FIN41910 Green Data Science

Topic 2 – Corporate Carbon Accounting [1]

Climate change response

ONE CRISIS, TWO RESPONSES

Adaptation: IPCC defines adaptation as “the process of adjustment to actual

or expected climate and its effects.”
• It refers to activities reacting on the effects of climate change as it is
happening

Mitigation: IPCC defines mitigation as “human intervention to reduce the

sources or enhance the sinks of greenhouse gases”
• It refers to activities to reduce greenhouse gas emissions

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Climate change response: adaptation or mitigation

• Building sea walls, elevating infrastructure, or retreating from low-

lying coastal areas altogether. E.g., Miami, SF and Houston
• Replacing greenhouse gas-emitting fossil fuels like coal, oil, and
natural gas with clean, renewable energies like solar and wind.
• Reducing and recycling water use due to drought.
• Replacing traditional internal-combustion vehicles with electric
options (ideally charged with renewable energy).
• Retrofitting old buildings to make them more energy efficient. E.g.,
Solar Electricity Grant
• Favouring drought-tolerant crops.
• Planting trees and preserving forests so they can absorb and store
more carbon dioxide from the atmosphere.

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Discussion …
Climate change response: Adaptation or mitigation?
1. What do you understand by the terms "adaptation" and "mitigation" in the
context of climate change?
2. Which approach, adaptation or mitigation, do you think is more important in
addressing climate change? Why? And from which perspective?
3. Are there any trade-offs or challenges associated with either adaptation or
mitigation? If so, what are they?
4. Should the focus be more on long-term solutions or immediate action when it
comes to climate change response? Why?
5. How can individuals, companies, communities, and governments contribute to
both adaptation and mitigation efforts?
6. What are the potential economic, social, and environmental benefits of
prioritizing both adaptation and mitigation in climate change response?
7. How can financial investments be aligned with climate change response goals?
Should more resources be allocated to adaptation or mitigation initiatives?

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Climate change response: adaptation or mitigation
“Many adaptation and mitigation options can help address climate change,
but no single option is sufficient by itself. Effective implementation
depends on policies and cooperation at all scales and can be enhanced
through integrated responses that link mitigation and adaptation.”

We have to adapt …
Seas are already rising.

Both may protect people from a changing climate, but they have very
different outcomes…
Climate justice.

Policymaker’s perspective:
Adaptation: a local, private good with often clear and immediate benefits
Mitigation: a global, public good with far-away benefits

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Climate change response: adaptation or mitigation
Moral dilemma?

“So far, many rich countries seem to be unwilling or are unable to carry
through radical measures to hold back greenhouse gas emissions … [a]s a
result, many people, especially in the poorest countries in the world, have
experienced and will increasingly encounter adverse climate change effects
on health, both in terms of morbidity and mortality.”

(Gordijn & ten Have, 2012)

“Kicking the can down the road in relation to mitigation, however, also
means that future generations will have to bear the brunt of climate
change. This triggers intricate questions of intergenerational justice … Our
lack of success to curb greenhouse gas emissions seems to be
compromising the right to life, liberty and security of person.”

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Corporate climate change strategy [1]
The selection of climate management measures is largely influenced by the
corporate climate change strategy.

Adaptation
• Adaptation measures have predominated corporate practice (CDP
2012)
• Many companies report that they have started to consider climate
change in their business strategy
• However, only a small share of companies mentions a specific and
systematic adaptation strategy (CDP 2012)

Three dimensions can be differentiated for an adaptation strategy (Busch

2010):
• Climate knowledge absorption
• Climate related operational flexibility
• Strategic climate integration

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Corporate climate change strategy [2]

Three dimensions can be differentiated for an adaptation strategy (Busch

2010):

For the insurance industry for example …

• Understanding the climate change problem

• Building awareness and participating in public policy
• Aligning terms and conditions with risk-reducing behaviour
• Risk transfer mechanism/risk reducing mechanism
• New insurance products and services
• (Re)investments in climate change solutions
• Financing customer improvements

