Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position. Please refer to official GRESB documents for assessment related guidance.
We’ve all read the news – corporations are taking the lead in addressing the climate crisis: BP will achieve net zero by 2050, Apple will be carbon neutral by 2030 and Microsoft will be carbon negative by 2030. You may be wondering how companies choose between pledge platforms: how do they decide whether they want to aim for net zero or carbon neutral? And how are these companies setting and achieving these targets? And perhaps it’s time my organization set an ambitious greenhouse gas emissions reduction target?
There’s no single solution and the nature of the business will also dictate the end goal and the path taken, but there are common threads in every emissions reduction plan. Organizations use a combination of efficiency improvements, renewable energy purchases, emissions reduction projects and sometimes carbon offsets to negate unavoidable emissions. And these activities must all be underpinned by a robust, verifiable and transparent data management platform and GHG inventory.
Setting your goals
The first question you need to answer is which target to aim for and by when, and there is a spectrum of options to choose from. Moving to 100% renewable electricity is a starting point, moving to 100% renewable energy even better, then net zero emissions (scope 1 and 2), while zero emissions (scope 1, 2 and 3) is even more ambitious. Some organizations still go further committing to becoming carbon positive or restorative. Or the truly determined can go further like Microsoft have done with their pledge to offset all emissions dating back to the beginning of its operations in 1975.
Committing publicly to a pledge platform such as RE100, Advancing Net Zero, and Science Based Targets reinforce the commitment. Whichever method is used to set a target, whichever pledge is chosen, one of the primary challenges faced is the implementation and management of the underlying data.
Before you begin your emissions reduction journey, it’s essential that you set your data foundation correctly. Making some upfront decisions such as how your data needs to be structured and managed, and how you’re going to measure your emissions (specifically around electricity consumption) will save a lot of headaches in the future.
Scope 2 Accounting
In 2015 the GHG Protocol released the Scope 2 guidance. In this guidance a new framework was created for organizations to calculate their Scope 2 emissions when they have a reliable system for purchasing renewable electricity. This guidance requires organizations to report two figures for emissions from electricity (or any Scope 2 source) when the region where the facilities operate have recognized contractual instruments for purchasing renewable energy. The first, and more traditional method of calculating a Scope 2 emissions total, uses grid average emission factors and is referred to as “location-based emissions”. The new method (“market-based emissions”) introduced with this guide allows organizations to take credit for their renewable electricity purchases while avoiding any under/over reporting.
To achieve net zero or some other meaningful reduction your organization will most likely need to purchase green power, which can only be accounted for using the market-based emissions method. For this reason, we recommend using the market-based method when calculating your Scope 2 emissions baseline, setting your target, and tracking your progress towards your goal.
Structuring your data
Once you have your target in place, the first challenge is to determine how the high-level organization target will translate down to the level of the individual asset. There are many dimensions that can be considered when breaking down a target such as the reporting grouping structure, asset type, geography and emissions source. Whichever approach you select you must ensure your data structure is configured to match.
Each of these assets can have absolute targets applied to roll up to the high-level organization level target. An organization could also consider intensity targets for some of the assets as intensity targets can help with benchmarking emissions reductions across the organization.
Also consider how the target will break down over the projected timeline, what quarterly or annual reductions need to take place to achieve the goal? An area chart like the example provided in Figure 2 offers a useful visualization of the variable timing of emission reductions from different initiatives. Projecting the impact of your initiatives in this way helps with planning and setting expectations with stakeholders.
High quality data is essential for decision making and reporting. Employee engagement and high levels of automation around data capture are great ways to improve data quality. Data input processes aside, you need to have confidence that your data management platform is robust, supports any audit requirements, and has functionality to allow all teams across the organization to frequently review your performance through different lenses. Only with this strong data foundation in place can you identify where the organization is exceeding expectations, or where it is falling short. Your sustainability management platform needs to act as a decision support tool so you can inform strategy decisions.
