All businesses impact on the environment - some such as oil & gas companies much more than others such as green energy companies. In order to better understand the impact of greenhouse gas emissions such as carbon dioxide, they are broken down into three categories - Scope 1, 2 and 3.
This system was introduced in 2001 by the World Resources Institute as part of their Greenhouse Gas Protocol designed to create a universal method for all companies to measure and report on emissions related to their business. As climate change rises up the political agenda, the reports of global companies are more closely scrutinised for disclosure of carbon emissions.
Scope 1 include all the direct emissions directly
under the control of the business including the types of fuel used on site, the
emissions from any motor fleet and air conditioning systems etc.
Scope 2 include indirect emissions arising from
the electricity or other energy purchased by the business.
Finally, Scope 3 emissions are all the remaining
indirect greenhouse gas emissions which the company does not control. These are
usually the largest proportion of CO2 emissions associated with the business
and include all emissions from the supply chain of a business as well as end
users of the products made by the business.
With the public becoming increasingly concerned
about environmental issues, there is now much more emphasis on sustainability
and therefore scrutiny of an company's carbon emissions - especially scope 3.
Many of the world's leading companies are pledged to reduce their carbon
emissions in line with the Paris Agreement and even the big oil majors are
starting to address their scope 3 emissions and aim for net zero by 2050. BP
have recently pledged to become net zero under the new leadership of Bernard
Looney, likewise Repsol announced a major shift last December
I was interested to hear that the world's largest
company Apple with a market cap. of $2 trillion - larger than the combined value of all FTSE 100 companies - has recently declared it will become
carbon neutral by 2030. It's own energy consumption is already covered entirely
by renewables but its new commitment will extend to its suppliers and end users
- i.e. scope 3 emissions. This is a big deal and will likely have far-reaching implications down the line.
Most of these emissions come from the outsourcing of manufacturing, mainly to companies in the Far East and the task is to ensure that all these supply companies use 100% renewable energy and use renewable materials. This is quite a task and Apple have created an entire team dedicated to helping its suppliers plug into clean energy.
"Businesses have a profound opportunity to help build a more
sustainable future, one born of our common concern for the planet we share," said Apple CEO Tim Cook ... "Climate action
can be the foundation for a new era of innovative potential, job creation, and
durable economic growth."
Therefore, these large global companies can have a
huge impact on the transition to a net zero world - possibly more so than
individual governments.
I do not hold Apple as a stand-alone company in my
portfolio but do hold it indirectly via my technology investment trusts -
Allianz and Polar Capital. I do however hold some large companies, the likes of
Microsoft and Google in my portfolio and I have now had the opportunity to check
their Scope 3 climate change ambition.
Microsoft
The company has also pledged to become carbon
neutral by 2030 but also to go further and remove all the carbon emitted since
it was founded in 1975. In July the company updated its Supplier Code to ensure
all suppliers report their emissions data. This will help Microsoft to work
with their supplier companies around the world to reduce their greenhouse gas
emissions and bring them more into line with Microsoft's goals on achieving net
zero.
All data centers and campuses will be powered by 100% renewable energy by 2025 (scope 2).
Current market cap. is $1.5 trillion.
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Google
The company has been carbon neutral since 2007 and
in 2017 they matched 100% of their energy consumption (scope 2) from renewable
energy.
Google is the world's largest corporate purchaser
of renewable energy - currently around 3.5GW. It has a market cap. of $1 trillion.
This week they have pledged to become carbon-free
by 2030
For the past 3 years they have matched annual
electricity usage with renewable energy purchase. However this new policy is
far more ambitious and will involve round-the-clock clean energy for all data
centers and campuses. Electricity sourcing (scope 2) will be decarbonised over
the coming decade.
Google works directly with over 2,000 suppliers in
70 countries. Many of these countries still operate largely on an energy grid
based on fossil fuels such as coal and natural gas. Google will deploy 5GW of clean
energy across the supply chain which will involve $5 billion invested in new
wind, solar and other clean energy solutions.
Facebook ($750bn) have also pledged to use 100% renewable
energy by the end of this year and will aim for it's entire value chain to
become net zero by 2030 to include all suppliers and end users. Amazon ($1.5 trillion) are now
lagging behind with its pledge to achieve net zero emissions by 2040.
Conclusion
I think the Covid pandemic and the increasing
climate change events such as the devastating wildfires that hit Australia last year and are currently affecting the
west coast of the US are starting to challenge the 'business as usual' thinking
for governments, companies and the general public. Clearly some big changes are
needed to move to a more sustainable economy for the long term and these
changes need to be implemented with some degree of urgency.
I believe a big part of that change will be
influenced by just a few individuals at the top of some of the world's biggest
businesses - Apple, Microsoft, Google, Tesla etc. Now they have committed to
net zero carbon emissions, the snowball effect will influence other large companies and policy makers and also cascade down the chain to
other businesses who have a relationship with these top global companies.
Hopefully, within a decade, the world will look
quite different to how it looks today - a slowing of global warming with the
potential to keep within the 1.5C limit recommended by the IPCC, more electric and hydrogen fuel cell
transport, cleaner air quality, a ten-fold increase in renewable energy with a
corresponding reduction in the use of fossil fuels, our banks and insurers declining support for the polluting industries and diverting their businesses strategy to
support cleaner, more sustainable models.
In 2010, climate scientist, environmentalist and
writer James Lovelock - most famous for the Gaia Theory - said humans were too
stupid to prevent climate change impacting our lives over the coming decades.
He seems to be proved right so far but let's hope over the next decade he turns
out to be wrong - otherwise it could be game over.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!
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