As you plan your organisation's transition to a low-carbon economy, many factors remain uncertain.
When will IFRS formalise an international standard on sustainability reporting? When and how will carbon reporting become mandatory in your local economy? Will your investors expect you to follow TCFD reporting recommendations? Which jurisdictions will follow Europe in imposing carbon taxes on imports? Will consumers vote with their feet if your company can’t demonstrate you are part of the climate solution?
Carbon policies regarding greenhouse gas emissions may be all over the map, but some things are virtually certain.
Very soon, for a host of different reasons, your company will need to track and report on your carbon footprint at increasing levels of granularity – and you will need mechanisms to feed carbon impacts into strategic decisions.
In asset-intensive industries, nowhere is this more important than in the capital project portfolio.
Your carbon footprint calculation must be part of the equation when assessing where and how to invest money and resources in large-scale, long-term capital-intensive projects that drive operational change.
Many large companies are aware they may have carbon surprises hidden in their capital project portfolio but often struggle to get visibility of where current investment may increase future emissions. This needs to change. Boards and executives must be able to ‘zoom in and out' to understand the implications of the entire capital portfolio on an organisation's future carbon footprint.
For most companies, this will require new systems and process that help to:
Build sustainability into project risk assessments
To meet climate change head-on, sustainability calculations must be built into capital project management from the beginning.
At CAPEXinsights, we're helping our clients move towards plugging carbon pricing into their capital project and portfolio decisions. Using a carbon footprint calculator, our product steps project managers through a series of assessment questions required to get them through development gates, instilling a new level of rigour and auditability into capital project decisions.
Importantly, rather than risk assessment data being hidden away in spreadsheets, our software captures and visualises this data, allowing portfolio managers to understand risk at an aggregate, portfolio level.
This aggregated view is proving invaluable when it comes to carbon footprint decisions. Individual sustainability projects are great. But organisations must ensure that gains in one project are not undone by another initiative where the carbon footprint was not considered.
"It's the net carbon impact at the portfolio level that matters most. The sum of all the parts represents your organisation's carbon footprint."
Make carbon calculations part of BAU
The key – and the challenge – is making carbon considerations business as usual, as normal as calculating Net Present Value (NPV).
Eventually, these sustainability calculations will be built into those for NPV. But, until the carbon footprint calculation is automatically embedded in your organisation's systems, you need a separate mechanism that prompts project managers to assess projects from a sustainability perspective.
Rather than making it manual for your people to measure their carbon footprint, you can use software that ensures project teams consider and record even a rough assessment of a project's carbon impact.
This is an important step in the right direction to offset carbon emissions generated while keeping sustainability and greenhouse gases top of mind in decision-making.
By using a carbon footprint calculator, like ours, you can generate sustainability assessments and detect risk to the impact of your sustainability KPIs, all in one system. Fluctuations in data from as little as 1% can be calculated in real-time within your dashboard. At a glance, portfolio managers can see the health of your sustainability strategy and how it influences your capital portfolio.
This is when real change comes – when you can track the progress and measure the ongoing carbon footprint impact that seemingly small changes can have when applied across your entire capital portfolio. For example, energy consumption is easily quantifiable with access to energy data to predict electricity use.
Change your master plans to support carbon commitments
Once boards see the carbon implications of the capital project portfolio, they can adapt master plans to shift portfolio priorities. CAPEXinsights supports this by digitising master plans so they can be visually overlayed at the project or portfolio level, considering greenhouse gas emissions targets.
This makes it easy for boards to communicate new carbon requirements to portfolio and site managers, ensuring portfolios and projects can pivot quickly to take into account low-carbon priorities such as energy consumption, transportation, recycling and raw materials. It also means individual project managers can see where their project fits into the organisation's decarbonisation strategy, supporting buy-in.
Include your carbon footprint calculation in capital portfolio decisions
Organisations often hesitate to build carbon footprint considerations into decisions because doing it well seems incredibly complicated. But it's easy to start taking small steps now by using technology that embeds sustainability questions into your project management lifecycle. These questions can both prompt project managers to consider more sustainable design and implementation methods – starting to ingrain this behavioural change – while also supporting the assessment of carbon risk and capturing reportable data at the portfolio level.
Based on our experience of implementing the CAPEXinsights sustainability module, we recommend you:
- Pilot with large projects – Many companies begin by only assessing the carbon footprint and impact of large projects (say, those worth more than $250K).
- Pre-screen – Pre-screen projects at the design and implementation stage to filter out projects that could be subject to climate risk and environmental change.
- Start simple – Work towards including pricing aspects down the track. For now, at least ask the basic question to ensure capital projects are heading in the right direction. “Will this project increase/decrease or have no impact on our carbon footprint?”
- Embed carbon footprint targets in KPIs – Project metrics need to reflect your carbon objectives and be cascaded throughout the organisation. Otherwise, no matter what your master plan says, a capital finance manager will be looking at what constitutes a ‘good' project return from the wrong perspective. They need to see sustainability guidance mapped to success criteria.
- Use the change for good – Some organisations simply impose the requirement to record carbon impact as part of current or about-to-be-introduced mandatory sustainability reporting. But this is missing an important opportunity. Instead, use the change to amplify and mobilise employee support for your carbon-neutral pledges and be forward-thinking with organisational strategy when it comes to greenhouse gas emissions.
Use a carbon footprint calculator to assess your impact
It's time to understand the carbon footprint risk in your capital project portfolio. Otherwise, you run the risk of apparently low-risk capital projects becoming expensive liabilities in a decarbonised economy.
After all, an organisation's carbon footprint should be more than submitting to regulatory measures and measured carbon credits, it's an opportunity to rethink operations through the lens of sustainability to preserve the environment and your organisation for the long term.
Use technology to align your capital project portfolio with your sustainability objectives and proactively begin the shift to low-carbon operations with our CAPEXinsights Sustainability Calculator.