Decarbonization: Nice to have or already mandatory?
The world has long been responsible for counteracting the rapidly progressing climate change. Increasingly frequent environmental disasters such as floods, storms or forest fires reinforce the perception that it is time to act. Investors and customers are increasingly demanding climate-friendly products and the reporting and reduction (decarbonization) of CO2 emissions. However, these topics have long since ceased to be merely important information for stakeholders and are now legally binding for companies. For example, under the EU taxonomy, as of January 2023, listed companies with more than 500 employees or net sales of more than EUR 40 million will be required to report on the sustainability of their own economic activities.
Challenges in the automotive & manufacturing sector
As a consequence, original equipment manufacturers (OEMs) and numerous manufacturing companies in the automotive and manufacturing sectors are affected by the EU taxonomy. However, these companies quickly reach their limits in terms of both collecting and reducing their CO2 emissions as soon as they address the issue of decarbonization for the first time. Even at the outset, most companies face many questions:
- Which emission categories (Greenhouse Gas Protocol Scope 1-3) do I have to verify?
- How or where do I start collecting data?
- Can I replace missing data with blanket values?
- Do I need a special ESG tool?
- Do I need to include suppliers in the accounting?
- What measures do I need for effective and successful decarbonization?
- etc.
New and unfamiliar topics are usually difficult to implement, and so companies in the automotive and manufacturing sectors also have to overcome many hurdles on their way to successful decarbonization. Particular challenges for these companies are the scope of the value chains as well as the depth of the supply chains and thus the collection of the carbon footprint at single product level. In addition, there are frequent supplier changes at short notice and regular adjustments to production processes. ESG data is usually only collected per business location or business unit and then extrapolated for the entire company. It is currently widespread to use blanket assumptions for individual Scope 1-3 emissions. Unclearly defined organizational boundaries also make it difficult to extrapolate to an entire group of companies. This makes detailed tracking of the data difficult. In addition, there is a lack of processes for systematic and uniform collection and processing of the necessary data. Large companies usually have a heterogeneous system landscape, which requires a central ESG tool for use across an entire group of companies. Ideally, this ESG tool should be able to calculate the emission values of each individual asset, such as products, buildings, machines, travel, etc., and compensate for poor quality and availability of data with the help of reference values. Only then can targeted measures for effective decarbonization
subsequently be defined and implemented.
ESG tools as an essential element for implementing and tracking decarbonization measures
At the latest, a big question mark arises when selecting a suitable ESG tool. Existing ESG solutions are rapidly evolving and new providers are constantly entering the market. As a result, the market is currently very disruptive and characterized by a plethora of heterogeneous players. Many established providers promise extensive functionalities that go beyond mere reporting, whereas start-ups advertise industry-specific solutions. In order to select a suitable solution for decarbonization in one's own company, process experts, data scientists and IT specialists are needed to compare individual solutions on the basis of their functionalities and select a suitable one.
For the selection of a suitable software, we at msg classically proceed in four steps (see diagram). This approach enables companies to find the right software through an efficient and focused approach. Our best practice on selecting an ESG tool for a leading automotive OEM in Germany gives you more detailed picture.
Best practice: ESG tool selection for an automotive OEM
For the successful, short-term implementation of CO2 tracking and decarbonization of your company, steps 1-4 must go hand in hand. At the beginning of the project, we clarify the essential framework conditions with you. These include topics such as the organizational form, processes for collecting, recording and evaluating the data, the availability of the data and necessary technologies. In addition, (non-)functional requirements may be used to evaluate solution providers. In the second step, we use an architectural requirements analysis to evaluate the required software from both an operational and strategic perspective. To derive non-functional requirements, the focus is on legal aspects and IT governance. Furthermore, topics such as functional data architecture, development planning, and measure tracking are considered. The third step is the selection of a suitable software. After a market review of over 150 vendors, we make a pre-selection and pre-assessment based on technical and business requirements. This is followed by tendering and selection using the best-fit approach, in which vendors must meet at least 90 percent of the requirements. As a final step, msg supports the implementation planning and takes over the overall organization as well as the final rollout.
Are you facing the goal of reporting or reducing your CO2 emissions?
The experts from msg specifically address your individual needs. Our extensive know-how in processes for the automotive and manufacturing industries as well as in the area of sustainability enables a successful implementation of your project. In this way, you not only comply with the legal framework, but also deliver an attractive message to your customers.
