Navigant Research Blog

Corporate Climate Leadership at the Dining Table

— February 13, 2018

Over the last 3 years, 341 companies have joined the Science Based Targets initiative, of which at least 40 are from the food and beverage sector. These companies include household names such as Walmart, Coca-Cola, General Mills, Kellogg’s, and PepsiCo, with billions in combined revenue. Why are these food and beverage companies integrating climate science in their strategies and how is consumer behavior influencing this?

The agricultural and forestry sector alone is responsible for over 10 gigatons of CO2 equivalent annually. This equates to about 20% of the world’s total greenhouse gas emissions, according to a 2016 joint report from the University of Aberdeen, the energy experts of Navigant and Ecofys, and PBL. These emissions are embedded in the food we eat and the beverages we drink. Due to increasingly better corporate citizenship and pressure from non-governmental organizations and investors, major food and beverage brands are developing climate targets to reduce emissions from this sector, and they are publishing their targets online.

What Is the Purpose of Science-Based Targets?

Science-based targets (SBTs) are both an approach and a communications vehicle to help companies contribute to the Paris Agreement’s target of limiting warming to 2°C and pursuing efforts to limit it to 1.5°C. Consumer brands with a climate SBT not only look at their own emissions, but they also seek to reduce emissions in their supply chain. These emissions include those related to the agriculture sector, such as meat, dairy, and any other crops, as well as processing and logistics. This full value chain approach in the end helps consumers reduce their climate impact.

Investors Recognize Climate Threats to Business

Investors recognize that the food and beverage supply chain is exposed to many climate risks, including physical risks such as changes to weather patterns and sea levels, and those linked to the transition to a low carbon economy, such as policy and reputational risks. Major food, beverage, and apparel brands take this to heart and are responding by developing roadmaps to reduce emissions and risk management procedures to prepare for a changing climate. I will discuss climate related risk in more detail in my next blog.

Consumers Increase Their Opportunities to Make Better Decisions for the Climate

The Science Based Targets initiative, an initiative of World Wildlife Foundation, CDP, and World Resources Institute, provides a unique opportunity for consumers to reduce emissions by identifying the brands that are actively engaging on climate change and developing strategies to reduce their impact. Consumers can also reduce emissions by being mindful of the choices they make at a restaurant or store. For instance, beef has higher embedded emissions than pork or chicken, and dairy has higher embedded emissions than plant-based products. However, for companies that are on an SBT pathway, the gap between the carbon footprint of these ingredients is likely to decrease.

SBTs and increased customer insight in the embedded emissions of what they buy are trends that are here to stay. If you are looking at how to approach this theme for your organization, contact Vincent Hoen for information on the corporate sustainability services Navigant offers.

 

A Sign That Large-Scale, Offsite Renewable Energy Procurement Is Becoming Mainstream

— February 1, 2018

In an August 2017 blog, I highlighted how corporate commercial and industrial (C&I) energy facilities and sustainability managers have new options to address their energy management and procurement needs. These managers now hold the keys driving the growth of energy as a service (EaaS) solutions. The move by large C&I energy users to procure renewable energy from large, offsite renewable energy project sits within Navigant Research’s EaaS framework as part of the Offsite Energy Supply solution.

EaaS Delivery Models

The delivery models for this new EaaS solution in the US have been developing over the last few years, due in part to the market capacity development efforts of the Rocky Mountain Institute’s Business Renewable Center (BRC). While not all US projects are direct procurements, as of the end of 2017, a total of 8 GW of corporate renewable energy deals have been signed in the US and Mexico alone per the BRC.

The early stages of the market for this EaaS solution in the US was driven by pioneers like Google and Microsoft. These companies were primarily interested in putting their money where their mouth is in terms of their innovation and sustainability commitments. But these companies were also focused on how these deals could help mitigate their long-term energy price risk. Given the impact of shale gas on natural gas pricing and low wholesale electricity prices in the US, using this type of procurement solution as a legitimate energy price risk hedging tool has been met with mixed results.

Rocky Mountain Institute Corporate Renewables Data

(Source: Rocky Mountain Institute)

Ready for Risk Mitigation Challenges

However, a recent announcement on a European procurement deal may signal otherwise. In late 2017, Norsk Hydro, a leading European aluminum manufacturer, announced an agreement to purchase wind power from a 650 MW wind farm for 19 years in Sweden starting in 2021. While Norsk Hydro has been previously recognized for its sustainability performance, this announcement indicates that the purchase of large-scale offsite renewable energy is now posed to meet the complex energy price risk mitigation needs of energy-intensive manufacturers that have spent years trying to lower the cost of the energy they use.

Stay Tuned for Research

Later this year, Navigant Research will prepare a comprehensive global research report on the drivers, barriers, transaction models, and market forecasts for these new large-scale, offsite renewable energy procurements as part of the new Utility Customers Solutions research service. Meanwhile, Navigant Research will be closely watching for deals that show this type of energy procurement strategy is moving past a nice-to-have sustainability commitment toward a legitimate component of an enterprisewide energy price hedge strategy.

 

Finding a Cost-Effective Path to Climate Leadership

— January 9, 2018

A new wave of climate change regulations is coming, and this time to all corners of the world. Following the Paris Agreement, more than 80% of countries have already drawn up plans on how to contribute to the low carbon transition. Some have realised plans that put a price on greenhouse gas (GHG) emissions. While the majority still have to translate those into concrete regulations, the uncertain timing and cost effects of these regulations create risks for businesses.

