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Carbon Risk Assessment in the Financial Sector

The SSC Team August 4, 2015 Tags: , , , , , , , , Strategic Sustainability Consulting No comments
By: Mirele B. Goldsmith How can financial institutions and individuals factor climate change into their decisions about investments?  This question was considered at a meeting hosted by Moody’s Investors Service on Paving the Road to Paris COP21: Discussing Carbon Risk Assessment Strategies on July 27, 2015.  (The list of speakers may be found here.) Those of us focused on sustainability are well aware that over time climate change will impact every aspect of the economy.  The finance sector is facing this fact now that governments are beginning to introduce regulation requiring disclosure of the risks that climate change poses to investors. At the meeting there was a lot of talk about France, where legislation has just been proposed to require disclosure of climate risk.  China is also considering legislation.  The European Union already requires pension funds to consider climate risk.  The SEC requires that companies disclose material risks from climate change, although the speakers described this requirement as “toothless.” What risks could climate change pose to financial returns?   The most obvious risk is that companies will be impacted physically (operator risks) and investors will bear the costs. The risk that seems to be most on the minds of experts is changes in policy.  As one speaker put it, “it is becoming more expensive to pollute.”  Changes in technology which may make businesses obsolete or lead to falling prices are another risk.  And there are reputational risks. Much of the meeting focused on just how the financial risks of climate change can be quantified.  The two big sources of uncertainty are first, that we don’t know how much and what kinds of actions will be taken to mitigate climate change.  And second, we don’t know how much the climate will change.  Risk projections are usually informed by past experience, but there is no historical data that can be used to build and test models of climate risk. The speakers presented several tools that are designed to help investors at various levels incorporate climate into their risk assessments.  Speakers from the World Resources Institute and UNEP Finance Initiative gave an overview of their Carbon Asset Risk Discussion Framework.  The framework, which provides questions to ask but no answers, provides a structured approach to assess exposure to climate risk, valuate, and manage it.  Mercer has released a report on Investing in a Time of Climate Change that is meant to help investors assess their portfolios using four climate-risk factors to assess exposure under four possible climate scenarios.  Mercer’s approach is more user-friendly because it provides answers based on assumptions about how investments in certain sectors and regions will be impacted under specific scenarios.  However, given how much is unknown, this approach obviously requires making a lot of assumptions.  2 Degrees Investing Initiative has worked with UNEP Inquiry and CDC Climat Research to produce a review of various approaches to carbon risk assessment: Financial Risk and the Transition to a Low Carbon Economy.  The Bloomberg Carbon Risk Valuation Tool (available to Bloomberg subscribers) was also mentioned in passing. This meeting was focused on technical questions about how to assess climate risk in order to protect financial institutions and individual investors. However the speakers also alluded to the critical need to mobilize the influence of financial markets to accelerate action to mitigate climate change.   On this point, speaker after speaker emphasized the issue of the difference in time horizons for investment decisions and the major risks to investments from climate change.  Most investment decisions are made for 2-10 years, while these experts expect to see major impacts on investments from climate change only in 25-30 years.  In order to leverage the power of markets to address climate change something will have to change. Mirele B. Goldsmith is an environmental psychologist, program evaluator, and activist.  She is an expert in how to change human behavior – the key to solving environmental problems and building a sustainable future.  Mirele’s clients include community-based organizations, associations, and businesses, that are engaging employees, tenants, board members, and constituents, in saving energy, reducing waste, educating about sustainability, and advocating for change.  Mirele is a certified SSC Green Auditor and the principal of Green Strides Consulting.

Carbon Risk Assessment in the Financial Sector

The SSC Team August 4, 2015 Tags: , , Strategic Sustainability Consulting No comments

By: Mirele B. Goldsmith

How can financial institutions and individuals factor climate change into their decisions about investments?  This question was considered at a meeting hosted by Moody’s Investors Service on Paving the Road to Paris COP21: Discussing Carbon Risk Assessment Strategies on July 27, 2015.  (The list of speakers may be found here.)

Those of us focused on sustainability are well aware that over time climate change will impact every aspect of the economy.  The finance sector is facing this fact now that governments are beginning to introduce regulation requiring disclosure of the risks that climate change poses to investors. At the meeting there was a lot of talk about France, where legislation has just been proposed to require disclosure of climate risk.  China is also considering legislation.  The European Union already requires pension funds to consider climate risk.  The SEC requires that companies disclose material risks from climate change, although the speakers described this requirement as “toothless.” 

