Ricky Cheng FCPA, Director, Head of Risk Advisory, BDO, and member, the Institute’s Sustainability Committee
To achieve the global goal of net-zero by 2050, companies are recommended to speed up their pace of decarbonization. However, the decarbonization journey for every company is different, and depends on their industry’s development and production processes.
Below are some ways companies may achieve their decarbonization targets.
Perform a holistic review of production processes and product design: The carbon footprint of a company’s product can be a combination of many factors including production processes, inputs, fuel mix and transportation.
The purpose of a production process review is to streamline production procedures and reduce the unnecessary use of energy and the emission of carbon. A product design review assesses if there are any alternative sustainable or low-carbon raw materials that can be used as inputs to reduce a product’s carbon footprint, or indirect emissions that occur in a company’s value chain (called scope 3 emissions). Scope 3 emissions include the extraction and production of purchased materials; transportation and distribution of products; waste disposal and use of products and services. Often, these emissions can be significantly reduced by sourcing raw materials and parts locally.
Use energy-saving equipment and smart technology: Companies can strive to reduce energy consumption by using energy-efficient equipment certified by ENERGY STAR. ENERGY STAR is a programme run by the United States Environmental Protection Agency and Department of Energy to promote energy efficiency. ENERGY STAR has certified over 75 different product categories including computers, servers, appliances, heat and cooling systems, lighting and equipment, etc.
There has been an increasing application of smart technology in energy management. Smart lighting, smart thermostats and sensor-based heating, ventilation and air conditioning (HVAC) systems of the new generation are designed to automatically maintain ideal conditions and optimize energy use. Internet-of-Things-based sensors and meters can also be used to monitor the performance of energy consumption for better energy management.
Use of renewable energy: Fossil fuels are used to generate the majority of electricity worldwide. To reduce reliance on fossil fuel-based electricity, companies can consider switching to renewable sources. For instance, companies can consider investing in commercial solar panels on the roof of properties to generate electricity for everyday use.
Carbon offsets: Having used the above methods to reduce carbon emissions, any residual carbon emissions can be offset by purchasing carbon credits to achieve net-zero carbon emissions. Currently in Hong Kong, carbon credits can be purchased from electricity providers such as CLP.
“The decarbonization journey for every company is different, and depends on their industry’s development and production processes.”
Gigi Lee CPA, Senior Manager, ESG & Corporate Services, Dah Sing Bank
Since the Mainland China and Hong Kong governments announced their targets to be carbon neutral by 2060 and 2050 respectively, there has been growing awareness and attention on decarbonization locally. But before answering the question on how to achieve decarbonization, it is worth noting that establishing a baseline and a target reduction trajectory is equally important.
There are a few common approaches for companies to achieve decarbonization targets. As a best practice, a company should always follow a mitigation hierarchy in this sequence: energy saving, energy efficiency, renewable energy, low carbon electricity and carbon offset.
Most companies’ energy consumption is from the use of electricity. Common energy reduction measures include switching from fluorescent lighting to light-emitting diode (LED) lighting, choosing products with higher energy efficiency, encouraging employees to turn off computers, lighting and air-conditioning before leaving the office, etc. The use of technology, such as smart meters that can analyse and provide better insights of electricity consumption patterns, can help a company identify consumption hot spots and potential reduction opportunities. Some service providers even offer a user-friendly dashboard to showcase performance and arrange staff engagement activities to motivate behavioural change.
Speaking of behavioural change, a company should not overlook the importance of awareness building among all employees. It is much more effective when changes come from a genuine sense of belief than a set of policies and procedures required by the company.
While many companies nowadays still focus more on operations emissions, some pioneers have already set decarbonization targets that cover value chain emissions, including major upstream and downstream emissions, especially in industries such as real estate development and manufacturing. This requires a company to influence its suppliers and empower its customers to transit to low-carbon economy together through education, innovation and partnership.
By taking in account factors such as order quantity, use of low-carbon alternatives, and their supplier’s environmental commitment when making a procurement decision, a company would create demand and consciousness among their suppliers to actively manage their own emissions. Similarly, if a company can provide products and services that promote or even incentivize conscious decision-making to its customers, it will also encourage more and more customers to join this decarbonization journey. After all, transiting to decarbonization requires a collective effort.
“It is much more effective when changes come from a genuine sense of belief.”
Eddie Ng CPA, Principal, Business Reporting and Sustainability, KPMG China
Companies are facing more pressure than ever to develop and execute a net-zero strategy. Below are the key elements that companies should consider when developing a decarbonization plan.
Governance: Boards should have oversight of decarbonization efforts and set the right tone from the top. They should discuss the plan and determine how to monitor and oversee progress. The management’s role in the set-up, monitoring and implementation should also be clarified.
Targets: In addition to determining the target year for the net-zero commitment, companies can also set an intermediate target that is closer on the horizon for investors and stakeholders. This will create a sense of urgency for companies to act. Businesses should take a leaf from the Hong Kong government’s medium- and long-term decarbonization targets: to reduce total carbon emissions by half before 2035 and achieve carbon neutrality before 2050. The Science Based Targets initiative is also helpful in helping companies to define achievable pathways to reduce emissions on a year-by-year basis.
Strategies: There are a number of ways to put a decarbonization plan into action. It can start from energy efficiency campaigns, for instance through LED light retrofits or HVAC upgrades. Companies can also invest in renewables, move towards circular business models, transform their product portfolio and shift to business partners that set science-based targets.
Like any other corporate strategy, companies should determine how their plan should be funded, for example by leveraging the expansion of green finance and impact investing mechanisms. In addition, the decarbonization plan should become a core business strategy, incorporated into business planning and aligned with its overall strategy.
Measure and report: It is critical for companies to set metrics to measure, track and report on its progress. Stakeholders will likely want to know what has been achieved and how the organization compares with its peers.
A decarbonization plan touches on many different aspects within a company such as strategy, business models, research and development, supply chain, and people. This information is also relevant to investors to understand the financial implications of the plan as well as the risks associated with not reaching the target. Businesses need to develop a robust and reliable system to gather and analyse data that gives a clear picture of their carbon footprint.
“Companies can also set an intermediate target that is closer on the horizon for investors and stakeholders.”