Companies across Asia Pacific are racing to decarbonise as consumers and investors scrutinise the carbon footprint of the corporate world.
Environmental non-profit organisation CDP noted that over 3,000 firms from 21 countries in the region disclosed their sustainability performance, risks, opportunities, strategies and targets to it in 2020, an increase of almost 20 per cent in a year.
About 70 per cent of those businesses had emissions reduction targets, and were carrying out initiatives such as setting an internal price on carbon, researching and developing low-carbon products, and allocating a dedicated budget for energy-efficiency measures.
Still, CDP highlighted gaps. “Despite increased reporting on direct operations, emissions data from supply chains remains elusive,” it said, adding that such information is crucial as firms’ supply chain emissions are, on average, 11.4 times as high as their operational emissions.
To accomplish net-zero emissions, businesses should follow six steps, said Michael Salvatico, head of Asia Pacific environmental, social and governance (ESG); business development at market intelligence firm S&P Global’s sustainability intelligence group, Sustainable1.
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S&P Global Trucost data indicates that every sector in the Asia Pacific is failing to align to the 1.5 degrees Celsius global warming scenario.
Michael Salvatico, Asia Pacific head, ESG business development, S&P Global Sustainable1
They should quantify the emissions from their entire value chain, including operations, supply chains and investment portfolios, to determine their baseline for reduction plans and targets.
“Our data shows that for most business activities, the largest proportion of the carbon footprint is concealed in supply chains or in the product use and disposal phase; on average 85 per cent of carbon emissions are concealed in supply chain business activities,” he said.
Companies should also track whether the firms in their supply chains and investment portfolios are decarbonising in line with the Paris Agreement’s goals, and analyse their future risk scenarios and potential transition pathways to net zero emissions. The Paris Agreement, signed in 2015, set out to limit global warming to 1.5 degrees Celsius above pre-industrial levels before the end of the centure.
After that, they should set meaningful science-based emissions reduction targets, report their progress in a way that aligns with best practice standards, such as the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations, and aim for net zero emissions in their investments and financing strategies.
Modelling climate risk
If firms encounter data gaps that prevent them from accomplishing these steps, such as a lack of emissions data from their suppliers and investees, S&P Global can help, Salvatico said.
It analyses the emissions of 15,000 public and 5,000 private firms, enabling it to model the emissions of those that do not report such data.
S&P Global Trucost, Sustainable1’s environmental data arm which evaluates organisations’ risks related to climate change, natural resource constraints and other ESG factors, also corrects errors in businesses’ environmental performance disclosures. In 2019, it studied 5,047 firms’ disclosures and fixed 2,680 errors in 1,777 of them.
“The most common errors were disclosures not aligned with the Greenhouse Gas Protocol, the international standard for best practice carbon accounting,” said Alex Lake, S&P Global Sustainable1’s head of analytics for financial institutions.
“This demonstrates that there is still a lack of awareness among businesses on the correct calculation methodology, which presents difficulties for companies and financial institutions seeking to compare the environmental performance of different portfolios or supply chain firms in a standardised way.”
Trucost also assists companies in understanding their facilities and capital assets’ exposure to climate-change related risks, such as sea level rise and more frequent or extreme hurricanes, heatwaves and wildfires.
“For sea level rise, we are looking at a very refined resolution of 30 metres by 30 metres, so we can assess the risk of one building compared to that of the building next door,” Lake said.
With Trucost’s Carbon Pricing tool, firms can determine how they may be affected by existing carbon pricing schemes in over 45 jurisdictions, and potential future ones, so that they can navigate carbon pricing risks and introduce internal carbon pricing to inform their decisions.
Salvatico noted that some companies may need to purchase carbon credits to attain net zero emissions. S&P Global’s subsidiary Platts, which provides benchmark prices for commodity markets around the world, assesses the price of an array of carbon credits.
“Platts was one of the first to price voluntary carbon units, and we engaged this market as it’s likely to grow substantially. We’ve seen demand for carbon credits increase, and the scaling up of voluntary carbon markets,” he said.
Setting the right targets
As businesses formulate their plans to achieve net zero emissions, they should set shorter-term targets, he added.
“As with all long-term goals, the intermediate milestones are critical measures of progress. For example, while a company may want to have net zero emissions by 2050, they should also have targets for every five years leading up to that,” he explained.
Firms should also seek external appraisal of their emissions targets to boost their credibility. In 2015, CDP, the United Nations Global Compact, World Resources Institute and World Wide Fund for Nature set up the Science Based Targets initiative (SBTi) to help businesses set emissions reduction targets in line with leading climate science.
“When the SBTi reviews a company’s targets, that assessment provides validity to the company’s commitments,” Salvatico said. SBTi has now published a standard for net-zero targets, including criteria companies need to set science-based targets consistent with limiting global temperature rise to 1.5°C.
S&P Global has a corporate engagement programme, called the Corporate Sustainability Assessment (CSA), for firms looking to establish a sustainability baseline and gain insight into their environmental performance. The CSA conducts an annual evaluation of companies’ sustainability practices which covers over 10,000 businesses from around the world, providing insight to help companies get ahead of disclosure requirements and improve their performance relative to their peers.
Salvatico said that pressure is growing on firms to set emissions reduction targets, including for their supply chains. “There is an urgent need for climate action. The transition to a low carbon future is gaining momentum and companies need to act to get ahead and protect their operations,” he said.
“Even in a 3 degrees Celsius scenario, a large number of sectors still fail in the region. We can and must do better.”
This story is part of the ESG uncovered series, produced by Eco-Business in partnership with S&P Global Sustainable1, to unveil ESG issues on decarbonisation, climate risk, data gaps and supply chains in Asia Pacific.
