As the COP26 conference begins, companies of all kinds must assess how they can reduce their carbon emissions and take positive action to combat the effects of climate change.
Will Wilson, ESG Analyst, Apex Group
The end of October will see the start of the COP26 climate change conference in Glasgow, where world leaders and industry representatives will meet to discuss how to tackle the grave climate situation.
This year has demonstrated just how important it is that we act now to mitigate climate change. Flooding and heatwaves in North America, Europe, Asia and Australia have killed hundreds of people and caused untold damage to habitats and buildings.
In August, the International Panel on Climate Change published its starkest warning yet that man-made climate change was “widespread, rapid and intensifying”.
It has never been clearer that we all need to take action to help reduce the risks of future catastrophes and improve the outlook for our planet. This includes private companies as well as governments.
Recent research commissioned by Apex Group surveyed 358 private equity leaders from around the world, and found that, while an overwhelming majority agreed that tackling climate change was an “urgent issue”, less than half of private equity firms measured their carbon footprint.
Private companies around the world must evaluate how their activities affect the environment and contribute to climate change, and work towards carbon neutrality and ultimately net-zero.
Failure to do so will expose companies to a variety of risks. A company’s reputation could be damaged if it is seen to neglect its responsibilities towards society and the planet, and major investors are increasingly scrutinising this aspect of a company’s operations before committing capital.
Regulators, too, are placing more and more emphasis on environmental standards and carbon emissions reporting and reduction as global efforts to mitigate climate change become more cohesive.
International bodies such as the Task Force for Climate-related Financial Disclosures (TCFD) are raising the reporting bar for investors and companies alike, as are major regulations such as the EU’s Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy for Sustainable Activities.
Finally, a failure to prepare and adapt to a changing climate can also expose companies to the physical risks of global heating, with premises, operations and staff all potentially affected.
Reducing carbon emissions
The 2015 UN Paris Agreement on climate change pledged to limit global warming to 1.5 degrees Celsius above pre-industrial levels. As of 2021, while some progress has been made, there is still a significant shortfall in many areas.
The UN Environment Programme estimates that global emissions need to be cut by at least 7.6% a year for the next 10 years to meet the 1.5 degrees target.
The main way in which companies can take positive action on climate change and aid the journey towards 1.5 degrees or lower is by reducing their ‘carbon footprint’ – put simply, the level of greenhouse gas emissions they generate.
For many companies outside manufacturing and industrial sectors, travel will make up a significant part of overall emissions. Remote and flexible working, cycling schemes, and using trains instead of flights for long distance journeys can all help lower this element of a corporate footprint.
It is not always this straightforward, however. Working to reduce a company’s greenhouse gas emissions is a significant undertaking that requires a long-term plan.
There are different kinds, or ‘scopes’, of emissions that companies need to address.
Scope 1 refers to direct emissions that occur from day-to-day activity, such as gas burned onsite in manufacturing processes. Scope 2 is indirect emissions, from the purchasing of energy used to power office buildings. Finally, Scope 3 is the hardest to assess as it captures emissions from sources a company does not control, for example the use of its products, business travel, and investments.
Measuring, assessing and reducing each of these areas as much as possible will be crucial to each company’s efforts to comply with regulations, meet consumer demand for responsible operations, and to positively contribute to the fight against climate change.
How Apex Group can help
Apex ESG’s Carbon Footprint Assessment and Reporting tools help companies get a clear picture of their scope 1, 2 and 3 emissions through data collection and reporting. We can also help you map your journey to net zero emissions through long-term planning, reductions and offsetting.
Our toolkits are based on a comprehensive assessment of the requirements of national and international regulations and guidelines, including – but not limited to – the UN PRI, TCFD, and SFDR, to ensure users can get a full compliance picture as well as an accurate and useful carbon footprint measurement.
For asset managers, Apex Group provides several services to help get a full picture of the impact of investment portfolios in as efficient and accurate a way as possible. Access to timely and high-quality data sources is essential for all stakeholders to ensure that risks are mitigated and return targets are met on a long-term, sustainable basis.
It has never been more important for companies to act to reduce the impact of climate change. The tools are available and the incentives are apparent – all that is needed now is positive action.
About the author
Will Wilson is an ESG analyst at Apex Group, where he provides ESG ratings and advisory services to investment managers and portfolio companies operating in the private markets.