Internal carbon pricing (ICP) can help companies navigate the tentative regulatory waters. Assigning an internal price to their carbon footprint enables companies to translate future effects of climate change regulations into a monetary metric. This allows decision makers to compare climate measures on equal financial terms and implement the most cost-effective ones. Already, almost 1,400 companies—including more than 100 Fortune Global 500 companies, representing about $7 trillion in annual revenue—have reported to CDP that they are using an ICP, or plan to do so in the coming 2 years. Most companies use ICP to manage exposure to climate-related risks, while a smaller subset uses it for scenario analysis of these risks, as recommended by the Financial Stability Board Taskforce on Climate-related Financial Disclosures. Only a few progressive companies try to utilise the full potential of ICP to find the cheapest measures to prepare for regulatory risks, discover new revenue opportunities, and reduce their carbon footprints.

Framework for Best Practice ICP

Source: Ecofys, a Navigant Company

Ecofys, a Navigant company, The Generation Foundation, and CDP developed a new 4D framework to help companies find the most cost-effective way forward in the low carbon transition as follows:

  • Have a carbon price level capable of affecting decisions (Height). Saint-Gobain uses two carbon prices, one for capital expenditure decisions and a higher price to stimulate R&D in disruptive low carbon technology.
  • Cover the GHG emissions hotspots in the value chain that can be influenced (Width). Carrefour decided to use ICP on GHG emissions related to energy use from its stores, which covers 90% of emissions it could directly influence.
  • Integrate it into business decisions (Depth). DSM has integrated ICP in existing business processes and has made it a mandatory factor in the financials for large investment decisions.
  • Evaluate regularly in line with business strategy (Time). Danone updated its ICP in 2016 to align it with its target to achieve carbon neutrality by 2050.

Three Success Factors to Setting Up an ICP Approach

With each dimension affecting the next, companies will have to decide between tradeoffs of acceptability, accuracy, administrative burden, and effect. Optimal combinations of model will vary depending on goals, GHG emissions profiles, influence in the value chain, and company culture. Nonetheless, three overarching success factors were identified for setting up a best practice ICP approach:

1. Obtain board-level support early on. The CFO and other strategy directors are especially important because well implemented ICP will influence financial decisions.

2. Engage the organisation from the start. Take the affected teams on board to create a sense of ownership and improve internal buy-in.

3.Start simple and learn by doing. Try embedding it in daily decisions. Over time, you can gradually increase the effect of ICP in the decision-making process.

Building on industry interviews and public consultation, Ecofys, a Navigant company, the Generation Foundation, and CDP published a guide detailing a four-step approach to establish a best practice ICP. Accompanied by a C-suite guide for executives, it allows companies to identify the most promising ICP approach for their organisation. Using ICP in a best practice way helps to actually ride the wave of new climate change regulations, not be overwhelmed by them.

 

Costa Rica Plans for Sustainable EV Future

— January 4, 2018

Up until now, plug-in EVs (PEVs) have been about as popular as snowshoes in Latin America due to the higher cost of the vehicles and lack of governmental focus on reducing transportation carbon emissions. However, in Costa Rica, government agencies are developing policies and infrastructure to lure automakers to send PEVs and to get consumers excited about the technology.

A Small but Ambitious Market

Costa Rica may not seem like the ideal location to grow a PEV market. The country has a gross national income per capita of just over $10,000 per year (as of 2015, per World Bank statistics), whereas most PEVs cost north of $40,000 and would be out of realistic reach for most consumers. The vehicle market is also small (just 154,000 vehicles sold annually), so it is not a top priority market for automakers to support PEV sales.

Nevertheless, with tourism to its sandy beaches and internationally renowned rain forest contributing 5% of Costa Rica’s gross domestic product, the government wants the country to project an eco-friendly image and participate in global efforts to combat climate change.

The country has set a goal of getting 37,000 PEVs on the road by 2022. On December 15, 2017, Costa Rica passed its first incentives for EV purchases, which include exemptions on the sales, consumption, and customs import taxes. According to a report from Nacion.com, this would reduce the final cost of a PEV by about 24%.

Growing Support for PEVs

Federal organizations in Costa Rica are also planning support for PEVs. The state-run utility led by Grupo ICE and Costa Rica’s integrated ministry of energy and environment (MINAE) both shared steps they are taking to promote EVs at the Third Annual Latin America Clean Transport Forum, which was held in San Jose, Costa Rica on September 20, 2017.

ICE said that with 76.6% of its power generation coming from renewables, the carbon savings of switching transportation from liquid fuels to electricity can be significant. Since 92% of residents live in private homes, pervasive access to home EV charging should smooth the introduction to PEVs. Also, the mild climate (an average temperature of 25°C) would enable PEV batteries to provide greater range and durability than in places with harsher weather. The utility is now investigating the barriers to PEV adoption and infrastructure requirements (such as charging levels and standards for collecting data) to prepare for their introduction.

EV Policy Development and Logistical Challenges

MINAE is developing a national policy for transportation electrification that will be released as part of the annual Oficializado Plan Nacional de Energía, which was due at the end of 2017 but does not appear to have been published yet. The national EV policy will set achievable goals for reducing emissions in transportation, including light and commercial vehicles as well as mass transit. These goals will align with the country’s overall climate change targets.

Despite these efforts, getting automakers’ attention to prioritize Costa Rica and other Latin American nations as PEV markets will be a challenge. With no local manufacturing plants, PEVs currently have to be imported into Latin America, and the higher cost of shipping the vehicles will need to be offset by local incentives. Consumer education in places where PEVs are rarely seen will require concerted effort from both the public and private sectors. Importing used PEVs, which have low resale values and could be used in fleets, is an effective method of introducing target customers to the capabilities of PEVs and building buzz around the technology.

 

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