Growing regulatory demands for transparency and disclosure on climate change are rightly forcing organizations to clean up their acts, and to prove that they are doing so. Large organizations â by definition, the worst offenders â are the most vulnerable to naming and shaming. As society becomes increasingly intolerant of backsliding on climate, how can regulators and shareholders hold big business to account, without paralyzing companies into inertia?
The reality of climate change mitigation is that, while many businesses set themselves ambitious targets, including net-zero-emissions deadlines, the changing economic outlook, project setbacks, financial issues, and a myriad other factors all have the potential to disrupt progress.
Moreover, many of these factors will be beyond the businessâs direct control. With stakeholders paying increasing attention to Scope 3 carbon emissions, which other actors produce downstream in the supply chain, the performance of many businesses on emission reduction will depend on the efforts of third parties.
Indeed, many companies worry that they are being held to account for the performance of their suppliers, even though accurately assessing â let alone controlling â that performance is difficult. With thousands or even tens of thousands of partners in the supply chain, each self-declaring, organizations canât always be confident of the accuracy of their accumulated data. Any company that declares itself âgreen,â therefore, immediately becomes a hostage to fortune, dependent on distant suppliers to help them live up to their claims.
Unfortunately, climate change campaigners, from activists to non-governmental organizations (NGOs), have little patience with corporate excuses. With companies now making more detailed disclosures, these groups are able to identify businesses falling behind or missing their targets and to hold them mercilessly to account.
Oil company Shell, for example, faces a flurry of legal and regulatory challenges over claims that it is cutting its emissions levels too slowly and that its investment in green energy is behind schedule. These include a lawsuit that environmental law firm ClientEarth has filed against Shellâs directors personally, alleging their climate strategy is inadequate.
The danger here is that, as companies grow increasingly anxious about such controversies, they will back away from meaningful commitment on climate change. While they will continue to make the disclosures that regulation demands, they will avoid making pledges or setting targets in order to avoid giving further ammunition to their critics should they fail to meet those targets down the line. The regulation will prove counterproductive, actively discouraging businesses to be ambitious on climate change. Already, business leaders worry that, rather than their companiesâ being praised for positive overall achievement, their reporting will be scoured for the smallest sign of failure.
This is not to suggest that stakeholders should condone greenwashing. Any business making claims about its positive performance on sustainability must be able to substantiate them. But one disappointing metric should not necessarily be regarded as evidence of disingenuousness.
Now, it may be unrealistic â or even undesirable â to roll back on regulation. The direction of travel now seems set towards more detailed and frequent disclosures. In which case, is it possible to do something else to ease the anxiety that is beginning to paralyze many businesses?
According to the World Resources Institute, which established the GHG Protocol, one option is to embrace the newly emerging concept of Scope 4 emissions. Essentially, Scope 4 emissions work in mitigation of the Scope 1, 2 and 3 emissions for which businesses are responsible. Sometimes known as âavoided emissions,â they are the emissions that do not occur because of the product or service that your company offers. In other words, they represent emissions reductions that âoccur outside a productâs lifecycle or value chain but as a result of the use of that product.â
Think of, say, a building materials manufacturer that constructs high-quality doors and windows that will substantially improve energy efficiency in the home. In manufacturing those materials, the business emits greenhouse gases, all of which it must report. Yet, it receives no recognition for the reduced emissions, over an extended period, which its product will enable.
âGrowing supply chain complexity and stricter regulation expose large organizations to the risk of reputational damage on climate change.â
Similarly, in the logistics sector, a priority area for emissions reduction, transport companies, by switching to more fuel-efficient vehicles, are avoiding future emissions that would have occurred using the less efficient vehicles.
No-one is suggesting that organizations should be allowed to use Scope 4 emissions as a short-cut to net zero or to bypass public commitments on emissions reduction.
However, Scope 4 offers organizations something positive to talk about. Rather than focusing only on the negative â the greenhouse gases they are responsible for â they can also legitimately talk about the beneficial impacts of their products and services.
There is growing interest in this idea. Multinationals including Spainâs TelefĂłnica have already begun to disclose figures for avoided emissions. In the US, Pacific Gas & Electric (PG&E) has begun talking about Scope 4 emissions in its climate strategy reports. In the UK, tech company Aveva has promised to develop a baseline and target for customer-saved and -avoided emissions by 2025.
These companies arenât simply looking for a metric to distract from the emissions story elsewhere in their businesses. Rather, they are looking for a way to glean competitive advantage from the reporting process. Companies able to score their products and services in terms of their greenness may secure additional business from customers looking for more environmentally friendly options.
Broader use of Scope 4 emissions will not, however, exempt companies from criticism if their Scope 1, 2 and 3 disclosures suggest they are not living up to their promises. A broad range of stakeholders will continue to seek to hold organizations to account, both on specific commitments and wider performance.
However, if the concept of avoided emissions gains traction, businesses will also have a language through which to articulate their positive achievements more clearly. If this can quell the corporate anxiety that can lead to inertia and help them keep up a brave attitude to tackling climate change, so much the better.
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