hassle, but it can help reduce the number of credits you’d have to buy to offset a less sustainable provider. Companies are actively looking for the most sustainable partners, which means that suppliers with the largest carbon footprint may fall behind their competitors.
5. Extend environmentally-conscious practices to more areas of your business. Whether it’s reuse, recycling, or reducing energy consumption, going carbon neutral has a way of inspiring us to act with sustainability in mind across the business — embrace it as part of company culture.
The pandemic showed us what is possible in an extreme situation, but it has also taught us about adopting more agile and flexible approaches to business operations. CFOs at the helm of carbon reduction initiatives have an opportunity to leverage their knack for making cost-effective business decisions that make a real difference.
Adam Moloney is CFO at Blancco Technology Group, a data erasure and mobile lifecycle solutions provider.