What risks could climate change pose to financial returns?   The most obvious risk is that companies will be impacted physically (operator risks) and investors will bear the costs. The risk that seems to be most on the minds of experts is changes in policy.  As one speaker put it, “it is becoming more expensive to pollute.”  Changes in technology which may make businesses obsolete or lead to falling prices are another risk.  And there are reputational risks.

Much of the meeting focused on just how the financial risks of climate change can be quantified.  The two big sources of uncertainty are first, that we don’t know how much and what kinds of actions will be taken to mitigate climate change.  And second, we don’t know how much the climate will change.  Risk projections are usually informed by past experience, but there is no historical data that can be used to build and test models of climate risk.

The speakers presented several tools that are designed to help investors at various levels incorporate climate into their risk assessments.  Speakers from the World Resources Institute and UNEP Finance Initiative gave an overview of their Carbon Asset Risk Discussion Framework.  The framework, which provides questions to ask but no answers, provides a structured approach to assess exposure to climate risk, valuate, and manage it.  Mercer has released a report on Investing in a Time of Climate Change that is meant to help investors assess their portfolios using four climate-risk factors to assess exposure under four possible climate scenarios.  Mercer’s approach is more user-friendly because it provides answers based on assumptions about how investments in certain sectors and regions will be impacted under specific scenarios.  However, given how much is unknown, this approach obviously requires making a lot of assumptions.  2 Degrees Investing Initiative has worked with UNEP Inquiry and CDC Climat Research to produce a review of various approaches to carbon risk assessment: Financial Risk and the Transition to a Low Carbon Economy.  The Bloomberg Carbon Risk Valuation Tool (available to Bloomberg subscribers) was also mentioned in passing.

This meeting was focused on technical questions about how to assess climate risk in order to protect financial institutions and individual investors. However the speakers also alluded to the critical need to mobilize the influence of financial markets to accelerate action to mitigate climate change.   On this point, speaker after speaker emphasized the issue of the difference in time horizons for investment decisions and the major risks to investments from climate change.  Most investment decisions are made for 2-10 years, while these experts expect to see major impacts on investments from climate change only in 25-30 years.  In order to leverage the power of markets to address climate change something will have to change.

Mirele B. Goldsmith is an environmental psychologist, program evaluator, and activist.  She is an expert in how to change human behavior – the key to solving environmental problems and building a sustainable future.  Mirele’s clients include community-based organizations, associations, and businesses, that are engaging employees, tenants, board members, and constituents, in saving energy, reducing waste, educating about sustainability, and advocating for change.  Mirele is a certified SSC Green Auditor and the principal of Green Strides Consulting.

Best of the Blog – July 2015

The SSC Team July 30, 2015 Tags: , Strategic Sustainability Consulting No comments

Each month, we highlight some of our more popular content on the SSC blog!

In case you missed them, here's a round-up of our most popular blog posts from this past month. These are the articles that received the most attention from our online audience. Check them out! 

  1. Puma, Adidas, Under Armour - Who Has the Best Sustainability Sustainability
  2. Sustainability Software: Total Cost of Ownership Revisited
  3. 4 Mistakes That Are Holding Back Your Company's Sustainability 
  4. Grow Your Sustainability Consultancy Business by Speaking Your Client's Language 
  5. How to Get Your Company Moving Towards Sustainability

If you like an article, please consider sharing it online via your favorite social media platform. Helping us grow our audience is the #1 way you can show your support for the work that we do.

Best of the Blog – July 2015

The SSC Team July 30, 2015 Tags: , Strategic Sustainability Consulting No comments

Each month, we highlight some of our more popular content on the SSC blog!

In case you missed them, here's a round-up of our most popular blog posts from this past month. These are the articles that received the most attention from our online audience. Check them out! 

  1. Puma, Adidas, Under Armour - Who Has the Best Sustainability Sustainability
  2. Sustainability Software: Total Cost of Ownership Revisited
  3. 4 Mistakes That Are Holding Back Your Company's Sustainability 
  4. Grow Your Sustainability Consultancy Business by Speaking Your Client's Language 
  5. How to Get Your Company Moving Towards Sustainability

If you like an article, please consider sharing it online via your favorite social media platform. Helping us grow our audience is the #1 way you can show your support for the work that we do.

