Adaptation to climate change poses two recognized significant types of risks to the private sector; (1) physical risks and (2) transitional risks. As markets respond to climate-related policies and shifting demands from customers and investors, opportunities as well as risks are presented. A very recent and important policy development is the European Green Deal suggesting the EU to reduce its emissions from 40 to 55% by 2030, and aiming to enable European countries to meet their Paris Agreement targets. The shift required for this transition highlights the challenges in terms of adapting business models and decision-making tools, while also providing opportunities for innovation and development in the private sector. In order to reach Paris Agreement goals, science-based targets need to be adopted to measure and manage emissions, specifically focussing on Scope 3 emissions embedded in the value chain in the private sector. Methods and guidances are considered, with the ultimate goal being a harmonized methodology to create a detailed emissions inventory and risk disclosure of a company’s operations. It is suggested that Environmentally Extended Input–Output models initially be used as a screening tool, in order to identify emission dense sectors. Process-based LCA inventory data, collected through collaboration and transparency throughout the value chain, can then be applied to increase the resolution of the decision-making tool.
As a part of the European Green Deal, the Corporate Sustainable Reporting Directive will apply to over 50,000 companies in Europe, meant to advance the quality of sustainability reporting in the EU, and reduce global emissions and emission distribution inequality. Part of the requirements centre around organisational emission quantification, which will bring much attention to the methodological aspects and resulting decision support capability, which calls for synthesis and argues for clarity. Currently, quantifying the emissions embedded in global transactions mostly focus on direct value-chain attributes, and do not consider unintended consequences beyond the scope of assessment. To achieve genuine reductions, estimated emissions must be considered from a systems perspective to accurately reflect their true impact. While emission inventories serve several purposes, incorrect application limits their potential. The CSRD aligns itself with the GHG Protocol, which does not explicitly facilitate this distinction, although new Land Sector and Removals Guidance draft does, in part. With first CSRD reports expected in 2025, and the GHG protocol entering a revisions period, it presents an opportunity to marry systems thinking with carbon literacy, thereby equipping the expected surge of activity with the sufficient tools for an accelerated transition.
To remain relevant in the green transition, companies are beginning to voluntarily account for the exchange of emissions in their supply chain transactions and using the resulting greenhouse gas inventories for climate resilient decision support. Market advantages of sustainability and transparency see a shift from internal decision support tools to external communication tools which potentially expose companies to the risk of uncovering greenwashing if claims are not supported by transparent data, sound modelling, and a climate just emissions inventory, which considers external impacts connected to the production system. The different methods and standards in place for such greenhouse gas inventories, despite all referring to the ISO life cycle analysis standards and guidelines, present mixed signals and leave room for different interpretations, that may ultimately lead to cascading greenwashing, misleading results, and false successes. The new GHG Protocol Land Sector and Removals Guidance draft addresses this in part. With the GHG Protocol moving into revision periods, we identify gaps that present barriers to companies, or allow for interpretations that goes against the intentions of reporting GHG emissions related to an activity or organisation. The literature agrees that not rectifying these subtle-ties present counterproductive decision support for the green transition’s overall goal: to reduce global emissions.
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