With COP28 kicking off, governments and companies are gearing up to make some big commitments on climate action. Notwithstanding the grand claims, how many companies are actually making progress on reporting and reducing emissions?
As of 2023, only 14% of companies around the world have reduced their emissions in line with their ambitions in the last five years — a drop of 3 percentage points from 2022, according to CO2 AI and BCG’s 2023 Carbon Emissions Report.
The report also shows that Europe is behind other regions in the world in measurement and reporting, despite new regulations and frameworks. So where is Europe going wrong — and how can the continent bridge the gap and move ahead in the race to net zero?
A temporary trough
CO2 AI and BCG’s report shows that Europe is lagging behind other regions such as Asia Pacific, South America and North America in reporting emissions. From 2021 to 2023, the number of companies fully reporting their emissions in Asia Pacific showed an improvement of 7 percentage points, South America remained at 11% and North America increased by 1 percentage point, while Europe dropped from 12% to 10%.
Diana Dimitrova, managing director and partner at BCG X, and climate and sustainability expert on data and digital solutions, says that this lull is temporary, while companies in Europe prepare for upcoming regulations.
“Europe's companies, because of regulation, are starting to sift through what is an enormous pile of climate data and trying to figure out what's relevant and what matters,” she says. “[The] Corporate Sustainability Reporting Directive (CSRD) is just around the corner — so it's more about preparation right now.” The new directive aims to strengthen the rules around social and environmental information that companies have to report and companies will have to apply the rules for the first time in the 2024 financial year.
She adds that BCG has had many conversations with companies about how to measure emissions, and that this will only accelerate as regulation phases in.
Andrew Hughes, CEO of TripShift, a Scope 3 carbon accounting firm, agrees that companies are still getting to grips with how to measure their emissions. “Commuting, which is what we focus on, is a complex area: If you've got 10k employees, you've got to come up with a system that manages thousands of people every day on how they got to work in the morning — that's quite a complex organisational challenge and there's a lot of employee engagement required.”
Emissions are measured and monitored as Scope 1, 2 and 3, based on their source. Scope 1 emissions are released into the atmosphere as a direct result of activities at the firm level, whereas Scope 2 emissions are indirect emissions from purchased energy. Scope 3 emissions include all indirect emissions linked to the company’s operations that don’t fall under Scope 2.
Europe’s macroeconomic instability due to events like the Russia-Ukraine war has also factored into the drop in numbers, says Dimitrova. But, she says, “I think the macroeconomic context in Europe is now resetting itself, we're seeing inflation numbers improve and so on,” adding that she expects to see more capital flowing towards decarbonisation soon.
Focus on granular reporting
CO2 AI and BCG’s report found that, globally, only 10% of companies comprehensively measure and report Scopes 1, 2 and 3 emissions — a figure that has not changed from 2022 to 2023. However, there is hope as all the regions in the survey, including Europe, showed a greater improvement (of around 20 percentage points) in their rates of reporting Scope 3 emissions compared to reporting Scope 1 or 2 emissions.
It's really about being intelligent about what you measure
Dimitrova says this could be a result of companies being more specific about which emissions they want to measure. “There's a lot of realism coming into the equation,” she says. “On the measurement part, when you double click, you are seeing improvement in Scope 2 and partial measurement of Scope 3. So companies are looking at the categories of the greenhouse gas protocol and deciding which ones matter most, focusing on reducing instead of measuring, and being very selective.”
Charlotte Degot, CEO and founder of CO2 AI — a sustainability management solution for businesses and coauthor of the report — adds that this, in fact, shows that we are on the right track. “It's really about being intelligent about what you measure, to really focus on where you can move the needle and where you can actually really reduce,” she says.
All the experts agree that there are many benefits — financial and otherwise — to reporting and reducing emissions. 40% of respondents in CO2 AI and BCG’s survey estimated an annual financial benefit of at least $100m from emissions reduction. Degot says that there are also benefits of reputational value, lower costs and regulatory compliance to reporting and reducing emissions.
How can we do better?
According to CO2 AI and BCG’s research, collaborating with suppliers is the most important factor in reducing a company’s carbon footprint. Three-quarters of companies that are cutting emissions in line with their ambition have joint reduction initiatives with most of their suppliers — and more than half (54%) have similar initiatives with their customers, the report shows.
Dimitrova gives the example of Schneider Electric, an energy technology company “who are actively partnering with their suppliers, and we're seeing everything from educational webinars to workshops to joint targets to public commitments together. So really a much more partnering mindset than just ‘something's out in my supply chain, so I don't look at it’.”
You can take it as a way to really improve the way you compute numbers and steer your decarbonisation pathway
Hughes says that employee engagement is a significant factor that companies often overlook in their decarbonisation efforts. “Most employees are people like us — they've got families or kids, and they will probably be concerned about sustainability. If the company takes the time to engage with them, they can actually build 10k allies rather than 10k people kicking and screaming, which ultimately means they become a tool and resource in what the company is trying to achieve.”
Understanding, measuring and reducing emissions at the product level is also crucial. Dimitrova highlighted Klöckner & Co, a German producer-independent distributor of steel and metal products, which developed a proprietary Product Carbon Footprint (PCF) calculation engine and calculated the carbon footprint of its more than 200k products. “Those 200k products are then available for you to view on a trading website that they've built, and then you can say, ‘Okay, my basket had this footprint last time, I now have the option to go for a greener alternative’.”
The report also shows that technology adoption and leadership buy-in are key factors in reducing emissions. It found that, globally, companies with automated digital solutions for measurement are around 2.5 times more likely to measure their emissions comprehensively.
Lastly, your perception of reporting and the regulation around it is crucial, says Degot. “Either you can see regulation as a constraint and a checklist exercise where you just try to do the bare minimum to pass the bar, or you can take it as a way to really improve the way you compute numbers and steer your decarbonisation pathway,” she says. “The companies that are taking this approach are, without a doubt, the ones who are accelerating the most.”