Deciding on a Measurement Process: Calculating Your Company’s Carbon Footprint

The SSC Team July 28, 2015 Tags: , , , , , , , , , , , , , Strategic Sustainability Consulting No comments
9pcmmdc4crw-dominik-schroder.jpg Enjoy this blog post from the SSC archives: You can't manage what you don't measure -- but deciding what to measure, how to measure it, when to measure it, and where to capture and store the data can be one of the most challenging pieces of a carbon management strategy. If you're stuck at this stage (or getting ready to tackle it), here are some questions to guide your decision:

Which carbon calculation standard do you want to use?

There are several carbon calculation standards out there, but 99% of companies will end up choosing the GHG Protocol. Why?
The Greenhouse Gas Protocol (GHG Protocol) is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions. The GHG Protocol, a decade-long partnership between the World Resources Institute and the World Business Council for Sustainable Development, is working with businesses, governments, and environmental groups around the world to build a new generation of credible and effective programs for tackling climate change. It provides the accounting framework for nearly every GHG standard and program in the world - from the International Standards Organization to The Climate Registry - as well as hundreds of GHG inventories prepared by individual companies.
Our advice: whatever standard you choose (e.g. an industry specific standard), make sure that it's built on (and in compliance with) the GHG Protocol. It makes life so much simpler.

Which emissions categories are most relevant to your organization?

In sustainability jargon, this is a question about materiality -- which activities within your operations and value chain generate material emissions? The GHG protocol outlines more than a dozen different categories (like "purchased electricity" and "employee commuting") to choose from. In most cases, you want to calculate emissions from Scope 1 (direct emissions) and Scope 2 (indirect emissions), along with a handful of Scope 3 (indirect emissions) categories that make the most sense given your size and industry.

Which carbon footprint tool makes the most sense?

There are a wide variety of options to measure your company's carbon emissions. There are excel spreadsheet models, and dozens of software programs -- both SaaS and enterprise-level options. Some companies even choose to develop their own internal calculators that integrate directly with their internal systems (like ERP, timesheets, business travel reimbursement, etc.). To dive deeper into this process, check out our free white paper on Choosing Sustainability Management Software. It's a vendor-neutral look at how companies can choose the most effective software option, including the pros and cons of some of the most popular software features.

How will we manage the process?

How many facilities are we going to include? Where is the raw data now, and how will we get it into our carbon calculator? Where are we missing data, and how can we best fill in the blanks? What is our timeline? All of these questions should be answered -- at least tentatively -- at this stage of the process. Are simple mistakes holding back your sustainability? Find out how to correct those mistakes here!

Deciding on a Measurement Process: Calculating Your Company’s Carbon Footprint

The SSC Team July 28, 2015 Tags: , , Strategic Sustainability Consulting No comments
9pcmmdc4crw-dominik-schroder.jpg

Enjoy this blog post from the SSC archives:

You can't manage what you don't measure -- but deciding what to measure, how to measure it, when to measure it, and where to capture and store the data can be one of the most challenging pieces of a carbon management strategy. If you're stuck at this stage (or getting ready to tackle it), here are some questions to guide your decision:

Which carbon calculation standard do you want to use? 

There are several carbon calculation standards out there, but 99% of companies will end up choosing the GHG Protocol. Why? 

The Greenhouse Gas Protocol (GHG Protocol) is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions. The GHG Protocol, a decade-long partnership between the World Resources Institute and the World Business Council for Sustainable Development, is working with businesses, governments, and environmental groups around the world to build a new generation of credible and effective programs for tackling climate change. It provides the accounting framework for nearly every GHG standard and program in the world - from the International Standards Organization to The Climate Registry - as well as hundreds of GHG inventories prepared by individual companies.

Our advice: whatever standard you choose (e.g. an industry specific standard), make sure that it's built on (and in compliance with) the GHG Protocol. It makes life so much simpler.

Which emissions categories are most relevant to your organization? 

In sustainability jargon, this is a question about materiality -- which activities within your operations and value chain generate material emissions? The GHG protocol outlines more than a dozen different categories (like "purchased electricity" and "employee commuting") to choose from. In most cases, you want to calculate emissions from Scope 1 (direct emissions) and Scope 2 (indirect emissions), along with a handful of Scope 3 (indirect emissions) categories that make the most sense given your size and industry.

Which carbon footprint tool makes the most sense?  

