Businesses are under pressure to reduce greenhouse gas emissions, but achieving meaningful results can seem challenging, particularly in today’s uncertain world. Nonetheless, forward-thinking companies are managing to drive change in a way that improves both their environmental impact and their bottom line.
E arly in 2021, global media group Forbes set out to rank companies that had successfully reduced their carbon emissions while growing profitability. Some criteria were set: the companies had to be from the US, they had to have a market capitalisation of more than $5 billion, and from a starting point of more than 100,000 tons of annual carbon dioxide (CO2) equivalent emissions in 2017, they needed to have made huge strides in the past few years. It sounded simple.
“Going in, we figured these criteria would produce a list of more than 100 companies. But green growth is harder than it looks,” says Isabel Contreras of Forbes. She cites public utility Edison International and timber business Weyerhaeuser, which ranked 10th and 21st respectively on the Forbes list but increased their earnings by less than two per cent between 2017 and 2021.
Focus on sustainability
In the end, Forbes found half the number of companies that it originally intended for its Green Growth 50. At first glance, the struggle seems to suggest that reducing carbon emissions does not go hand in hand with growing profits. But for the very top scorers, the opposite appears to be true: those who did best in the rankings said they were able to increase profits not despite but precisely because of their focus on sustainability.
“We look at everything we do through a sustainability lens because our patients, customers and consumers are actively seeking more sustainable solutions,” says Stephan Tanda, president and CEO of Aptar, which makes dispensers for medicines, food and consumer products. Aptar took the number one spot for boosting its profits by 28 per cent while reducing emissions by 60 per cent from 2017.
Governments don’t impact what we do that much. Consumers, patients and customers demand what we do
Call for change
Reducing its environmental impact is not immediately obvious for a company whose products are often made out of plastics. Even so, more than 60 per cent of Aptar’s manufacturing facilities are now set to be listed as landfill-free, while the company recently introduced a metal-free lotion pump that is entirely recyclable. The driver for Tanda is not regulation but profit: “Governments don’t impact what we do that much. Consumers, patients and customers demand what we do,” he explains.
There is no doubt that investors are also calling for change. Among Europe’s 2,000 biggest quoted companies, emissions reduction was discussed during half of all last year’s earnings calls, according to consultancy group Accenture.
Investors are also increasingly minded to hold companies to account when they fail to live up to expectations – even if that means going through legal channels. Last May, a court in the Netherlands ruled that oil giant Shell’s emissions reductions plans were inadequate and that, by 2030, the company must cut CO2 emissions by 45 per cent from 2019 levels. This was the first time a company had been legally obliged to align its policies with the Paris Agreement, according to Friends of the Earth, which brought the case alongside six other organisations and more than 17,000 Dutch citizens.
Shell is appealing the ruling, but other major oil companies have also been hit by growing investor belligerence, including Chevron and Exxon Mobil, two of the largest oil and gas groups in the world.
Among Europe’s 2,000 biggest quoted companies, emissions reduction was discussed during half of all last year’s earnings calls
Exxon Mobil was forced to elect three climate campaigners to its board last summer after activist hedge fund Engine No.1 managed to unseat existing board members with support from institutional investors and shareholder advisory firms. BlackRock, one of the investors that supported Engine No. 1, said in a note that the new board members would bring “fresh perspectives and relevant transformative energy experience” in order to evaluate “the risks and opportunities presented by the energy transition”.
Investor vigour in Europe and North America indicates that, for many, it is no longer enough for companies to comply with the law: they have to meet standards set under global climate policies such as the Paris Agreement. Shell, for example had previously said it wanted to reach net-zero by 2050, a target that is legally binding for European countries under EU climate law. Under the terms of the ruling in the Netherlands, Shell has to move much faster. Nor can companies shift responsibility for change to governments – investors and the courts alike expect them to take on that themselves.
Nevertheless, a staggering number of companies are failing to live up to blanket pledges. By August 2021, almost a third of the 1,000 largest listed companies in Europe had set a target for reaching net-zero greenhouse gas emissions by 2050, but, according to Accenture, just nine per cent were on track to reach their targets.
Management consultancy Oliver Wyman and non-profit organisation The Climate Group believe there are three major ways that companies can cut emissions. The first is to look at them across three groups or “scopes”. Scope 1 concerns direct emissions from owned assets; scope 2 focuses on indirect emissions from the generation of electricity, steam, heating and cooling; scope 3 covers indirect emissions that occur all along the value chain, from investments to employee commuting to waste disposal.
