GUIDELINES FOR AN INTEGRATED ENERGY STRATEGY
Helping companies achieve their sustainable energy objectives
Vision and targets
A vision that’s supported by credible targets provides the context and direction for a company’s integrated energy strategy. It can be challenging to develop a vision, but it will provide clarity and guide decision-making so that the integrated energy strategy succeeds.
What you should be aiming for:
- A clear and ambitious vision that sets the direction for your integrated energy strategy and has the support of your board and executive management team;
- Ambitious, time-bound and science-based targets that will enable your company to realize the vision;
- A strong financial business case that considers a range of benefits and includes a marginal abatement cost curve to evaluate options.
Watch to learn more about how strategic vision and clear targets inform the integrated energy strategy at Ingka Group, the largest retailer in the IKEA franchise system
Develop an ambitious and shared vision
A vision statement describes where a company wants to be. It acts as a long-term goal that provides direction and makes sure that everyone is working towards the same purpose. A well-defined vision statement is short, memorable and motivational.
Getting the executive management team to buy into a longer-term vision when the route forward might involve uncertainty is challenging. Developing a vision statement requires your company to have a shared understanding of the priorities, opportunities
A vision statement also needs to articulate the vital role that upstream and downstream stakeholders will have in making your vision a reality. The vision should
The vision should also be framed in the broader context of the SDGs which comprehensively lay out a collective pathway for humanity on the road to 2030 and, from a private sector perspective, provide a lens through which companies can translate global needs and ambitions into business solutions. Companies that integrate the SDGs into their long-term energy strategies will be much better placed to leverage market opportunities, manage emerging risks and secure an enduring license to operate on the road to 2030.
Set ambitious, time-bound and science-based targets
Energy efficiency and GHG emissions targets should be pinned to a suitable year in the future which gives you the ability to show improvement in energy performance, the associated GHG emissions reductions
This will enable you to measure and report on the success of your integrated energy strategy and enable you to become more ambitious over time.
Setting science-based targets (SBT) is quickly becoming a global standard for GHG emission reduction targets. While the boundary of an SBT is wider than just the GHG emissions from energy use, companies can use this approach to set targets that are consistent with the Paris Agreement. SBTs will typically also cover a company’s Scope 3 emissions meaning that companies are also required to consider decarbonization across its value chain.
Companies can use the Science Based Targets initiative (SBTi) to validate and announce their SBT; alternatively, they can analyze and verify their targets internally. Targets should be reviewed at least every five years to ensure they match the latest climate science.
When seeking internal approval and buy-in for targets, it’s important to explain both why the target is right for your company and how it will be achieved. If you focus too heavily on the why, then the debate may get stuck on whether a target is required. Spend more time considering how the target will be achieved and the impact this will have on your business and the environment. Focusing on the solutions will make the “do nothing” option feel like a step backwards.
Net zero carbon targets
The use of offsets to achieve net zero carbon targets should not replace efforts to mitigate GHG emissions. Companies should develop a long-term pathway for GHG emissions reductions and only use carbon offsets when alternative GHG emission reduction options are not available.
It’s important to define the boundary of GHG emissions that a net zero carbon target covers. Best practice is to cover 100 percent of a company’s Scope 1, 2 and 3 emissions.
Science-based targets with the SBTi
Setting SBTs allow companies to:
- Be consistent with scientific requirements for a low-carbon future;
- Align with the direction set by the Paris Agreement;
- Ensure GHG emission reductions are credible and based on current and anticipated policy;
- Ensure GHG emission reductions are realistic and consistent with the direction of the respective industry.
Science-based targets within the SBTi must cover company-wide Scope 1 and 2 emissions, and if Scope 3 emissions are greater than 40 percent of a company’s total emissions, a target must be set for two-thirds of Scope 3 emissions. Targets must span a time period of 5 – 15 years from the year of target announcement. The SBTi does not allow the use of carbon offsets to achieve a science-based target.
Energy efficiency targets
Setting a target to reduce the amount of energy used – in absolute terms or relative to an appropriate indicator of output for your business – helps your company to show energy performance improvements over time.
Companies who are looking to decouple growth from an increase in energy consumption will set an energy intensity or energy productivity target.
This type of target measures energy consumption relative to economic output, or a more specific operational indicator, such as hours worked, or units produced.
The UN Sustainable Development Goal 7.3 includes a commitment to double the global rate of improvements in energy efficiency by 2030 against a 2010 baseline. Companies should evaluate whether they can align with this ambition.
The EP100 initiative brings together a group of companies which commit to use energy more productively. Members of the initiative choose among three commitments: Doubling the economic output from every unit of energy it consumes globally within 25 years; implementing a smart energy management system globally and committing to an energy productivity target; or owning, occupying or developing buildings that operate at net zero carbon by 2030.
Renewable energy targets
A renewable energy target commits a company to using energy from renewable sources. Typically, this will be an objective to source a certain percentage of electricity from renewable sources by a stated year, or specifically related to areas of your business.
While renewable energy targets typically cover electricity consumption, they can cover other energy inputs, including those used for heating, cooling, production processes and transport.
RE100 is a collaborative, global initiative run by The Climate Group and CDP whereby companies publicly commit to sourcing 100 percent of their global electricity consumption from renewable sources by a specified year.
Other environmental targets
Other sustainability targets may be set for environmental performance indicators, such as the reduction of air or water pollution related to energy uses, or production of waste related to energy consumption.
Develop a strong financial business case
Your integrated energy strategy needs a strong financial business case. This requires colleagues from finance to be part of the strategy development team, and the consideration of how the strategy will manage costs, support business growth and mitigate risks.
To achieve the targets set by your integrated energy strategy, you’ll need a blend of solutions that have different costs and benefits. Finding the optimal blend for your company requires appraising of different measures under different scenarios.
When evaluating measures, it’s important to consider them from a financial and carbon reduction perspective. Using a marginal abatement cost curve (MACC) helps visualize low-carbon measures by presenting the cost per year of reducing a ton of CO2 (either a positive or negative financial value) and the abatement potential of each measure. Using a MACC helps companies identify the lowest cost mitigation measure.
Using a net present value calculation will enable you to articulate potential cost savings and return on investment for your finance team.
If the payback threshold for capital investments is proving to be a hurdle, evaluate payback in the context of the expected life of the asset you are purchasing. Securing commitment for a payback threshold that is half the length of the asset’s useful life can help to unlock internal funding.
QUESTIONS TO CONSIDER
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