There are a wide variety of options to measure your company's carbon emissions. There are excel spreadsheet models, and dozens of software programs -- both SaaS and enterprise-level options. Some companies even choose to develop their own internal calculators that integrate directly with their internal systems (like ERP, timesheets, business travel reimbursement, etc.). To dive deeper into this process, check out our free white paper on Choosing Sustainability Management Software. It's a vendor-neutral look at how companies can choose the most effective software option, including the pros and cons of some of the most popular software features.

How will we manage the process? 

How many facilities are we going to include? Where is the raw data now, and how will we get it into our carbon calculator? Where are we missing data, and how can we best fill in the blanks? What is our timeline? All of these questions should be answered -- at least tentatively -- at this stage of the process.

Are simple mistakes holding back your sustainability? Find out how to correct those mistakes here!

A Review of GHG Protocol’s Corporate Standard Training Webinar

The SSC Team July 23, 2015 Tags: , , , , , , , , , , Strategic Sustainability Consulting No comments
By: Alexandra Kueller This July, the Greenhouse Gas Protocol offered an online training session that covered the basics of the Corporate Standard, and it was the perfect introduction to corporate greenhouse gas accounting. With the Corporate Standard being widely used among businesses and organizations world wide, this three day course was great for your first introduction to GHG accounting or even those who needed a refresher course. The Corporate Standard Training allows participants to gain knowledge and skills in 7 different categories:
  1. GHG Accounting and Reporting Principles
  2. Business Goals and Inventory Design
  3. Setting Organizational Boundaries
  4. Setting Operational Boundaries
  5. Tracking Emissions over Time
  6. Identifying and Calculating GHG Emissions
  7. Reporting GHG Emissions
Wanting a full, comprehensive knowledge of the Corporate Standards, I signed up for the webinar and gave it a go:

The Good

One of the biggest benefits of this course, unlike other GHG Protocol trainings, was that it had a live instructor. Being able to have your questions answered on the go is helpful, because all too often when you have to wait for the end of a presentation, you might have forgotten what you wanted to ask or don't remember what section of the presentation to reference. Another great aspect of this webinar was the in-session exercises. After each main principle was covered, we were walked through the steps of how to complete that process on our own, and then given an exercise to do so. It was highly beneficial to have someone work through the problems with you and answer your questions on the spot.

The Bad

While the live aspect of the webinar was great overall, sometimes it could be a bit of a hassle. If the instructor ever went too quickly over a slide or you didn't catch what they said, you wouldn't be able to go back and re-listen. You did have the option of pulling up the powerpoint on your computer, but by doing so, you might have missed what the presenter was currently talking about. Another downside was the length of course. By day three I was having difficulty staying focused. I think all 10.5 hours are necessary, but I would rather see it condensed into two days rather than three.

Overall

This course offered an excellent introduction to the Corporate Standard and GHG accounting. If you are new to emissions reporting or are wanting a formal class that breaks down the details, then I would highly encourage you to sign up for the next webinar. But if you are someone that has years of experience, then there really is no need for you to take this course. Are simply mistakes holding back your sustainability? Find out how to correct those mistakes here!

4 Mistakes That Are Holding Back Your Company’s Sustainability

The SSC Team July 21, 2015 Tags: , , , , , , , , , , Strategic Sustainability Consulting No comments
By: Alexandra Kueller Take a step back and examine your company’s sustainability. Is your company moving forward with its sustainability goals and initiatives? Or do you feel like your company could be doing more? If you identify with the latter, there might be some simple mistakes being made that is causing this problem. Introduced in the Fast Company article “4 Business Decision-Makings Mistakes Are Holding You Back”, Romi Stein discusses common mistakes companies have made and how it has hurt them. Wanting to put a sustainability twist on the points discussed in that article, we have highlighted ways that these mistakes could be causing your sustainability initiatives some harm:

Failure to Learn

Have you ever been to a conference or event where an older person - someone with years of experience and knowledge - got on stage and lectured everyone about the "right way to do sustainability"? Did you then subsequently think to yourself, "but isn't there more than one way to do sustainability?" That's because there is! The field of sustainability is always changing, in the sense that new information and research is always being published. We are always finding better ways to track emissions and inventive ways to report sustainability initiatives, so there is no need to exclaim that there is a right way for sustainability. If someone isn't willing to learn new ways of approaching sustainability, they appear too entrenched in the past, and soon their sustainability will be too.

