Why leadership teams need to make sure their green energy is actually carbon-free

Author

Eloise Moench

Eloise has worked in a number of high growth start ups and scale ups with a focus on sustainability and renewable energy. She is now FlexiDAO’s Energy Program Manager, overseeing the implementation of all educational material on 24/7 CFE. She is a marketing and research expert with a MA from the University of Amsterdam specialising in Climate Ethics.
Published
May 17, 2023
Updated
May 19, 2023

C-level executives are increasingly recognizing the importance of environmental goals, not only for environmental conservation but also for the positive economic benefits they can bring to their organizations. As BCG and the World Economic Forum recently outlined, “the race to net zero will forever change how many companies do business”. 


Energy emissions reduction targets fall under this umbrella, and over 390 companies have made a RE100 commitment to be supplied with 100% renewable energy annually.

However, executives must delve into the specifics and actual data behind these targets. It is not widely known that companies claiming to use "100% renewable energy" often rely on carbon-free energy only during certain hours of the day. Renewable energy sources, such as solar and wind power, are intermittent, which means that companies declaring full reliance on renewables are still dependant on fossil fuels when renewable energy is not readily available on their local grids.

One of our most recent studies found that 42% of business respondents who can claim zero market-based emissions using current Scope 2 guidelines have yet to sign any electricity supply contracts that meet more granular requirements - considering the time and location energy is produced. 

To tackle this challenge, some companies are adopting a more carbon-aware energy procurement strategy - looking more closely at the origin of the green energy purchased and its carbon intensity. In other words, it’s about being more transparent and using more granular data to see the impact of energy procurement choices on decarbonisation.

For instance, companies such as Google or Microsoft are ensuring they buy carbon-free energy for the same hours their data centers will consume electricity. To learn more about carbon-aware energy strategies, you can check our previous blog post.  

 

Let’s look at how each director in the leadership team can benefit from the climate leadership enabled through these carbon-aware energy procurement strategies to hit their business KPIs and bonuses.

What are the main benefits of a carbon-aware energy strategy for the Chief Executive Officer?

It is within the CEO's interests to attract and retain investment for his company, and many investment firms are making sustainability their new standard for investing, such as  Blackrock, which now considers climate risk as an investment risk. 

This is clear in the statistics. The Boston Consulting Group (BCG) and the World Economic Forum (WEF) report that companies performing in the top quartile as environmental leaders in Europe can access cheaper capital with a 100 basis point reduction in the weighted average cost.

“When finance really understands a problem, we take that future problem and bring it forward.” Larry Fink, Blackrock CEO.

Enhanced performance on climate targets not only attracts increased investment, but it can also lead to a surge in sales for both the company and its CEO. According to the BCG study, companies excelling in sustainability have observed sales growth ranging from 4% to 25%, varying by industry sector.

A recent study from EY also found that high-performing companies on climate action are more than twice as likely to exceed financial targets. More than two-thirds of all respondents to the study reported capturing higher financial value than expected from their climate initiatives.  

The CEO will also be interested in retaining and attracting high-quality talent to their company, and being perceived as a company taking a proactive stance on climate initiatives can significantly improve your employee branding. A survey by IBM found that 71% of job seekers now want to work for environmentally sustainable companies after the pandemic. Implementing a public carbon reduction target can also lead to unprecedented cross-collaboration throughout different business departments, as everybody sets their sights on one common goal.

In conclusion, CEOs have compelling reasons to pay attention to a carbon-aware energy strategy and take action on climate targets. The shift towards sustainability as an investment standard means attracting and retaining investment is closely tied to environmental performance. By considering carbon-free energy and focusing on climate initiatives, CEOs can unlock numerous benefits for their organizations, ranging from financial success to a positive reputation and a motivated workforce.

Why is carbon-free energy  important to the Chief Financial Officer?

The Chief Financial Officer will oversee the company's reporting to financial and non-financial stakeholders, and mandatory emissions reporting will soon fall under their remit. 

The European Commission has proposed a new Corporate Sustainability Reporting Directive (CSRD), developed by the European Financial Reporting Advisory Group and due to take effect in 2024. This directive will require over approximately 50,000 companies to report on sustainability like they are currently required to complete financial reporting. Over in the US, a similar proposal has been put forward by The Securities and Exchange Commission; this proposal seeks to standardize climate-related disclosures for investors, ensuring reporting on topics covering greenhouse gas emissions, expected climate risks and transition plans.

The Greenhouse Gas Protocol's (GHG Protocol) role in carbon and financial markets will become even more important as these proposals are enforced, as both use it as the basis for their requirements. The Protocol is reviewing the need for additional guidance in its Scope 2 emissions inventory criteria. Many respondents to the GHG Protocols public survey are calling for stricter guidelines on Scope 2, including more granular requirements on where and when renewable energy is sourced and produced. 

