Recently, I was having a discussion with a logistics company honcho, figuring out ways in which sustainability can be integrated in the business function. During the course of the conversation, the topic of measuring carbon came up. This was the first time that I felt some resistance, despite all my urgings to measure the carbon footprint, the honcho was not all convinced. He felt measuring carbon was a complex, costly and tedious undertaking. His query was direct; why we were bringing in voluntary measurements related to Green House Gas (GHG) emissions.
Over the years, a large number of people have come to believe that measuring carbon is about measuring GHG emissions, and they are not wrong. But this thought provokes guilt (it should) and that can be the hurdle.
In addition, all this talk about carbon tax, net zero and so on, has made organisations wary about the very objective of measuring carbon. Is there really a need to measure GHG emissions when there is no push for it? Is measuring Carbon footprint represent doing good to planet?
A Fresh Look At Carbon Footprint
Frankly, I like to look at this from a different perspective. There is more to carbon than what meets the eye, or pollutes the air. To begin with, carbon footprinting is not just GHG emissions, but it can be the single most important KPI to measure the efficiency in any system or process.
Take the case of this logistics company; they have many KPIs to measure efficiency, such as fuel efficiency, load factor etc. But if they start measuring carbon, it can be a composite KPI that covers all the others, including leakages. Their fuel efficiency, for instance, might be improving, but route planning being inefficient can offset it. But the measurement of carbon (the right way) can take care of this.
An investor can get a good sense of a company's operational efficiency by looking at its carbon footprint. Take the case of the cement industry; comparing the carbon emissions and annual productions across companies can give an investor a good sense as to which company is more efficient. In a cement company, energy is consumed as both fuel and electricity and hence, measuring the carbon footprint can provide a composite view of it all.
The Future Is Now
It is not just about efficiency, but also about future readiness, as all countries have a low carbon way forward. For example, we already have Renewable Purchase Obligations (RPO) in many states. Although there can be a debate as to how effective the RPO is, there is no doubt that the obligation for industries to use renewable energy in India will increase over time. So, preparing for the same makes the organisation future ready. The shift in energy mix in the state or at the national grid will also impact many businesses.
In India, we are seeing very few thermal power plants coming up, with a recent CRISIL report forecasting that capacity addition will slow down to less than half the current pace in the next five years. This is a business risk for coal miners and manufacturers of thermal power plant machineries, among others. The country is also debating over a move to electric vehicles, which will not only have an impact on the automobile sector, but also the refining business. Smart investors will be interested in how the companies in these sectors see this evolution in the external environment and integrate it into their strategy.
The uptake of carbon data has seen an increase over time. This is evident in the growth of the Carbon Disclosure Project, carbon indices and sustainability indices. More recently, the Task Force on Climate-related Financial Disclosure (TCFD) has been making progress. In their first status report released in September 2018, 513 organisations have already expressed support for TCFD's recommendations. Investors are also talking about climate change scenario analysis, and the resilience of their portfolio against these scenarios. Forward-looking risk assessments by organisations will have to include risks related to climate change.
The wave is building up and only those who have the experience and preparation will be able to ride it successfully. The preparation starts with measuring your carbon footprint and of course, the comprehension of what it means.
Santhosh Jayaram is a Partner with KPMG in India and leads the Sustainability advisory practice. He is an occasional writer and tries to pen down his thoughts in between his travels.
The views expressed by the author are personal and does not reflect the view of the organization he is engaged with.