Many of you will know that I love to work on the broad strategic agenda with Deloitte’s clients: from operating models, cost-out programmes and general optimisation to M&A, innovation and digital transformation – and over the last few years also sustainability, especially the so-called Scope 3 emissions.
For those of you not familiar with the term, the Scope 3 carbon footprint is defined as those emissions that are the result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly impacts in its value chain. In other words, Scope 1+2+3 cover your ENTIRE value chain from start to finish, including everything from materials, subcontractors, transportation to product usage and product disposal.
But how do you integrate all these elements and complexities into a modern organisation? And how do control something that is inherently (or at least largely) out of your control?
That’s really some of the hard questions that many CEO’s and COO’s are asking themselves these days, knowing that the lawmakers are slowly getting ready to act, and that a scenario of carbon taxes could potentially become reality in the not too distant future.
Aligning sustainability with efficiency
At Deloitte, we praise ourselves for having an innovative, forward-looking mindset, but sometimes it’s also useful to return to ideas that have worked in the past. For me, this is definitely my good old efficiency mindset, which has followed me throughout my entire career, seeing me through so many operational improvement projects over the years.
So how do you fuse efficiency with sustainability?
First of all, sustainability can inspire many dreams and aspirations, but it can also work as a very concrete set of metrics for example when setting targets for decarbonisation. In this sense, sustainability is not necessarily a ‘league of its own’, but can easily be integrated in the existing frameworks and processes for measuring various outcomes and efficiency metrics in the organisation.
Secondly, while the Scope 3 footprint is in the horizon, the carbon footprint within Scope 1 and 2 (i.e. those that are within the direct control of the company) offer many opportunities to learn, experiment, improve and eventually establish a set of best practices that can be copied and scaled going forward. In other words: once you learn to master the activities that are in your realm of control, you’ll have a much better chance of navigating in unknown territory the day that either lawmakers or stakeholders (or both!) force you to look at the entire value chain from cradle to grave.
How to get started
No blog would be complete without me giving a few steps to get things started. Doing so, I’m very aware of the complexities, and I know the huge work that is ahead for many companies.
- What you need to start working on is transparency in your system of metrics – and if this is not possible in certain areas for whatever reason, you should start creating some reliable proxies that can help you track progress along the way. Achieving full transparency in a complex value chain is seldom possible, but many companies get far just by identifying specific proxy indicators that can help drive sustainable sourcing and operating decisions.
- Secondly, it is equally important to assess capabilities throughout the organisation. I say this with the knowledge that far too many organisations leave it up to their category managers to take care of sustainability without making sure that they have the skills, resources and experience to succeed with this. Of course, this approach doesn’t measure up in a time when investors and stakeholders a pushing for outcomes, not just talk. A meaningful sustainability agenda has to come with an investment of time and resources.
- And thirdly, I don’t think anyone can really prepare for Scope 3 – or even Scope 1 and 2 – without establishing a roadmap as well as setting up a dedicated decarbonisation programme. The guiding principle here is to create processes and metrics that can be replicated and scaled – not just come up with various tailor-made solutions, which is a common temptation. Instead, find the solutions, data, processes and partnership models that can be scaled to eventually include a broad assessment and strategy for handling all Scope 3 requirements.
One thing is clear: Sustainability and decarbonisation are agendas that are here to stay, and they offer both opportunities and complexities for organisations: there’s obviously an aspect of innovation in terms of developing new products or business models that support sustainable transformation. There’s also a huge procurement aspect because much of companies’ carbon footprint comes from materials that are purchased elsewhere. In many instances sustainability considerations also arise from M&A activities because when you buy a company, you typically inherit hundreds or even thousands of suppliers and the many problems that are associated with this. And finally there is a behavioural aspect as end users are the ones that are using and eventually disposing of the product.
What it all boils down to is that for some companies, Scope 3 documentation and carbon taxes are a natural next step for creating a sustainable value chain – for others it’s a nightmare waiting to happen.
Whatever the case, I think we can all agree that at one point, one way or the other, companies will be forced to work systematically with decarbonisation and other sustainability metrics, not just within their own realm of control, but across their entire value chain. When that day comes, it’s much better to come well-prepared and to have already established the processes, capabilities and best practices to work systematically and consistently – and, who knows, maybe even become a frontrunner in the green economy.
To a great and exciting 2022!
Merry Christmas
Forfatter spotlight
Tore Christian Jensen
As a part of the Strategy & Operations practice Tore has worked with analysis, development and implementation of operational strategies. Tore has deep experience with aligning business models to changing market demands through optimisation of business processes and aligning systems, organisation and governance accordingly. He has industry experience from manufacturing, transportation, consumer products and energy. His main focus is on on the operational core processes but he also covers administrative support processes. As a program manager Tore has been leading transformation projects for international clients heading multiple parallel projects and reporting directly to executive committee members. His responsibilities cover everything from initiating assessments, identifying opportunities for improvement to building business cases and following up by designing solutions and driving teams through implementation.