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Corporate climate change strategy [3]
Mitigation
Corporate climate change mitigation can be differentiated along the
management circle:

• Corporate policy
• Corporate planning
• Implementation and operation
• Checking and corrective action
• Management reviews

(Glienke and Guenther, 2015)

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Carbon/GHG Accounting
• The use of GHG data
• Levels and purposes of carbon accounts
• Functions of carbon accounts
• Corporate actors and areas of application
• Carbon metrics
• Scopes 1, 2 and 3

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What is GHG data useful for?
• Quantifying reductions/removals
• Quantifying allowances in emissions trading schemes
• Building low carbon financial products
• Assessing business and investment risk/opportunities
• Competitive advantage/marketing
• Consumer decision-making
• Target setting
• Product design
• Carbon “hot spot” identification (e.g., coal-fired power stations, coal mines …)
• Other…

Credit: Matthew Brander (2014)

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GHG accounting for whom?

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 Levels and purposes of carbon accounts [1]

Information from different levels of carbon accounts can be used to improve the quality of decision-making at all levels.

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 Levels and purposes of carbon accounts [2]
Scientific carbon accounts

• Information about the phenomenon of climate change and its ecosystems relevance

• Physical measures: carbon dioxide concentration and temperature increases,

biodiversity loss, changing marine ecosystems etc.

• Foundation for all scientific work related to climate change effects

Political and economic carbon accounts

• Translate the scientific information into physical and monetary economic figures and
politically relevant scenarios

• Macro level: e.g., influence of climate change on fish catch; costs of climate change
related floods on infrastructure

• Important in defining target goals for CO2 emissions and national carbon policies

• Serve as reference points for corporate carbon goals, strategies, measures and
reporting

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Levels and purposes of carbon accounts [3]

Corporate carbon accounts & growing business relevance

Economically relevant topics for corporate management

Regulatory pressure:
• Introduction of emission trading systems, carbon limits and carbon tax

Societal pressure:
• Increasing public and stakeholder awareness
• Media, NGO communication, business associations and investor groups

Market need:
• Financial investor market e.g., SRI and sustainability assessments
• Good and service market e.g., carbon footprint labels ect. and consumer
communications

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Levels and purposes of carbon accounts [4]

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Functions of corporate carbon accounting [1]
Supports companies in the successful operationalization and implementation of
their carbon management

Identifying, collecting, processing, disclosing and communicating carbon

information

Support of all corporate functions:

• Creating transparency and to take account of un-sustainability of the past and

current operations

• Forecasting future greenhouse gas emissions

• Identification of reduction potentials and evaluation of reduction measures

• Support of the implementation of carbon management measures

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Functions of corporate carbon accounting [2]
Characterization of different core functions (Schaltegger et al., 2015)

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Functions of corporate carbon accounting [3]
Carbon management control

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Corporate actors and areas of application [1]
Different corporate functions require adapted carbon policies, challenges, methods
and have different research implications

Corporate functions Carbon policies Challenges Methods Implications for

(examples) (examples) (examples) future research
(examples)
Strategic and top Competitive carbon Low carbon Carbon accounting Development of
management strategies; intensity as for (un- carbon competitive
Corporate policies competitive factor; )sustainability strategy; systems to
to achieve Kyoto, climate neutrality of reporting relating to achieve overall
national and company; scientific and carbon impact
industry increasing cost of political goals; reduction; linking
associations’ goals fuels and ETS accounts of corporate and
regulation compensation international
projects; climate measures
(neutrality) audits
Production Process Process and system Carbon accounts of Software supported
management improvement innovations production carbon accounting
policies processes; linked with core
comparative carbon management
accounting for information systems
improvements

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Corporate actors and areas of application [2]
Different corporate functions require adapted carbon policies, challenges, methods
and have different research implications