Failure to Anticipate

It’s the end of July, which means a lot of companies have either submitted their CDP reports for 2014 or are making their final edits. But more than likely there are companies that are scrambling to put together a year’s worth of emissions data and sustainability initiatives. Sustainability, like any field or industry, has annual deadlines – whether set by the company or by other organizations. CDP and UNGC have deadlines to submit their reports, and many companies aim to publish their sustainability report around the same time every year. If a company does not anticipate these deadlines, that often means other sustainability work gets pushed to the side just to make sure the reports go out on time.

Failure to Adapt

Over the past few years, there has been a big push to bring materiality to sustainability, and slowly, companies are doing so. But what happens if your company doesn’t change and adapt to materiality or every other new trend? How much of an impact could that have? Nothing in sustainability stays the same for long, which can make it difficult to tell what’s important to focus on. New reporting standards are released, new trends emerge, but there are instances where reporting standards account for these trends. With GRI’s G4 iteration, it plays up the importance of materiality and how companies should build their annual reports around it. If your company is ignoring materiality, it can look like they don’t take sustainability seriously.

Failure to Execute

One of the biggest ways to hold back a company's sustainability is by them simply failing to execute their sustainability plan. This could happen for a variety of reasons: your company isn't allocating the same resources to sustainability that it once did; you forgot to keep up with data tracking throughout the year; more pressing, non-sustainability related projects pop up. No matter what your job, in whatever industry, this is going to happen - it's an inevitable part of having a job. But what will make the difference is how you react when facing these issues. Does your company just ignore all sustainability-related initiatives for the rest of the year, or are they doing something to make sure they are sticking to their plan? Think your company could be a little more sustainable? Find out how to get your company moving towards sustainability here.

Tracking Progress with Your Sustainability Software

The SSC Team July 16, 2015 Tags: , , , , , , , , , , , Strategic Sustainability Consulting No comments
This article was written as an expansion of our white paper “Choosing Sustainability Management Software for your Business” published in July 2011.  Enjoy: We started with the axiom “if you want to manage it, you have to measure it”.  So now that you’ve given some thought to the software solution that you want to purchase, it’s critical for you to come up with your specific measurements.  We’re not just talking about your carbon footprint or how many gallons of water you’re using.  We’re talking about the primary way that you’ll keep score for yourself and your employees so that everyone can tell if you’re actually doing better.  We’re talking about picking your Key Performance Indicators. Type “Key Performance Indicators” into your Google search and you’ll get 6.4 million results (and counting).  With so much written elsewhere on them, we thought it would be useful to give you some suggestions on what you might want to consider implementing as your key sustainability performance indicator.  These “measurements of performance” are not a one-size-fits-all measurement – you have to figure out what makes sense for your business. The most commonly used measures reflect your company’s Green House Gas (GHG) emissions.  These may be represented as an absolute measure of your firm’s emissions (usually in tons) or in relative intensity, such as emissions per employee, emissions per retail area, or emissions per unit of production.  These GHG totals will frequently be provided as “CO2e,” or “Carbon Dioxide Equivalent,” given that CO2 is the most commonly known green house gas ahead of others such as methane, Volatile Organic Compounds (VOCs), and a host of other emissions. A second form of sustainability KPI revolves around the use of energy, water, and other inputs to a company’s business process.  This might include data on total energy or water usage or may again break down the metric on a relative intensity level.  Due to the wide variety of potential inputs and outputs for a firm’s processes, there isn’t really a standard emission measure. A third major form of sustainability KPI is focused around packaging and waste.  This may take the form of the amount or weight of packaging involved in business operations.  Or it may manifest itself as part of a “Zero Waste” pledge taken by a firm that is seeking to reduce, reuse, and/or recycle the byproducts of their business operations. A fourth and (for now) final form of sustainability KPI is that which is customized and specific to your individual business.  You know how you measure success financially, for employee performance, for sales performance, for safety performance.  Maybe these measurements are part of an intensity ratio based on a per-revenue-dollar basis, a per-billable-hour basis, or maybe they are simply expressed in absolute values (total hours of lost productivity due to accidents).  Maybe you can re-use those same measures for sustainability KPIs, or maybe you need to identify new ones. To assist with getting you started on identifying your own KPI’s, here are some quick examples that fit each of the four types mentioned above.  You could find many more from reviewing the Corporate Social Responsibility reports of the companies mentioned below as well as by reviewing your competitors, your partners, your suppliers and your customers own statements.  No matter what approach you decide to take, figure out the measures that will be the right ones for YOU.

Now that you’ve read this article, tell us what you think!  And be sure to check out the full white paper.