If stricter requirements for Scope 2 become mandatory, companies will have to quickly invest a lot of resources to change their renewable energy strategy, which may be costly and disruptive if done later down the line. Companies should gradually implement a more carbon-aware energy strategy to avoid potential disruptions and high costs associated with sudden policy changes. This proactive approach safeguards against resource-intensive changes in the future.

For the CFO, adopting a more carbon-aware energy strategy can also help bring economic and reputational benefits to their business without significant financial sacrifice. You won't have to pay any energy costs when assessing your current energy contracts and working out your carbon-free energy coverage. You can then keep your costs stable when adopting a carbon-aware procurement strategy and improving your carbon-free coverage up to 80-90%, which is enough to put you in a strong climate leadership position. While there will be a cost increase when covering the last 5-10%, this is due to expensive emerging technologies. We will see prices drop as these technologies become more widely used.

Why should a carbon-aware energy strategy interest the Chief Operations Officer?

The Chief Operations Officer (COO) holds the responsibility of emissions reduction throughout both the organization's operations and supply chains, encompassing Scopes 1, 2, and 3.

Adopting a carbon-aware energy strategy can reduce your Scope 2 emissions over time so you can report more confidently and accurately. A carbon-free approach involves analyzing real-time data about when and where the electricity is sourced via your renewable energy contracts. Once you have this visibility, you can see the hourly gaps where you are currently not supplied by carbon-free energy and can work on optimizing your procurement to fill these gaps. 

This can significantly reduce your energy-related emissions, deepening your company's climate impact and putting you in a strong position as climate reporting becomes mandatory.

Your Scope 2 emissions are also somebody else's Scope 3 emissions. If you begin deepening your decarbonization impact, you can meet much better criteria for your customers when it comes to ESG. 

For example, Vodafone has worked with CDP to develop a framework, streamlining how suppliers can disclose their greenhouse gas emissions. This disclosure comprises 12 criteria and questions from CDP’s usual disclosure platform on climate, designed for larger businesses. Suppliers disclosing data through this framework can access preferential financing rates.

Localizing all of your energy data on one easy-to-use platform can also improve operational efficiency, saving admin time on data collection and cleaning. This makes the operational side of the COO’s job much easier, and the digitalization of their energy data can also keep energy costs stable. You can more easily assess the performance of your contracts and identify areas where you may be able to switch to more cost-effective energy sources or sign contracts like Power Purchase Agreements (PPAs), which provide price certainty. 

How can the Chief Marketing Officer benefit from a carbon-aware energy strategy?

In today's world, sustainability is no longer a buzzword but an essential aspect of any business. 

As consumers become more conscious about the environmental impact of their purchases, companies are under increasing pressure to demonstrate their commitment to sustainability. The Chief Marketing Officer (CMO) plays a crucial role in shaping how a company's value proposition is created and communicated and sustainable marketing messages are crafted.

The need for accurate and transparent sustainability claims is more critical than ever, with increased media scrutiny and consumer demand for green products. Bloomberg recently reported that companies claiming to have slashed carbon emissions by 60 or 70% under the market-based method had made much more modest achievements when using a location-based accounting standard. Two of the companies Bloomberg named in the article only reduced their carbon impact by 12 and 8% under this alternative metric, and one organization had actually increased their emissions by 22%. 

Similarly, the Advertising Standards Authority of Ireland (ASAI) investigated claims of "100% renewable energy" by local energy suppliers. The ASAI found that these claims were misleading and violated several sections of its advertiser's code of conduct, including the section that prohibits exploiting the lack of knowledge or experience of consumers. This investigation shows the importance of accurate and transparent advertising, particularly regarding sustainability claims.

Consumers are also placing more value on sustainability. The Global Sustainability Study 2022, conducted by Simon-Kucher & Partners, reveals that 66% of consumers rank sustainability as a top five value driver in at least one category. This number is up 16 percentage points over last year, indicating that it is becoming an increasingly important factor in purchasing decisions.

By implementing a data-informed renewable energy strategy, companies can have much stronger, more confident, and more transparent climate communication. This approach enables businesses to avoid greenwashing allegations and enhance their competitive edge.

In summary, C-level executives should consider implementing a carbon-aware energy strategy as it aligns with the interests of their businesses. Companies can achieve cost savings, improved efficiency, and a stronger reputation among environmentally conscious consumers through emissions reduction and operational optimisation.

As awareness grows regarding the environmental impact of business operations, carbon risk is now seen as a financial risk. Failure to address carbon footprints may result in legal and reputational repercussions and heightened expenses associated with carbon pricing or taxes.

Times are evolving, and FlexiDAO is committed to helping companies achieve their sustainability goals and unlock the economic benefits of a carbon-aware Energy strategy.

Visit our 24/7 Academy to learn more about adopting a new energy approach and empowering your organization to succeed in a zero-carbon economy.

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Published
May 17, 2023
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