How to assess the carbon impact of your capital projects portfolio

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? Regardless, 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 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. Carbon must be part of the equation when assessing where and how to invest in the large-scale, long-term capital intensive projects that drive operational change.

Many organisations are aware they may have carbon surprises hidden in the 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 project 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 the climate challenge 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 decisions. CAPEXinsights is a user-friendly software application that empowers teams to better manage their capital projects and portfolio. The app steps project managers (PMs) 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, the app 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-based decisions. Individual sustainability projects are great. But organisations must ensure that gains in one project are not undone by another initiative where the carbon impact was not considered.

"It’s the net carbon impact at the portfolio level that matters most."

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, carbon calculations will be built into those for NPV. But, until carbon pricing is automatically embedded in your organisation’s systems, you need a separate mechanism that prompts PMs to assess projects from a sustainability perspective. Having an app that ensures PMs consider and record even a rough assessment of a project’s carbon impact is an important step in the right direction.

Eventually, the system will allow you to generate sustainability assessments and detect risk to the impact of your sustainability KPIs from the 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 impact that seemingly small changes can have when applied across your entire capital portfolio.

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.

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. It also means individual PMs can see where their project fits into the organisation’s decarbonisation strategy, supporting buy-in.

Start including carbon in capital portfolio decisions

Organisations often hesitate to build carbon considerations into decisions because doing it well is 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 PMs to consider more sustainable design and implementation methods – starting to ingrain this behavioral 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 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 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.

It's time to understand the carbon risk in your capital project portfolio. Otherwise, you run the risk of apparently low-risk capital projects becoming expensive liabilities in a decarbonised economy.   

Use technology to align your capital project portfolio with your sustainability objectives and proactively begin the shift to low-carbon operations with the CAPEXinsights Sustainability Calculator

For further information about how to calculate carbon or to have a personalised demonstration of our product, please don’t hesitate to reach out to us.