Creating successful and profitable business models that reduce the promotion of unnecessary consumerism, and decrease material demand, are much needed. Product service systems, for example, provide services as well as products for collaborative consumption with the intention of reducing environmental impact.
Redefining the way we think about product ownership by sharing eliminates the aforementioned emissions associated with new products. Belongings can remain idle for long periods of time, e.g. the average European car is in use only for 2% of its lifetime.
Circular business models
Companies can shift to or create new innovative business models to substantially reduce their Scope 3 emissions. Reconsidering what the company can offer and how it can be offered at a systematic level can help it meet marketplace demands and generate revenue in new ways while reducing emissions across the value chain.
Emissions performance can also be assigned a monetary value by putting an internal price on carbon that covers Scope 3 emissions. A carbon price can also be used to collect fees that can then be reinvested in new low-carbon activities, products and services. A price on carbon can cover both upstream and downstream emissions. It can also financially quantify the environmental performance of products or services relative to those of a company's competitors.
According to CDP, in 2017 nearly 1,400 companies were already factoring an internal carbon price into their business plans. This includes over 100 Fortune 500 companies with annual revenues of approximately USD 7 trillion.
Business model innovation
Companies that are successful in building new coalitions and partnerships, with a shared ambition to reduce emissions, reinvent business models and innovate new products and services, will be better positioned to capture future growth.
Efforts on multiple fronts can create a virtuous cycle where every company actively works to reduce emissions in their value chain while simultaneously benefitting from the efforts of other companies. This also creates more robust data to base targets and performance tracking on and helps to create new innovative solutions built upon a value chain system's perspective.
Key areas of action
"Fourth Wave" technologies such as data analytics, smart sensors and blockchain will help companies manage their Scope 3 impacts by offering powerful insight into complex global value chains and will help reduce emissions in new ways. These technologies are playing an increasingly important role in business innovation, and business executives agree that implementing new technologies will not only improve their company’s environmental footprint, but also its bottom line.
New technologies – change enablers
Together, energy generation and use account for about 75% of global GHG emissions, including both the sectors’ own emissions (Scope 1 & 2) and downstream in the value chain (Scope 3).
However, the direct responsibility – as reflected in Scope 1 & 2 reporting – accounts for a relatively low share of 1/3 of total emissions.
Hence, most businesses do not have insight into the magnitude and nature of their Scope 3 emissions.
Governments have a key role to play in implementing standards, regulations and incentives to support decarbonisation of Scope 3 emissions. This is happening both in the US and EU. In parallel, companies working to reduce Scope 3 emissions can mitigate risks within their value chains, unlock new innovations and collaborations, and respond to mounting pressure from investors, customers, and civil society.
Transformational change needed
Among the most powerful tools for a company to mitigate its Scope 3 emissions is to focus on lowering lifecycle GHG emissions already during the design of products and services. The design process can play a crucial role in defining the range of reductions in GHG intensity that can be achieved.
If a product is designed to be manufactured using a specific material, the possibilities to lower embodied GHG emissions and processing emissions, the range of options for upstream and downstream logistics, the optimum possible use phase efficiency, and the feasible end of life treatments are all invariably determined by the design choice.
A circular economy approach can achieve large improvements in environmental performance by redesigning systems and business models to simultaneously reduce upstream and downstream emissions. According to Material Economics estimates, a circular economy could reduce up to 3.6 billion tonnes CO2 in heavy industry per year globally.
From product to service
An important lever for reducing downstream emissions is customer engagement. There are several different approaches a company may take to deliver such an intervention. Successful businesses partner up with clients and are working together to reduce emissions through innovation of new products and services. Engaging consumers and helping them understand how to reduce energy usage and individual carbon footprints are also becoming more frequent.
Many businesses invest in low-carbon projects and companies as well as in resilient development, such as transformational, interconnected technologies and solutions to support their pathway to net zero; renewable energy, carbon storage/CCS, clean hydrogen and battery storage.
Engagement
The challenge ahead
The world's population is estimated to reach 10 billion by 2050. 68% are expected to live in urban areas, and the growing population will expect to see improved standards of living. It is not difficult to understand that a larger and more affluent population will want to consume more, putting increasing pressure on scarce resources like land, water and energy.
COP27, the annual UN climate conference, is taking place in Sharm el-Sheikh, Egypt on 6-18 November 2022. The conference represents what is likely to be the final opportunity to take global collective action on the climate crisis and achieve net zero emissions across the economy, in line with the Paris Agreement.
To mitigate and adapt to climate change, and provide livable conditions for the global population, governments and companies must lead the way. Reducing Scope 3 emissions and partnering up with both suppliers and customers is critical activity for all businesses leaders who aim at managing responsibly and at the same time create societal value.
Now is the time to act.
A decade
of action
A decade of action
Climate risks can no longer be ignored. The latest report from the UN's Intergovernmental Panel on Climate Change issued a strong warning that current action is causing irreversible damage, significant investments are needed to mitigate the crisis. This stresses the need for urgent technological and financial reform, as well as business re-engineering.
A global net zero scenario would require transformational changes across all business sectors, the energy ecosystem and the global economy.
Emission reductions and the transformation of current energy systems require annual investments in the magnitude of 1 to 1.5% of global GDP annually. The IPCC, in its 1.5°C Report, estimates that by 2035, 2.5% of the global GDP, will have to be devoted annually to sustainable energy related investments, of which more than a third constitutes additional net investment needs.
Therefore, business must reduce greenhouse gas (GHG) emissions wherever possible. Part of the global challenge is defining responsibility for the generation of GHGs. The level of influence and control each company has over emissions through the value chain, is divided into three scopes.
While we have long seen a wide range of concrete action in business for owned and controllable emissions (known as Scope 1 & 2 emissions), less attention has been paid to reducing the so-called Scope 3 emissions along the whole value chain. Despite the challenges of addressing indirect emissions, Scope 3 does not only have a huge potential to prevent the worst impacts of climate change, but it can also lead to substantial business benefits, new partnerships, innovations and revenue growth.
Kjetil Ingeberg
Helena Mueller