Lessons Learned From 4,500 Companies That Self-reported GHG Emissions

Climate change concerns are gaining mainstream attention. Policymakers are drafting environmentally friendly policies to reduce carbon emissions. Organizations in various industries are also doing their part to reduce emissions from their operations. Tracking and reporting emissions is now part of the growth strategy of many businesses.

Thanks to emission monitoring services and solutions, tracking and reporting emissions is much easier. In 2020, over 9,500 companies self-reported their Greenhouse Gas (GHG) emission targets worldwide. However, only 4,500 companies made their GHG emission data available for public scrutiny.

Emissions are grouped under three categories: scope 1, scope 2, and scope 3.

  • Scope 1 emissions refer to emissions generated directly by an organization. Examples of Scope 1 emissions include emissions generated by boilers, furnaces, vehicles, etc.
  • Scope 2 emissions are emissions associated with utilities you purchase—for example, electricity, heat, steam, or cooling.
  • Scope 3 emissions are not directly linked to the functional activities of the business. An example would be emissions produced by other firms in a company’s supply chain.

McKinsey and Company, a leading research firm, conducted a comprehensive analysis of the companies that self-reported their emissions. They analyzed the type of emission targets by industry and reviewed the data.

The analysis of this data has highlighted some interesting findings. Here are some key takeaways from the report.

Time and Scope are Important Factors

From the McKinsey and Company analysis, we observed some interesting trends. First, 44% of self-reporting companies plan to achieve their emissions target by 2025. Almost a quarter of respondents, 27%, had medium-term targets of reducing carbon footprint by 2026 to 2040. That is good news, in light of the Biden administration’s plans to cut emissions by half by 2030.

Understandably, most companies struggled with Scope 3 emission reductions. Seeking to reduce emissions across your supply chain is a difficult task. While some companies, notably Apple, aim to be 100% carbon neutral by 2030, most companies are focusing on reducing the emissions they can more easily control.

Some Industries are Doing More To Meet Their Goals Than Others

The graphic below provides an overview of which industries are on track to hit targets. You can see there is significant variance across sectors, with some like power generation being on target for short and medium-term goals. Sectors like the hospitality industry, on the other hand, are falling behind.

The variance in results across industries should not be a surprise. Some sectors will struggle to implement strategies to reduce greenhouse gas emissions. For example, a major source of agricultural emissions is livestock farming. Companies involved in livestock production will be unable to reduce certain sources of emissions.

Alongside this, you have industries like the hospitality sector. Investing in emissions reduction efforts is difficult for this sector. Improving energy efficiency, for example, often requires the renovation of a hotel, which is a major expense that essentially halts business operations.

Aggressive Goals may Deliver Results

Some industries have adopted aggressive GHG emission objectives that are delivering results. This trend holds for even industries that are traditionally dependent on fossil fuels. A good example of this is the power generation sector.

The reduction in emissions from companies operating in the power generation sector results from a push to green energy solutions like solar and wind and a transition away from high emission plants that use coal to low emitting plants that burn natural gas.

Part of the reason for this shift is economics. Many forms of green energy are now cheaper than traditional fossil fuels. Government support will no doubt speed up this shift. For example, Biden is also pushing an initiative to replace subsidies for fossil fuels with incentives for clean energy generation.

The transport sector is another major source of greenhouse gas emissions globally. Advances in technology in combination with policy initiatives do offer hope when it comes to emissions reduction. That is largely down to the increasing adoption of electric vehicles.

The shift to electric vehicles globally is led by China. The country has 44% of electric vehicles in the world. Europe accounts for 31%, while the US represents 17%. In all of these markets, the adoption of electric vehicles is increasing. We have yet to reach the stage where transport companies with large fleets of vehicles have transitioned to electric vehicles.

In China, state-sponsored subsidies increased the adoption of electric vehicles. The EU has proposed a ban on the sale of new petrol and diesel cars by 2035, which will likely speed up electric vehicle adoption in this region.

Providing some form of financial incentive will help companies that want to implement aggressive greenhouse gas emission goals. Especially in sectors where transitioning is less of a priority. An obvious example of this would be the hospitality industry, as can be seen from the earlier graph.

Final Words

Companies that seek to reduce their carbon footprints shouldn’t focus on only scope 1 and 2 emissions but should also consider scope 3. In other words, they should work with players in their supply chains to monitor and reduce emissions.

Business executives should also deliberately set and implement short-term objectives for 2020 and 2035, as those targets will quickly rally the entire organization to take action. Businesses should not also be afraid to set bold objectives. There is a high possibility of meeting those targets.