Verco explains Q&A webinar- your questions answered
As part of our ‘Verco explains’ series we have recently put our Corporates Director, Andy Todd in the ‘hot seat’ with a live Q&A webinar session, giving attendees the opportunity to ask their net zero questions and benefit from our expertise. Below is a summary of the questions asked and the responses that Andy gave in the session.
How long does it usually take to create a net zero pathway?
That's a pretty common question. It depends where you're starting from. So, if you're a company that's starting that journey, and you haven't quantified your emissions, you haven’t selected a baseline, you don’t know how you’re going to reduce and you haven’t got your target yet, it's difficult to get a clear picture within a timeframe shorter than 12 months. And a lot of that is really driven by how long it takes you to establish a baseline. Once you've got a good understanding of where your emissions are and you have a baseline, you can start working on the pathways and developing a plan. But completing it in less than 12 months from a standing start can be quite challenging.
How do we create value from a net zero strategy?
There's growing interest in the topics of carbon and net zero in business, so there is a willingness or expectation to do something. However, it's not always backed with a willingness to pay for everything. So, the real challenge for sustainability functions within companies is, how do I align the level of ambition from the senior leadership with the constraints of normal investment hurdle rates and thresholds that apply to capital spending?
I think, one thing to do is break the challenge down. When you're looking at net zero there will be uncertainty over what you're going to do in future years. Some of reduction will be driven by wider market forces or potential new regulatory or legislative drivers. However, there's a lot that you will be able to do yourself. I think the important thing in the early days is to really focus on what we consider to be the no regret actions. The things that you would do anyway, where there’s a good business case. And make it very clear that it is part of the net zero journey. Get people bought in with the understanding that it is also all part of the core business aims and objectives.
With some of the things that are just fundamentally harder to reduce, for example heavy transport fuels, it's about signposting decision points, setting the expectation that a decision will be made at a later point. So short term, value-adding, commercially sensible, no-regret actions. Signposting where the future decision points need to be made, and then making sure that you can explain the reasons why around this.
What baseline year should I choose?
That feels like a Covid related question. It’s quite a common question, and actually, there's been a recognition by third party initiatives like the science based targets initiative, and others around what has been quite a disruptive point in time.
So, the reason that the baseline year is important is that you're encouraged to set both near-term and long-term net zero targets. Generally the endpoint is pretty well known, it’s more or less equivalent to an absolute reduction in carbon of around 90%. That is the fixed end point. So where you start does have a bearing when looking at intensities or absolute reduction.
I think it is important to understand what has happened over the last couple of years both in terms of business activity and carbon emissions. So if you are a production or manufacturing company, has your production been severely impacted by the effects of the pandemic? If you chose 2020 as your baseline year, but byy 2022 your production will be 30% higher this will present a challenge and not necessarily reflective of the trend of your business over the past 3-5 years.. This situation isn’t going to help promote the net zero journey in your organisation
So, what we tend to do is look at a pre-pandemic years, so take 2019 and compare this to the most recent year, 2021, and see what kind of changes have really happened. We then make a sensible decision. 2019 is now a number of years away, so it’s going to be hard getting the data if you haven’t done already collected it. It's important to make sure you're not setting yourself up for an uphill challenge from the outset as early moment helps with to create momented
Can I let net zero targets change if more data becomes available?
I think, really, what this question is probably asking is, can my baseline be adjusted? If you are setting a net zero target, then you really shouldn't be changing the target year that you want to achieve it. When you're setting a target that is against a baseline, you shouldn't really change the baseline. If better data becomes available or you missed out some emissions because that information wasn't available or you weren't aware, you're definitely allowed to re-baseline. So that basically means restating what your emissions were in your baseline year, but when setting targets it’s important to consider the starting point and the end point as fixed.
Do you have any tips on getting internal alignment when engaging the business?
Yes, that's probably one of the hardest challenges for some of our clients. Normally our main point of contact will be a sustainability director, or the person responsible for sustainability at a senior level.
It's really about implementing one of the main change management principles; senior leadership buy-in. I don't think you can over invest in explaining to senior management/ senior leadership, what all these net zero related terms and initiatives are, or why it's important, why it's impactful for the business, why shareholders or investors care. Make sure that they understand the imperatives so that they will reinforce any of the messages or needs.
The next step is to consider all stakeholders. Net zero touches, procurement, marketing, operations, technical teams, quality- the whole business- and that’s quite unusual compared to energy, water or waste reduction which are often more specific. The key to get alignment is to make sure everyone understands the topic at a high level. So we often do a workshop or webinar internally, to get everyone on the same page. We include themes such as what net zero means, where the company is, wherethe key drivers are, what to consider.
Next, try to translate the outcomes you need in order to achieve net zero into something that is meaningful to the different business functions. For example, better buying guidance for procurement teams; giving them criteria to check when buying from different types of supplier categories. Basically, try and break actions down with set metrics and explanations to make sure everyone understands what role they have to play.
Finally collect and report the data to make sure you are on track and that everyone can see performance.
What information do I need to bring together to create a net zero pathway?
I think the biggest information gathering activity trap is to just think about procurement data. It is important, but taking a step back from that, it’s about mapping the stakeholders and data owners, about understanding your organisational structure and which individuals would be responsible and need to be engaged. I think that's one of the key bits of information that needs to be compiled early.
