Persefoni CEO and Co-founder Kentaro Kawamori says Britain should incentivise decarbonisation and emissions measurement through the tax system and capital allowances.
The UK’s recent Net Zero Review was not wrong when it claimed the move to a low-carbon economy is “the industrial revolution of our time”.
And Tory MP Chris Skidmore’s 340-page report on Britain’s 2050 emissions target is full of sensible ideas to accelerate this process.
The headlines were always going to be about an earlier ban on new gas boilers, scrapping planning permission for roof solar panels, and banning the export of plastic waste. All of these individual measures are prudent and will make the UK more sustainable, and the economic opportunities far outweigh the potential expense, which is always front of mind during a cost-of-living crisis.
But the recommendations released this month have skirted over the most important solution to accelerate the nation’s transition to net zero and unleash these economic benefits. Buried deep in the report is a small section on the need for companies to accurately understand their carbon emissions data.
Essentially, the climate crisis is a data problem with businesses struggling to obtain accurate figures – not only from the carbon emissions of their own operations but from all activities across their supply chain, known as Scope 3. It has been estimated by several large multinationals, such as Coca-Cola and Nestle, that Scope 3 comprises as much as 80% of their total emissions. The problem can be even more pronounced for asset owners and investors when considering the emissions captured across their investment portfolios and strategies.
As many of us in the ESG world are now well aware: without solving the Scope 3 challenge, we are simply pretending we are on course to net zero.
To obtain this data, companies require figures from their business partners, supplier companies and investments. This data is becoming a requirement at a procurement level when new business relationships are proposed; increasingly, companies are being awarded contracts (or not) because of this data. It could also become a potential barrier to future fundraising. As such, we are on the threshold of a monumental global acceleration in carbon reporting and transparency.
The review is correct when it reports businesses are facing a lack of data about emissions in their supply chains and within their investment portfolios – creating a challenge for accurately reporting their audit-grade emissions according to the Greenhouse Gas Protocol (GHGP) and taking action to reduce them.
But its proposal to hold yet another consultation to see what data businesses would find helpful falls way short of its other recommendations. We know the greenhouse gas data that businesses require, and we know who they need to get it from.
Companies face a common challenge in that access to suitably granular, accurate and verified primary data can be complicated. Data sharing throughout the supply chain and across portfolios requires cross-organisational cooperation and lack of alignment between IT systems or confidentiality issues can become sizable obstacles. Additionally, there are inconsistencies in current methodologies and policies globally.
The financial services industry has an initiative which supports this process – the Partnership for Carbon Accounting Financials (PCAF), which is a global collaboration of institutions that create and manage an efficient process to review and disclose GHGP Category 15 financed emissions. PCAF is still in its relative infancy, and its adoption must be accelerated if comprehensive action on this type of emission is to be achieved. We do not need a consultation to tell us this.
In the past half-decade, software and technology have also quickly caught up to the problem. The tools for companies to seamlessly measure this data in real-time exist – enabling them to have a full picture of their footprint. These technologies allow for accurate and consistent calculation of indirect emissions data. Furthermore, not only can these tools facilitate measuring and collating data, but can also provide direction in how to lower carbon footprints resulting in actionable change.
Approaches that rely on processes ‘off-line’ or without software solutions leave room for significant errors in data and substantial resource commitments. Another lengthy consultation of businesses will not only delay this process further but stop Britain from seizing the benefits in terms of jobs, skills, and increased GDP, which can be delivered through a successful transition.
Seize the day
This is an industry of the future, and Britain should be seizing upon it today to enable a net zero tomorrow that enhances business productivity and the nation’s international competitiveness.
The review crucially recommends that the UK government should incentivise decarbonisation through the tax system and capital allowances. This should be leveraged to encourage even smaller businesses to also begin investing in measuring their emissions, vital to achieving full-scale Scope 3 disclosures due to the cascading effect through supply chains of this type of measurement.
Unfortunately, emissions measurement and disclosure is not currently seen as a priority for many SME, non-public businesses – especially when they have been hit with rising costs caused by inflation. Enabling firms of all sizes to adopt the carbon measurement tools they need through these incentives would also help them compete globally.
This increased transparency will lead to a much clearer picture of what Britain must do to reach its net zero goals. It will also increase opportunities in terms of jobs, expertise, and a much more positive economic outlook. Because climate risk is financial risk.
Capitalism created the climate problem and, with the right incentives, capitalism will solve it.