Total greenhouse gas (GHG) emissions continue to rise despite the considerable efforts of a growing number of sustainability leaders. Under the current trajectory, temperatures are predicted to rise by almost 5°C by the end of the 21st Century, well beyond levels identified as ‘safe.’ With the legally-binding deal to limit global warming to 2°C signed in Paris in April 2016, how can cement companies prepare for future conditions...?
In April 2016, world leaders met to sign the Paris climate change agreement, a legally binding deal to limit global warming to 2°C, the level that scientific evidence from the Intergovernmental Panel on Climate Change (IPCC) says is needed to avoid the most severe impacts of climate change. Backing up the agreement are CO2 reduction plans submitted by 190 countries, including the United States, China, India and members of the European Union.
The importance of science-based targets
To grow and prosper in a low-CO2 economy, companies need to set science-based targets that reflect the Paris agreement and CO2 reduction plans for the countries in which they operate and from where they source supplies. This may involve reviewing existing CO2 targets to see if they are still fit for purpose.
A science-based target is a commitment to reduce CO2 emissions to the level needed for the company to make its full contribution towards achieving the 2°C limit on global warming. Companies that make insufficient efforts to cut CO2 and allow business-as-usual emissions to increase need to consider how they will remain viable in a world in which they fail to align with critical government commitments. Companies risk losing market share and stranded assets, as customers demand low-CO2 products and services. They risk failing to comply with legislation and may become unprofitable as a result of CO2 taxes and trading schemes. They risk damage to their reputations as NGOs and the media increasingly seek to expose sustainability laggards.
Science-based targets in construction
Trucost analysed the CO2 reduction targets of the 10 largest publicly listed European cement and construction companies to see how they compare to a benchmark science-based target for the sector based on the Paris climate agreement to limit global warming to 2°C. The research found that:
- Only one company (Company 1 in Figure 1) has set a science-based target that will cut its CO2 emissions to the level needed to meet the 2°C limit;
- Another (Company 2) has set a target that is not ambitious enough to achieve the 2°C limit;
- Seven companies reported some form of emissions reduction target, but insufficient information was provided to verify it, such as the lack
of a baseline year, or the goal year was short-term; - One company set CO2 reduction targets for individual business units and projects, but did not provide any company-wide target;
- The 10 largest companies in the European construction sector, which includes cement manufacturing, emitted 661t CO2 equivalents for each US$1m of revenue they generated, a total of 215Mt of CO2 equivalents;
- Over 90% of the CO2 emissions come from direct sources owned or controlled by the company (Scope 1) with only 9% from the company’s consumption of electricity (Scope 2), as categorised under the Greenhouse Gas Protocol. The figure excludes emissions from supplies of raw materials and use of products (Scope 3), which Trucost finds are likely to be greater than 40% of total emissions for the sector. These are rarely reported despite exceeding the threshold for relevance to target setting;
- If the emissions of the 10 construction companies continue on their current trend, they are expected to be at least 40% higher by 2050.
Risks and opportunities
Setting science-based targets will help cement and construction companies grow revenue and generate profits in a low-CO2 economy. Companies that fail to do so face uncertainty, risk and missed opportunities.
The potential risks include:
1. Loss of revenue and stranded assets as customers shift to renewable and low-CO2 construction technologies;
2. Reputation damage as the company is perceived to be ‘out of touch’ by clients and customers;
3. Lower share price as investors reduce company valuation;
4. Reductions in asset value from continued investment in CO2 -intensive construction technologies;
5. Fines and loss of business due to non-compliance with CO2 legislation, energy efficiency standards and renewable energy requirements, and;
6. Increased costs from CO2 taxes and emissions trading schemes.
Potential opportunities include:
1. Positioning your company as a sustainability leader by setting a robust and credible science-based target;
2. Demonstrating robust environmental risk management to stakeholders, from suppliers to customers and investors;
3. Increasing long-term asset value by designing in materials and technologies that align with science-based targets. This is important in the building sector where assets have a lifespan of 50 - 100 years;
4. Spurring ambition and generating innovation to drive new business opportunities as environmental legislation and customer expectation increase the demand for energy efficient, low-CO2 buildings and construction projects;
5. Improving access to capital from investors seeking to reduce exposure to CO2 in their portfolios and via green bonds to finance projects with environmental benefits;
6. Identifying the business case for investment in emission reduction and energy conservation projects;
7. Introducing business tools such as shadow pricing to manage risk and identify mitigation strategies.
Setting a science-based target
To set targets, cement producers should gather high quality CO2 emissions data, which is imperative to ensure reduction targets are meaningful. Companies need data on direct greenhouse gas emissions from operations (Scope 1), indirect emissions from electricity use and transport (Scope 2), as well as emissions from supply chains and use of products (Scope 3). Trucost provides a fast yet robust calculation of supply chain and product in-use CO2 emissions to determine where they exceed the 40% guideline for relevance to target setting.
Producers also need to understand and assess the CO2 reduction plans of the countries in which they do business, as well as how these may change as a result of new legislation. While some countries may be taking insufficient action to achieve the 2°C Paris climate agreement, companies need to be aware of policy changes.
A science-based target should cover a minimum of five and a maximum of 15 years, although companies are encouraged to set long-term goals as far as 2050. This is consistent with guidelines from the Science Based Targets initiative founded by CDP, UN Global Compact, World Resources Institute and WWF.
Science-based CO2 targets can be expressed either as an absolute reduction in greenhouse gas emissions compared to a baseline year, as a reduction in GHG intensity normalised by a financial or production metric such as revenue or tonne of product, or a combination of both approaches.
Bloomberg New Energy Finance estimates that achieving the Paris climate agreement would require US$12tn of investments in clean-energy technology and infrastructure over the next 25 years.1 This presents opportunities for construction companies to capture investment in new low-CO2 projects.
Capitalising on a low-CO2 economy
To tap into the growing market for green practices, construction companies need to identify – and communicate – robust environmental and financial benefits of their products. Winners in a low-CO2, resource effcient economy will be the companies that are best positioned to provide technologies, products and services that enhance asset value.
Trucost provides companies with the transparent and robust evidence they need to substantiate ‘net benefit’ claims, can inform the leadership strategies of companies by assessing their sustainability performance in relation to peers, sector benchmarks and financial indices and can advise companies on how best to position themselves to capitalise on environmentally-tilted investment opportunities, including CO2-efficient funds, green bonds and
lending policies.
Reference
1. CERES (2016); ‘Mapping the Gap: The Road from Paris,’ http://www.ceres.org/resources/reports/mapping-the-gap-the-roadfrom-paris/view.