Ready to Tackle Your Company’s Environmental Sustainability Strategy? Start with Scope 1 and 2

Tell us if this sounds familiar: Your business’s leadership, whether that’s just you, a small team, or a full C-suite of executives, is keen to implement sustainability into their business strategy. You’ve done some research, and learned that reducing greenhouse gas (GHG) emissions have  potential payoffs that could be compelling: Less energy usage, lower operating expenses, and fewer GHG-related risks, including regulatory, reputational, transitional and physical risks.

Even if a climate sustainability or emissions-reduction strategy isn’t yet on the table, there are benefits to starting to understand your company’s GHG profile. For one, being transparent with your emissions—and your plans to reduce them—can go a long way with stakeholders, such as customers, employees, and investors, who want to work with businesses that care about their GHG emissions. This is becoming particularly important for companies that operate within larger supply chains, where bigger corporations may request more visibility on their suppliers’ emission output.

The challenge for many companies, though, is understanding where emissions come from and how they’re connected to your business’ operations. Fortunately, several frameworks have been developed to help organizations better understand where their GHG emissions are coming from.

Get to know the GHG Protocol for measuring and reporting emissions

One of the more widely adopted frameworks for measuring and reporting GHG emissions is called the GHG Protocol Corporate Accounting and Reporting Standard, or the Corporate Standard, for short. It offers a step-by-step guide for compiling a comprehensive corporate-level inventory of GHG emissions. Many companies start with this framework because it clearly divides emissions into “scopes”—Scope 1, Scope 2 and Scope 3—of direct and indirect emissions. That helps companies zero in on the emissions they have the greatest ability to track and reduce.

Read more: Emissions Explained: Understanding Scope 1, 2 and 3 in your business

Any company interested in reducing their GHGs will want to understand the Corporate Standard, but taking on the work of identifying the many emissions you produce can be challenging. Your company may choose to bring on a third-party carbon accounting platform to help with the measurement, verification and ongoing management of carbon emissions.

Understand direct and indirect emissions in your business

Most companies choose to focus on Scope 1 and Scope 2 emissions first, because they’re the easiest to categorize and then reduce. Scope 1 emissions come from sources that your business has direct control over. This can include emissions from:

• Burning fuels in boilers, furnaces, and turbines

• Fuel used in company-owned vehicles

• Unintentional GHG leaks from refrigeration or air conditioning systems

• Chemical processing that happens in manufacturing facilities

Scope 2 emissions are considered indirect as they’re generated by the utility you purchase your energy from. Even though you’re not creating these emissions, your business is responsible because you need them to run your business. These GHG emissions would include:

• Electricity used to heat or cool your facilities

• Energy used to light your buildings or run equipment

• Steam used in the manufacturing process

Map your business’s greenhouse gas emissions sources

Once you understand what constitutes Scope 1 and Scope 2 emissions, you can start mapping out the parts of your business that generate GHG emissions. The first step is to understand of all your emissions. Identify anything that falls into the Scope 1 emissions category, such as the fuels used in any production processes or the vehicles in your fleet. For Scope 2, you’ll need to determine how your utility is generating electricity—such as fossil fuels, natural gas, renewable sources—and how much power you’re using. There’s an “emission factors” calculation that turns business activities into carbon-related numbers (higher GHG-emitting sources produce higher emission factors) to help you set a baseline to work from. This calculation is where a carbon accounting company could help you crunch the numbers.

The inventory collection and GHG mapping process can take some time (the GHG Inventory Guidance guide is a good resource to start with), but the hard work can pay off. In fact, multiple business opportunities can stem from identifying both Scope 1 and 2 GHG emissions. While nothing is guaranteed, some of the benefits can include:

• Lower energy costs through reduced energy usage

• Reduced fuel expenses by potentially switching to more energy-efficient vehicles

• Smaller refuse disposal costs through waste reduction

• Improved brand reputation and a potentially more positive public image

• Entrance into business with companies that require that suppliers report emissions

• Compliance with any industry or governmental regulations

• Potential competitive advantage over peers that aren’t reducing emissions

Identify opportunities and risks in your environmental sustainability plans

Of course, there are risks associated with GHG reduction initiatives, too. Firstly, it can be expensive to replace heating and cooling systems or switch your fleet of internal combustion engine trucks to electric vehicles. You may need to spend money on new energy-efficient equipment or on retrofitting a production facility or two, or invest in technologies that could become outdated as new emission-reducing innovations come to market. You may also need to hire new staff to measure and report findings or consider additional maintenance requirements on new systems.

Of course, you don’t have to do everything at once. You might consider taking a staged approach to GHG reduction, where you implement some changes now and more later once you better understand the approaches you’d like to take, and the investments needed.

While upfront costs can be substantial—what you may have to invest varies significantly by industry and strategy—it’s important to consider the long-term return on investment and the business benefits that could compound over time. For instance, energy savings, more efficient processes, or new business opportunities balance could balance out any ongoing expenses.

Read more: Finding the returns on energy-efficient commercial building retrofits

Businesses of all sizes will be under increasing scrutiny for their approach to environmental challenges, so now is the time to start taking the steps to better understand your Scope 1 and 2 emissions. Begin by learning more about the various scopes of emissions and then map out where your emissions are coming from. A third-party carbon accounting platform could help to make that work easier, and how you how to reduce GHGs. Consider planning out how you might fund upgrades, too, so you can get moving sooner than later.

RBC’s Sustainable Finance team has helped many clients on their emissions-reduction journey. To find out more about GHG mapping, connect with a member of our team.