Corporate functions Carbon policies Challenges Methods Implications for

(examples) (examples) (examples) future research
(examples)
Product Product policies Product innovations Product Carbon Systems to secure
management Foot print; carbon and to verify total
reduction labels carbon impact
reduction
Supply chain Supply chain Climate neutrality Carbon impacts Systems to create
management and policies of product chains supply chain and to secure
procurement accounting; climate overall carbon
neutrality labels neutrality
Marketing Carbon reductions, Development of Linking carbon Successful launch
carbon neutrality, carbon neutral accounting with and positioning of
low carbon products and pricing and effective carbon superior
products, etc. company marketing products & services
communication

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Corporate actors and areas of application [3]
Different corporate functions require adapted carbon policies, challenges, methods
and have different research implications

Corporate functions Carbon policies Challenges Methods Implications for

(examples) (examples) (examples) future research
(examples)
Logistics CO2-reduction of Technical and Carbon accounts of Development of
transportation, software challenges transportation simple carbon
storage and logistics of logistics systems and paths calculators for
drivers, software,
etc.
Public relations and Media attention Identification of Stakeholder Effective carbon
corporate NGO attention; NGO and media dialogues accounting and
communications carbon information topics Carbon accounting reporting systems
as part of fulfilling GRI and for un-sustainability
sustainability Collection and other reporting deducted from
reporting, integration of requirements (e.g. stakeholder
carbon information for the ‘Carbon expectations
in reports Disclosure
Leadership Index’)

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Corporate actors and areas of application [4]
Different corporate functions require adapted carbon policies, challenges, methods
and have different research implications
Corporate functions Carbon policies Challenges Methods Implications for
(examples) (examples) (examples) future research
(examples)
Finance Emissions trading Integration of Investor related Adaptation and
requirements, carbon information carbon finance and development of
sustainability and performance accounting methods new finance and
ratings, specific into finance and and certifications accounting methods
carbon reporting investor’ relations (e.g. like the linking carbon
requirements of strategy ‘Climate Change performance with
investors and Reporting financial
analysts Framework’ performance
by CDSB, 2010)
Identification of
Internal accounting
reduction potentials
and reporting
Leading innovative Supporting a carbon and formulation of
supporting
low carbon or reduction targets for each job;
HR awareness,
carbon neutral motivated involvement of
improvement and
company workforce employees in
acknowledgement
developing carbon
of achievements
reduction

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Carbon metrics [1]
Absolute carbon emissions
• How much emissions in total that are being produced (emitted) by the
reporting organization
• Physically measured and expressed in mass units (e.g., CO2-emissions
and CO2-equivalents; tonne or metric tonne)
• A direct measure of the organisation’s impact to climate change

In the context of investment portfolio:

An indication of the extent to which a portfolio contributes to climate
change

Restrictions:
• Lack of comparability across reporting organisations with different
sizes/business models
• Inevitably driven by the reporting organisation’s size

Source: Yu et al. (2016)

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Carbon metrics [2]
Normalised carbon emission ratios
• Normalised ratios, depending on what characteristic is being
investigated in relation to the total emission
• Absolute emissions can be divided by any metric
e.g., per unit of production output or € million turnover
• Show the level of ‘efficiency’ of the reporting organisation in terms of
emission performance
• Allow comparison: over time and across different companies, sectors, or
products

Source: Yu et al. (2016)

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 Carbon metrics [3]

Source: Yu et al. (2016)

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GHG Accounting – Scopes 1, 2 and 3 [1]

Source: GHG Protocol, 2011

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Microsoft CO2 Emissions Profile

Source: Microsoft Data Sheet (https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RE3455q)

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Safestore Holdings Emissions Profile

Source: Safestore Holdings Datasheet

(https://www.safestore.co.uk/CMSPages/GetFile.aspx?guid=64cba1fc-3493-4a5e-a250-d353a5a69f2f)

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GHG Accounting – Scopes 1, 2 and 3 [2]
• Scope 1 and scope 2 emissions can usually be calculated or estimated using
company data
• Scope 3 emissions require upstream or downstream data not directly available
to the reporting company
• Supply chain-related emissions could account for even as much as 75 % of the
total GHG emissions induced by the company (Huang et al., 2009)
• Significant carbon mitigation strategies cannot be revealed if scope 3 emissions
are neglected
• Importance of green supply chain management

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End of Topic 2

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