Unlock Sustainable Profits: Embrace Emissions Intensity Metrics

In recent years, the business landscape has been inundated with new sustainability concepts and engagements, with over 92-percent of Fortune 500 companies conducting greenhouse gas (GHG) inventories according to Greenhouse Gas Protocol and 2,079 global companies setting and receiving verification on their science-based targets (SBTs). Another 2,151 companies are awaiting verification of their SBTs by the Science Based Targets initiative (SBTi).

Put more directly, most of the world's largest publicly traded companies are now reporting their pollution levels and setting annual reduction targets. As we look to the near future, the true measure of leadership lies in how effectively these companies and their teams can cut pollution while maintaining or even increasing profits. Though it might seem counterintuitive, excess emissions equate to wasted resources, ultimately costing companies money. Thus, reducing emissions not only aligns with pollution reduction goals but also enhances profitability by reducing waste and inefficiencies.

However, amidst our current surge in company sustainability reporting, the imperative to demonstrate tangible progress on sustainability becomes ever more pressing. Companies now face the challenge of showcasing year-over-year reductions in GHG emissions, particularly in scope 1 and 2, with increasing scrutiny on scope 3 emissions. This necessitates not only reporting but also actionable measures to drive change throughout the supply chain.

To navigate this evolving landscape effectively, companies must adopt a new set of metrics that will gain significance in the coming months and years. Forward-thinking leaders are moving beyond traditional sustainability reports to prioritize metrics that offer a clearer understanding of their, and their supplier’s, sustainability performance.

These emerging metrics fall under the category of "emissions intensity metrics." One commonly used metric, found in a growing number of Fortune 500 sustainability reports across various industries, is 'Metric Tons of CO2e per $1 million Revenue.' This metric evaluates how efficiently a company’s activities, that generate GHG emissions, are converted into revenue.

Let's delve into the definitions, pros, and cons of the key emissions intensity metrics:

• Metrics Tons of CO2e per $1 million Revenue: This metric measures the efficiency of revenue generation in relation to emissions. Pro: Metric is more readily available. Con: Metric doesn't consider company profits, which are a truer benchmark of both planet and company long-term sustainability.  
• Metrics Tons of CO2e per $1 million Net Income: This metric measures the efficiency of profit generation in relation to emissions. Pro: Aligns company profit goals and emissions reduction goals. Con: Metric doesn’t consider the company’s broader sustainability goals such as progress on select UN Sustainable Development Goals, such as # 6 Clean Water and Sanitation.  
• Metrics Tons of CO2e per Employee: This metric evaluates emissions per employee, indicating the environmental impact of a company’s human resources. Pro: Metric offers and alternative data slice which can unlock further company efficiency ideas. Con: Metric can contain noise and location context is key to leveraging full potential. 

Another noteworthy trend is the evaluation of a company’s emissions per product, particularly beneficial for those manufacturing similar goods. Take, for example, Ford Motor Company, known for its diverse vehicle lineup. While there are variations in Ford's products, such as different vehicle sizes and propulsion systems ranging from compact cars to medium-duty trucks and internal combustion engines to electric, their product line remains largely homogenous. Therefore, this single metric serves as a valuable benchmark for comparing Ford to competitors like General Motors and Toyota.

However, conglomerates such as 3M, ITW, and Danaher face unique challenges due to their broad product portfolios spanning various sectors. For instance, Danaher operates across three diverse business groups: biotechnologies, diagnostics, and life sciences, encompassing a total of 17 companies, each offering a distinct range of products. Consequently, the effectiveness of emissions per product metrics becomes significantly diluted, making it challenging for companies like Danaher to directly compare themselves with competitors solely based on this metric. Nonetheless, despite these challenges, emissions per product can still offer valuable directional insights for Danaher to assess their current standing and track year-over-year trends, especially when compared to similar conglomerates like ITW and 3M.

As executives, sustainability leaders, and practitioners navigate the sustainability journey, understanding annual emissions intensity metrics is crucial for gauging company sustainability progress. By analyzing trends over time, companies can identify opportunities for improvement and drive competitive advantage. Lowering emissions intensity not only aligns with sustainability goals but also enhances profitability by reducing waste and inefficiencies.

Here’s to embracing emissions intensity metrics to unlock sustainable profits in the days ahead.