Technology holds the key to unlocking decarbonization by identifying emission hot spots and pinpointing the areas of biggest impact.
The pressure is mounting for companies to deliver on their ambitious carbon reduction goals, and technology has a critical role to play in helping them get there.
Almost two-thirds of Fortune 500 companies have set ambitious carbon reduction targets for 2050, but stakeholders continue to raise the bar.1 Seven in ten employees consider a company’s stance on social issues as a factor when deciding whether to stay in their current job,2 and 38 percent of consumers boycott products or services from companies that don’t share their values.3 Moreover, governments are implementing policies related to environmental, social, and governance (ESG) factors and are rolling out stricter regulations.
As companies contemplate how to achieve their goals, there is a growing appreciation for the role technology must play in calculating impact, prioritizing investments, and using analytics to make green decisions. We previously covered the steps CIOs and technology leaders can take to reduce their functions’ carbon footprint—what we call playing defense.5 In this article, we explore how organizations can play offense by using technology and analytics to reduce their emissions. Technology leaders can position their organizations to meet and exceed the heightened expectations of their stakeholders by taking three actions: enabling carbon transparency, harnessing decarbonization solutions at scale, and using green impact as an additional factor to set the company’s priorities.
Achieving green impact doesn’t have to mean increasing costs or sacrificing profit. With good data to fuel decision making, companies can achieve a positive financial impact while making progress toward net-zero targets. For example, consumer-packaged-goods companies that reduce the overall size of their products can fit more items in a shipping container, thus cutting freight costs and CO2 emissions from shipping.
Play offense
Enterprise tech leaders can play offense by focusing on three specific objectives.
Create carbon transparency
The starting point for any serious decarbonization effort is developing a clear view of sources of carbon emissions across the enterprise. After all, organizations can’t manage what they don’t measure. Transparency provides executives with the data to effectively measure, track, and report their carbon emissions over time.
To get a clear, comprehensive picture of the organization’s carbon footprint, businesses need to collect data from not only their own organization (similar to classical financial accounting) but also their extended supply chain (Exhibit 1).
Significant challenges exist in pulling this off. Underdeveloped carbon-accounting standards make it difficult to calculate emissions in a consistent, comparable manner.6 Moreover, suppliers often have poor-quality data and are reluctant to share their data and collaborate with customers. Selecting the right carbon transparency solution that can combine all necessary input data and calculate a carbon footprint is complicated in the current fragmented, hard-to-navigate landscape; some promising solutions are not yet sufficiently automated to be practicable or are still in the development stage, and solutions are often difficult to integrate with existing systems. Furthermore, many companies are still figuring out their data needs, which makes evaluating solutions a moving target.
These challenges might seem overwhelming, but companies can make significant progress by focusing on two things. First, they should start with simple solutions (such as spreadsheets) and use existing databases to develop standard measurements (such as the amount of emissions emitted per spend on materials purchased or kilowatt-hour consumed) to establish a high-level emissions baseline. Second, companies can start by limiting the scope of this exercise to their main sources of emissions rather than tracking down every single carbon source, which can be time consuming and rapidly lead to diminishing returns.
Over time, companies can hone their calculations by increasing their granularity, such as by replacing global emission factors with region-specific ones, or calculating emissions per kilogram of material purchased rather than spend. They can also implement data feeds to automatically send emissions information, taking care to track and tailor data over time as needed. Additional strategies include incorporating data from suppliers, building a database of emission factors, and updating this database frequently to reflect changes in procured materials and energy or supplier locations (see sidebar, “Improving carbon transparency maturity”).
Through this process, companies can develop their “green muscles” by expanding their capabilities in technology, data, and carbon accounting (such as knowledge of relevant data sources and carbon-accounting standards). They can also get a more detailed view of Scope 3 emissions by offering incentives to suppliers that share primary emissions data and enabling them with basic carbon-accounting calculators and educational material.
Develop decarbonization solutions at scale
Decarbonization strategies and their levers can differ significantly by industry, but technology can accelerate a company’s green efforts across sectors in three ways:
Reduce. Actions in this category are typically related to operational efficiency—for example, harnessing algorithms to optimize inventory by forecasting demand or identifying the most efficient delivery routes. Verizon, for example, built a digital twin that enables organizations to monitor and control machines and processes in near real time. Since energy is a critical element of the total cost of operating a facility, the digital twin supports the development of energy consumption models. The company has used this solution to reduce its energy costs by more than $100 million a year and carbon emissions by 200,000 metric tons.7 Vistra, a US energy company, implemented a series of AI solutions to improve the efficiency of its power plants, leading to the abatement of about 1.6 million metric tons of carbon a year.8
Replace. Once companies have visibility into their main sources of emissions, executives can analyze those sources to inform procurement decision making and improve product design. Replacement options differ by industry. For example, banks could deploy algorithms to analyze investments based on their emissions potential and adjust their portfolios accordingly. Retailers could prioritize sustainable material for their products. And logistics companies could inform fleet replacement decisions based on engine efficiency, demand, and maintenance costs.
One multinational aerospace company used technology to develop and manufacture lighter parts.9 It used generative design (enabled by cloud computing) to produce thousands of alternative designs for a partition in a plane’s main cabin. Since these designs can’t be produced through traditional methods, the company incorporated 3-D printing into its process. If the design were rolled out to all parts of the cabin for planes currently on order, this approach could reduce carbon emissions by approximately 500,000 metric tons annually—roughly the same impact as eliminating 100,000 automobiles from the road for a year.
Reuse. Operations and manufacturing processes can generate significant amounts of waste and by-products. Companies can lower this impact either by reusing materials of discarded products in manufacturing processes or by selling by-products and waste to others.
One global shipping company implemented a “cradle-to-cradle passport,” which tracks every component in its ships to support the recovery and recycling of materials used in construction.10 This tracking enables the company to separate high- and low-grade steel, copper wiring, and other metals and reuse nearly all material in new ships, reducing carbon emissions by up to approximately 90,000 metric tons per cargo ship.
Use a green prioritization matrix to improve decision making and impact
Once organizations have made progress in enabling carbon transparency and developed a list of potential initiatives across efforts to reduce, replace, and reuse, they can efficiently set priorities. IT can help calculate the potential impact of these efforts to develop a green prioritization matrix that the business can use to assess opportunities (Exhibit 2).
The matrix gives companies a factual grounding to prioritize decarbonization efforts based on their green impact (carbon abatement), business impact (financial value created), and feasibility (associated time and costs).
McKinsey analysis, for example, showed that end-user devices—laptops, tablets, smartphones, and printers—generate 1.5 to 2.0 times more carbon globally than data centers. It also highlighted that moving applications to the cloud had a much greater green impact than investing in improving a company’s data centers.11
Some organizations are already using sustainability to guide their decisions. For example, a food manufacturer developed a database to compare the amount of packaging used in its products with those of its competitors. The tool highlighted an opportunity to reconfigure packaging, a move with the potential to decrease the organization’s CO2 footprint and logistics costs by 4 to 5 percent if implemented across its entire product line.12 Since this solution was also relatively easy and cost effective to put in place, it had a prominent place on the green prioritization matrix.
In the coming years, reporting standards will continue to evolve, and new tech solutions to support carbon transparency will hit the market. In the meantime, companies can focus on putting the foundational elements in place. Enterprise technology leaders need to act now if they want their organizations to be well positioned to benefit from the green revolution.
Source: mckinsey