Developing an Emissions Reduction Roadmap
Once a target is in place, you’ll need a strategy to achieve these reductions, and a toolset to get you there. The lowest hanging fruit for every organization is to look internally for energy wastage and opportunities to increase efficiency, and therefore reduce emissions. Benchmark the assets within your organization against a KPI and look for areas where you can reduce your energy consumption. For example, investigate whether some of your more energy intensive assets are operating out of hours, or perhaps HVAC systems are providing more heating or cooling than required. There’s a long list of actions that can be taken to lower energy consumption, many of which only involve behavioral changes or adjustments to an asset’s Building Management System (BMS). Not only will these actions reduce your emissions but will often result in net cost savings since you’re only making changes to existing asset operations.
Next, you’ll want to consider capital projects such as plant and equipment upgrades that will help lower your emissions in the future. That might involve LED lighting retrofits to older buildings, the electrification of a fleet or perhaps a program for remote working for employees to help lower emissions from Scope 3 commuting. There’s an even longer list of actions that can be taken when investment is available. The difficulty here is how to choose a collection of projects that will have the best return on investment, especially considering there are a few ways to measure ROI. For example, is the organization concerned with the greatest emissions reduction total, or are financial indicators like quickest payback, IRR or NPV more important? It’s essential that your data management and reporting platform supports you to analyze and prioritize projects though all these lenses, so you make informed decisions.
Procuring Electricity Generated by Renewables
Another area to explore is the procurement of electricity produced from renewable sources. There are multiple approaches to consider:
- On site generation of renewable electricity can be an option for some buildings and is becoming increasingly cost effective with short payback periods.
- Purchase green power from a utility. Under this model the organization pays a premium for the guarantee that the utility has sourced an equivalent amount of power from a renewable source, backed by an ‘energy attribute certificate’. This method doesn’t require the organization to manage or retire certificates and the electricity consumed is verified to be from a renewable source.
- Enter into a Power Purchase Agreement (PPA). An organization can enter directly into a (PPA) for renewable electricity. Or if some assets purchase power directly from suppliers that are more selective with their energy mix it may be possible to access lower market-based factors and avoid using the residual-mix or grid average factors.
- Capture credit for grid supplied renewable electricity. This is an option that is often overlooked. There may be a considerable amount of renewable energy already on the grid. This type of electricity can fall under a category called the renewable energy quota and organizations may be able to take credit for their purchase provided the renewable energy quota is supported by a certificate scheme. See section 6.6 of the Scope 2 Guidance for more information.
- Purchase certificates from off-site renewable generation. Organizations can purchase renewable electricity certificates unbundled from electricity supply and allocate those certificates across their portfolio of assets to reduce electricity consumption for the purpose of emissions calculation. Keep in mind that certificates do not convey emissions savings in the same way a carbon offset does, but rather a guarantee that 1 MWh of renewable energy was generated. This presents the challenge of how to allocate certificates to your organization’s electricity consumption. When reviewing your GHG inventory you will notice that emission factors vary significantly in intensity across regions. You will want to make sure your certificate purchases are having a high impact on your Scope 2 totals, so it makes sense to purchase certificates in regions with relatively high electricity consumption and intensive market-based factors. Just be sure to adhere to the Scope 2 quality criteria by: a) purchasing your certificates in the same market where consumption has occurred and b) ensuring certificates were created during the same period of your reporting period (or period of electricity consumption). See table 7.1 of the Scope 2 Guidance for more information.
Frequently Review Performance
Once your strategy is in place and your reporting and data management platform is delivering insights into what is and isn’t working you will need to revisit your plan frequently. It’s important to have a system in place that is up to date with emission factors for both location-based and market-based reporting. You should verify the emissions reduction effectiveness of your projects and initiatives and consider where to make your next investment. Finally, as carbon offsets continue to evolve, it will also be important to review how offsets may fit into your emissions reduction strategy keeping in mind that not all pledge platforms will accept carbon offsets as a tool for emissions reduction.
This article was written by Steve Foster, Product Manager, Envizi