Securing a Sustainable Future for your Organisation
In May, a ruling found that the Royal Dutch Shell Group had a duty of care under the European Convention on Human Rights to do more to reduce its carbon emissions. The company was ordered by a court in The Netherlands to reduce CO2 emissions by 45% by 2030 compared to 2019 levels.
In response to this, in June Shell issued a communication saying that it intends to accelerate plans to cut greenhouse gas emissions, declaring it would “rise to the challenge”.
Rising to the challenge
This is no small feat and is indeed a ‘significant challenge’, as the order affects the company’s entire global business. In a post on LinkedIn, Ben van Beurden, chief executive at Shell, said the company would fast-track its plan for the energy transition saying: “This ruling does not mean a change but rather an acceleration of our strategy as we seek ways to reduce emissions even further.” Van Beurden added that this would mean “taking some bold but measured steps over the coming years”.
This ruling has sent a clear message to all businesses, but particularly those responsible for substantial greenhouse gas emissions, that they would be well advised to carefully consider their climate policies.
It also signals a turning point for climate change lawsuits. Previously, many claims against energy companies sought damages to compensate for any costs incurred because of climate change; this unprecedented decision means that, for the first time, a climate change-related claim has successfully targeted the core business of a carbon major and its corporate processes.
Best efforts to reduce supplier and customer emissions
It is clear the obligation to reduce its emissions by 45% by 2030 will have a profound implication on the Shell group’s global operations. This becomes even clearer when examining the full terms of the ruling; not only does Royal Dutch Shell have an obligation to reduce its own CO2 emissions, but it also has a ‘best efforts’ obligation to reduce those of its suppliers and customers.
Today, over 90% of the emissions that Shell is responsible for come from the use of the products it sells to customers. Now, Shell’s intention appears to be to drive investment away from its traditional business model and focus on increasing investment in lower-carbon energy, so it can provide customers with more environmentally friendly options. This will involve a significant organisational commitment and substantial engagement with all the companies in its global supply chain and business network across the 70 countries in which it operates.
The timescales to achieve a sustainable future are shrinking
I said earlier that this is no mean feat and the scale of the requirement that Shell is tasked with meeting is substantial. We all know that sustainability requires people, politicians, and businesses to make decisions in the long term that take future generations into account. In this way, acting sustainably encompasses a time-based horizon of decades (instead of a few months or years) and considers more than the profit or loss involved in the short term. But this now means it must also involve the value chain, and that the timescales to do this are shrinking.
Additionally, large companies can no longer abdicate responsibility for their supply chain. To this point, according to McKinsey, a typical consumer company's supply chain accounts for more than 80% of its greenhouse gas emissions, and over 90% of its impact on air, land, water, biodiversity, and geological resources.
It is therefore clear that no one entity can do this work alone, and that large companies can only get better by working with their business ecosystem. This is going to require new partnerships with customers and suppliers. And while in 2020, more than 9,600 companies disclosed their environmental impacts through the non-profit Carbon Disclosure Project platform – which represents a growth of 14% from the previous year and sets a record on the number of CDP environmental disclosures – only 22% of CDP-responding companies are engaging with their suppliers on greenhouse gas emissions. Just 16% are engaging on water use.
How do you get a handle on indirect emissions?
Clearly companies are grappling with Scope 3 indirect emissions and calculating climate impact, which becomes tricky when supply chains and product use are involved. Measuring emissions can sometimes feel like measuring calories in a diet — there is a touch of art along with the science. It is especially difficult for companies to be purely scientific when it comes to Scope 3 – or indirect – emissions: the greenhouse gases emitted all along their supply chains and in the use of their products.
For example, think of a food and beverage company: its direct emissions (Scope 1 and 2) come from its buildings, electricity and business travel. But its Scope 3 emissions cover all the steps to get the food and drinks into the hands of the customer, such as purchasing ingredients, buying packaging, and transporting the goods. Scope 3 emissions are typically the biggest part of a company’s carbon footprint and the hardest to measure. In the past, companies tended to focus more on Scope 1 and 2, in other words, direct emissions, but this is no longer enough. As more companies start to target net zero emissions across their entire organisation, the importance of Scope 3 has grown. A true net zero target must include these indirect emissions.
But not only is there a lot of data to collect and a degree of uncertainty around how to measure it, most of these requirements are outside the direct influence of the business that is tasked with doing the reporting. How many steps down the value chain do organisations need to go? How do they make estimates for suppliers that do not already calculate their own emissions? One of our pharmaceutical clients at Vizibl has calculated that in order to reach net zero emissions, they must influence 6 layers of their supply chain. This is an extremely tall order for large, complex enterprise businesses.
New technologies such as satellite imagery can help measure emissions at their source. And digital technologies and digitised supply chain management mean emissions data will become more robust and progress will become easier to prove. At Vizibl, we put sustainability and collaboration at the heart of supplier relationships. Our digital platform enables enterprise organisations and their suppliers to manage every aspect of their relationship more effectively.
Therefore, they can take joint action towards their sustainability targets by connecting the extended ecosystem on one collaborative platform. Together they can secure a sustainable future, one that will not only benefit their own organisations but society, the environment and the planet as a whole for generations to come.
Mark Perera is CEO at Vizibl