Environmental Sustainability is becoming an integral part of corporate strategy with changing perspectives worldwide as most organizations are making future commitments towards sustainable operations.
However, along the way, they encounter several challenges ranging from performance reporting and governance to data and technology limitations. IT and Data Strategy now sit at the heart of environmental Sustainability as they enable organizations to collect and analyze information, monitor performance, and gain actionable insights.
This article will help you navigate the critical areas and some of the pitfalls.
Decarbonization was the focus of all attention during the Climate Change Conference (COP 27) in November 2022. A factor acknowledged as a critical step in offsetting human impact on the global climate.
From a business perspective, organizations face increasing pressure from their customers, investors, governments, and regulators and are held accountable for their Environmental, Social and Governance (ESG) initiatives and actions.
Most leading organizations are now incorporating ESG and environmental Sustainability in their corporate strategy and reporting progress in their annual performance reports.
Environmental Sustainability requires an organization-wide transformation program and framework for computing, assessing, and allocating greenhouse gas (GHG), climate, and environmental impacts and outcomes to the organization’s direct and indirect actions and business operations.
Therefore, organizations must establish a clear link between their operations (Scope 1, 2, or 3)*(1) with measurement parameters (CO2 equivalent, water consumption, waste, biodiversity impact) and positive or negative climate and environmental externalities.
While there has been a rapid increase and adoption of reporting standards and accountability mechanisms, many organizations are yet to align their net zero commitments to any robust process or criteria. As the Net Zero Tracker reports – More than one-third of the world’s largest publicly traded companies now have net zero targets, up from one-fifth in December 2020. However, 65% of corporate net zero targets do not yet meet minimum procedural standards of robustness.
Well, where do the organizations fall short? And why do some organizations find it challenging to set a path to achieve their environmental sustainability objectives?
Organizations face many challenges, from data shortfalls, technology limitations, and time-consuming manual processes to defining robust KPIs for reporting and obtaining ESG metrics across the value chain. A fragmented approach with a weak governance structure can even aggravate the problem further in the absence of universally accepted industry regulations and standards.
Organizations have realized the need to decarbonize and improve Environmental Sustainability across their value chain but often struggle to translate this ambition into action and results. Sustainability may be a relatively recent concept, but the core principles of business transformation still apply.
Environmental Sustainability directives should trickle down from the top, i.e., the leadership and organizations need to embed environmental sustainability targets/KPIs throughout their business operations. Organizations require more than better measurement and reporting practices to achieve real progress—fundamental changes in the industry ecosystems and business models are also vital areas.
Analysis of the 26 largest publicly traded Swedish Companies shows that net-zero targets are entering the mainstream, and so are the efforts to report and govern them. However, the primary challenges include drafting and deploying a detailed plan that addresses the entire scope of the value chain.
Sustainability is a systemic concept that requires the entire value chain to collaborate. Competition, though essential, is one of many drivers for success. Organizations realize the power of collaboration as shared interests and goals incentivize them, and the growing need to invest in the health of e shared ecosystem.
It is now imperative for business leaders to take a broader ecosystem view based on an understanding of all stakeholders and go beyond engagement to enablement.
Much of the critical data necessary to support environmental Sustainability resides in enterprise software systems, and if this data can be standardized, combined, and analyzed, the improvements can be substantial. Whether in individual companies or large and complex organizations, the data-driven approach is already delivering sustainability-linked dividends – from reducing waste and water consumption to calculating and subsequently lowering the carbon footprint across the entire value chain.
As the world struggles to reduce or isolate the emissions causing climate change, it’s exciting to see new digital tools and technologies coming into play to help industries meet this urgent challenge. A broader digital transformation is becoming a significant enabler for monitoring sustainability performance and driving a reduction in carbon footprint. Businesses implementing transformation programs and the right technological toolkit will find that net zero targets can be compatible with organizational growth.
Organizations need to determine the current maturity of their environmental sustainability initiatives, understand their material environmental impact, and work towards building objectives, targets, and action plans.
For organizations in their initial phases of the environmental sustainability journey, existing measurement frameworks, such as GHG Protocol *(2) or IFRS Sustainability Disclosure Standards *(3), can offer a way forward to establish program guidelines and a measurement strategy and help focus on data management.
A formal, structured transformation program can be a clear solution to multiple challenges organizations face on their way to the environmental sustainability journey. Opticos has worked with clients across different industries and varied transformation objectives during the past decade.
We provide expert knowledge and help organizations develop key transformation strategies and analyze current and key success factors.
Do not hesitate to contact us to discuss this further.
*(1) – In short, Scope 1 direct emissions come from owned or operated assets. Scope 2 consists of indirect emissions from purchased energy, such as district heating or electricity. Scope 3 encompasses all other indirect emissions, including those that result from the company’s activities executed by e.g. suppliers and distributors.
*(2) – GHG Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains, and mitigation actions.
*(3) – IFRS Sustainability Disclosure Standards are intended to provide a global baseline and to be compatible with jurisdiction-specific requirements, including those intended to meet broader stakeholder information needs.