Often, the first part is a materiality assessment: generating estimates for all the carbon emissions sources that might be defined in the GHG Protocol. That might require some high level information, spend data etc- something that your finance team or your buying team should have relatively easily available. You then have an order-of-magnitude understanding of where those emissions sit and which ones are important. When looking at net zero, it's important that you cover your total carbon emissions, so scope 1,2 and 3. So once you've done your materiality assessment, you understand where to focus and where to get the information.
The next stage is to really think, actually, which bits am I going to focus on, which bits am I going to break down and get really, really detailed data? This is linked to what you can actually influence and reduce and identifies the key data sets that you need. For example those data sets might come from your buying teams, it might be purchase tonnes of materials, it might be business travel information, it might be lots of specific bits of information. The next stage is to consider, how do we get this data even better? You could do this by getting supplier specific information or looking at how to improve on industry average factors.
So, the first stage is the materiality stages working out what needs to be included. Once you know what needs to be included, work out what activity data is available, so the tonnes of material purchased or the miles flown in business class. Then work out what factor you are going to apply to that the activity data- Is there an industry average for key areas? Do you want to collect supplier specific information or primary data? And then once you've got all of those for each of the emission categories that more or less brings out the key data that you need.
How much does it typically cost to get to the point of having an SBTI target approved?
Putting it simply, it doesn't take a lot to define what your targets should be in terms of science based targets, it is relatively quick, and there are tools to understand what the ambition needs to be. So, the actual mechanics of the target setting isn’t that difficult. There is a fee associated with getting it validated with the SBT which you can see on the website.
The real area where the costs vary is quantifying your emissions- so, have you developed a baseline to cover all the emission sources for scope three that you need to consider, is it the right kind of data, all those sort of things. That can be a relatively short exercise in the region of £10,000 and it could be a much more involved exercise in the range of £100,000 depending on the complexity of your business activities.
Once you have a baseline and an understanding of emissions, the actual task of saying how much you need to reduce by and when isn't very difficult. The challenge is; ‘how are we going to convince our leadership that this is the right thing to do?’ Quite often, companies will want to have a good idea of how the targets will be achieved, which is a completely sensible approach to take, and then what specific implementation strategies might have to be done- so the detailed planning. They almost want to know how to do it before they start. Again, depending on detail, that can be top-down approaches, or it could be much more detailed engineering bottom-up, looking at specific technologies. You can start at quite high-level for |£10,000 – £20,000 but this can be much larger again based on the level of detail needed and the complexity of the organisation being considered.
How can I identify the priorities that need to be addressed at site when developing a net zero pathway?
So, when you're looking at priorities, it's about looking at what is going to stop you from achieving the goal.
I would advise against trying to do a really, really detailed energy efficiency plan with 2050 specific initiatives that just deal with the typical efficiency measures, which gets you maybe 10%.
You probably need to consider this at a slightly higher level, or at least a broader approach than that:
Break down the energy use or emission sources, it might be fuel or electricity or whatever into how its used and where its used. And then ask if there is opportunity or there is going to be opportunities to improve this but standard technologies, operations improvements or improved control..Then start looking at whether there opportunity to improve the process, can things be done slightly differently to avoid emissions?
Next look at low carbon technologies, on-site renewables and other things as well.
You'll identify areas that you can get on with straightaway, and that might stay as a priority in terms of effectiveness for the next two or three years. For pretty much any site I go to there is still enough optimization and standard energy management activity to keep the site busy for two to three years and still meet the ambition or the glide path reduction requirements for something like an SBT.
However, it's really important to identify the big challenge or big ticket item. We've worked quite a lot in industrials and industrial heat is a big problem when looking at decarbonisation. So, you might find that you understand how 40% of the site will decarbonise through a combination of all those different kinds of optimisation actions. However, there's the heating requirement, for which there is not an obvious commercially attractive solution. So that becomes a strategic priority, to work out what to do about it, you will need to have a plan for how to manage it. It could be looking at alternative technologies it might also be looking at renewable fuels and other things. But it's important to understand when a decision point needs to be made. For example, if there’s an option between electrification and low carbon fuel, it's important to say, actually, by 2025, or 2028 we need to have made or progressed this decision. You might not have all of the information right now, but it needs to be in your plan that you need to make a decision by that point so that informs any of your buying decisions or asset replacement decisions. So in some ways, that is almost the priority in terms of the strategy. But the priority in terms of the implementation plan is likely to be all the things which you can get on with immediately which is the low-cost optimization solution.
How do I link site energy performance to business net zero objectives?
Really, it is to make sure that what you're doing makes sense to the business. So it might be there's lots of arguments now that we could start drawing on. So risk both in terms of energy price volatility and energy security ,or other things that the business is interested in, which is likely to be compatible with net zero, as well as reducing costs. Making sure that with your business drivers, the reasons that you're doing these things, there are co benefits, make sure that they're explained along with net zero.
it's still fairly unusual that Net Zero is the core business of a company. It’s increasing, but it's still unusual that decisions or major investments happen solely because of net zero. So it's important to make sure that it's explained in the wider business sense. I think that will have to change. It's just we haven't quite reached that tipping point.