Tuesday, December 13, 2022
Compensate’s chief impact officer Niklas Kaskeala has gotten used to repeating the same message when giving presentations. Despite that this fact has been known since the 80s, it comes as a surprise for many. “Safe levels of CO2 in the atmosphere were surpassed already in 1987,” he begins. “Since then, humanity has added more and more CO2 into the atmosphere, and we need to act now to change this. Companies play a big role here, regardless of their size,” he highlights.
Kaskeala clarifies that also small and medium-sized enterprises do have an impact, as they account for 60-70 percent of the global economy. In addition, larger companies are starting to have more and more requirements for all the actors in their value chain, meaning also the SMEs they are cooperating with.
“Currently, there is a growing pressure to act for the climate from various stakeholders,” Kaskeala says. “As customers and consumers, we put more pressure on companies where we buy products from. Investors have their own climate targets to fulfill and they are also urging companies to take climate action. In addition, it is getting more difficult to acquire talent, as especially the younger generations are looking for meaningful jobs and companies. Policymakers, like the EU, will increase regulation and it is better to act before it becomes mandatory.”
It is getting more difficult to acquire talent, as especially the younger generations are looking for meaningful jobs and companies.
“On top of everything, activists name and shame companies and you don’t want to be on the front page of a newspaper because of greenwashing accusations. What we really need now is leadership, and that happens by starting to act and setting an example.”
Set your targets according to climate science
The high-level climate objective is the 1.5-degree target set in the Paris Agreement, and it will only take a few years before this limit will be passed. For companies, climate action that is in line with the 1.5-degree target, typically means that they need to halve their emissions by 2030 compared to a baseline year. This can be the current year or optionally, a few years back from now.
“That is an ambitious target, but then you are aligned with climate science and the Paris Agreement. A long-term goal should be to achieve net zero emissions by 2050. These two goals support each other, and both are equally important. And it is not enough to set these targets but also to communicate your progress honestly and transparently.”
“The most important step to reach these goals is to reduce emissions radically,” Kaskeala says. “The best way is to start with direct emissions, which you have more control over. Mapping out the emission sources is the first thing to do. Then setting yearly targets, especially when it comes to energy usage. An energy transition is already ongoing – it’s just a question of how fast it will happen. Switching to 100% renewable energy is key.”
According to Kaskeala, it is often the most cost-effective to start with so-called low-hanging fruits. For example, companies are probably currently considering energy efficiency because of the high energy prices so it is not just about the climate but also about the cost savings.
“Also here, it is important to communicate to your stakeholders what you are doing so that you build confidence and show that you are taking climate action. Be honest about challenges you might be facing so that you are not greenwashing, but you are transparent about everything. It is worth evaluating your progress even on an annual basis and changing your course accordingly.”
Scope 3 is the most challenging part of the emissions but as a buyer, you can then impact others in your value chain.
However, direct emissions can be just a small part of the company’s emissions. The so-called scope 3 emissions, which are created in the value chain, are in most cases the biggest source of emissions that can account for even 90-95% of the total emissions.
“It is important to have a tool to reduce these emissions as well,” Kaskeala highlights. “This starts the same way: by identifying the emission sources and then creating a strategy on how to reduce those. Scope 3 is the most challenging part of the emissions but as a buyer, you can then impact others in your value chain.”
Taking responsibility for current unavoidable emissions is important
The most important step in climate action is radical emission reductions. However, before reaching net zero there will be emissions that cannot be avoided.
“As companies are still causing harmful emissions, emission reductions are not enough at this point of the climate crisis,” Kaskeala stresses. “This means that we need to take responsibility for those emissions we are causing today. Offsetting is the tool for that, but it is always the last-mile medium and never the primary way to take climate action. The mitigation hierarchy is to first avoid emissions, then minimize those emissions that you can’t avoid and finally, compensate for the rest. These various actions can be done simultaneously – however, you need to prioritize emission reductions,” he reminds.
“The most important characteristic of a high quality carbon offset is additionality. This means that the climate impact wouldn’t have happened without your contribution," Kaskeala says.
Offsetting should also have a true climate impact. Within the past few years,
“The most important characteristic of a high quality carbon offset is additionality. This means that the climate impact wouldn’t have happened without your contribution. It doesn’t make sense to support something that can be considered business-as-usual. As an example, there are lots of renewable energy carbon credits on the market. These are created to avoid fossil fuel, but these kinds of projects are already very competitive and would take place anyway, without the revenue from carbon credits.”
Reliability in carbon projects means that the climate impact has been estimated in a reliable way. “At Compensate, we have seen projects creating too many carbon credits because they have an inflated baseline, for example. The permanence of the carbon sink or storage is also crucial in the sense that when we are offsetting, for example, fossil fuel emissions, the permanence cannot be just a few years. It should rather be several decades, preferably a hundred years or even more. Otherwise, you are just delaying the emissions, instead of tackling the long-term problem.”
Kaskeala knows that double counting is an issue that most companies offsetting their emissions are facing. This is a situation where two parties claim the same carbon removal or emission reduction, but only one of the parties’ emissions are counterbalanced. Commonly, the two claiming parties are an organization offsetting its emissions and the host country of the project trying to reach its nationally determined contribution (NDC), or climate target, under the Paris Agreement. Kaskeala highlights that avoiding double counting is crucial to make a true climate impact.
Finally, offsetting and especially offsetting claims should be based on so-called ex-post credits. These are carbon credits that are sold after carbon removal or emission avoidance has taken place. If this is not the case, we cannot be sure about the climate impact of a carbon project and we need to wait for the climate impact to realize before making offsetting claims.
“We also have social and biodiversity issues,” Kaskeala reminds us. “The carbon projects should be net positive so that you are supporting a broader agenda,” he says.
Kaskeala’s tips on how to align the strategy and purpose with climate targets and action:
Review and update your company’s vision and mission to reflect your climate ambition.
Assess the extent to which your business model and value proposition are aligned with climate ambition.
Shift strategy towards models and solutions that help customers reduce/eliminate emissions.
Embrace circular solutions: shift to a more resource-efficient circular model that reduces, reuses, and recycles good materials.
Integrate your climate strategy across all your project planning and align all new solutions with climate targets.
Set measurable goals & measure the positive impact of your climate solutions. Be transparent and follow an established framework if possible.
Place the climate at the heart of your financial and investment strategy. Reject investments that are harmful. If you have the capability, embed carbon accounting into your financials.
Adopt climate oriented messaging if your services influence consumer or business decision-making.
This article is based on the Compensate webinar: How to start taking climate action and set climate targets. The webinar took place in October 2022 and can be