When it comes to scope 3 emissions, companies have to become more creative
While companies find it easiest to generate carbon savings within their own operations, most carbon emissions tend to occur further down the supply chain in scope 3. Mike Peirce, director of corporate partnerships at The Climate Group, explains: “The places where the big emissions happen are often not the most effective places for action.”
Measuring the scale of the problem is the first step towards addressing this discrepancy. With that in mind, the Carbon Trust climate change advisory group has devised a way for small and medium enterprises to measure their carbon footprint comprehensively.
The process requires a year’s worth of data, including fuel consumed by the organisation, electricity consumed on site and top-ups of fluorinated greenhouse gas used in air conditioning and refrigeration equipment.
From the age of 16, I was interested in everything that makes you sick and everything that makes you well again
Once this stage has been completed, the next step centres on emissions reduction. Here, approaches vary enormously. Looking down the Forbes Green Growth 50 list, for example, firms in different sectors have attacked the process in very different ways.
DPD Group has cut carbon emissions not just by using electric vehicles, but also by improving its communication with customers so they can more easily redirect deliveries
Church & Dwight, the consumer goods company that owns baking soda maker and toothpaste brand Arm & Hammer, has eliminated PVC in packaging, and is offsetting carbon emissions by planting a million trees in the Mississippi River Valley. It comes in at number three in the Forbes Green Growth 50.
Pharmaceutical giant Eli Lilly has reduced emissions and cut costs by swapping old light bulbs for LEDs at three of its plants, while fellow drugs specialist Bristol Myers Squibb heats its office in Munich with geothermal energy alone. Altria, the company behind Marlboro cigarettes, uses renewables to meet just 2.3 per cent of its energy needs, but it is focused on cutting waste from cigarette butts.
Net-zero dairy farms
When it comes to scope 3 emissions, however, companies have to become more creative. Rather than exiting the dairy industry, Nestlé is investing in decarbonising it by fostering thousands of net-zero dairy farms, which recover cow manure for fertiliser and capture the methane that cows produce. Steel group Nucor is aiming to reduce the emissions associated with raw materials so it can deliver net-zero steel. The company is also investing in the development of renewable energy sources, recycled steel facilities and advanced high-strength steel that will enable vehicles to reduce emissions. “The green economy is being built on steel,” says president and CEO Leon Topalian.
The Climate Group and Oliver Wyman also suggest that companies tackle the root causes of their carbon emissions. Logistics firm DPD Group, for example, has cut them not just by using electric vehicles, but also by improving communication with customers so they can more easily redirect deliveries and thereby reduce failed delivery attempts. And furniture giant IKEA has launched circular services in several markets, reusing old products and creating items in modular form so that customers can replace individual parts when they need updating, rather than replacing the entire article.
Almost a third of the 1,000 largest listed companies in Europe have set a target for reaching net-zero greenhouse gas emissions by 2050, but just nine per cent are on track to reach their targets
Perhaps surprisingly, climate experts believe that companies should not automatically take capital and resources out of high-carbon businesses. A true “transition mindset” means that companies need to invest in these areas in order ultimately to reduce emissions.
Some banks, for example, continue to lend to fossil fuel companies in order to finance plans for change. “If the oil and gas companies you have exposure to have a good shot at transitioning, then you might even see increased financed and facilitated emissions in the near term,” says Val Smith, chief sustainability officer at US bank Citi. “Our theory of change is that we transition with our clients, and that will require capital.”
Reaching net-zero carbon emissions in business operations by 2050 will involve a doubling of the pace of reduction by 2030, and a further acceleration beyond, according to Accenture. Some industries have more to do than others. Oil, gas and chemicals, automotive, transportation, storage, construction and manufacturing account for more than 40 per cent of company emissions worldwide.
Nonetheless, all businesses have to transform to meet the growing challenge of climate change. “Targets work,” says Jean-Marc Ollagnier, CEO of Accenture in Europe. He advises that net-zero emissions should be managed like any strategic business priority, with companies setting clear objectives to drive organisations in the right direction, plus regular check-ups to monitor progress and correct the trajectory as appropriate. “Net-zero by 2050 – let alone sooner – will be feasible only with swift, decisive action in this decade,” he says n