Plan For Your Next Generation GHG Emissions Management System In 2020
In a week when London is gripped by further protests by Extinction Rebellion, the Governor of the Bank of England, Mark Carney has articulated his view that firms and sectors will go bankrupt if they don’t develop a transition plan to operate profitably in a zero carbon emission economy. At a recent London Stock Exchange conference on Sustainable Finance attended by Verdantix, it was clear that for an increasing number of mainstream investors climate change is no longer seen as simply a reputational risk but as a core financial and strategic risk. Businesses need to react to this shift in investor sentiment. How is this different from 2006-2008 when firms first invested in GHG emissions management software?
First, tracker funds and passive investment managers are “tilting” their investment strategies towards firms with a passing grade in Environmental Social and Governance (ESG) disclosures. The Financial Stability Taskforce on Climate-related Financial Disclosures (TCFD) has embedded the issue of disclosing risks posed to the business by climate change as a core factor in ESG information. This has been picked up by mainstream investment funds such as Legal & General Investment Management. What does this mean in terms of IT systems? Firms need to undertake climate change risk analysis for instance using catastrophe modelling work to see what assets are at risk. An obvious example being oil and gas assets at risk of flooding in Texas. They also need to enhance their ability to share on a quarterly basis their worldwide, corporate GHG emissions data with the sort of accuracy and assurance typically associated with financial data. Despite having applications for energy management, GHG emissions and sustainability disclosures, very few firms have the ability to produce accurate worldwide emissions data within 90 days.
Second, a weak policy environment will not continue to exist as the evidence of global warming and climate change risks continues to grow. If the Louvre Museum in the heart of Paris – which houses billions of dollars worth of priceless art works – can’t be protected from flooding in both January 2018 and June 2016 then what can be? That’s why the International Monetary Fund recently proposed that countries with large GHG emissions should impose a carbon tax of at least $75 per ton by 2030. Carbon tax – or GHG cap-and-trade – policies are already and will continue to be implemented at different speeds and with different levels of aggression in different jurisdictions. Just look at State-level regimes in the US. What is the IT implication? Version 1.0 GHG emissions management IT systems dating from 2006-2008 were built to collect data on emissions for sustainability disclosures. They were not built to handle the far more complex task of reducing emissions or providing insight into how emissions could be reduced. New platforms need analytics and potentially engineering controls to cut GHG emissions similar to air emissions.
What’s the take-away for 2020? Firms with complex, international GHG emissions management challenges should assess their ability to meet the new scenarios. Accurate climate change and GHG emissions disclosures for ESG requests are an immediate problem. Putting in place controls to reduce GHG emissions in line with tougher carbon tax or cap-and-trade policies is a bigger problem requiring 3 years of design, development, testing and implementation.
Learn more about the vendors offering GHG emissions management software from our benchmark of environmental management functionality.