Transition to low carbon economy

Register your interest in this issue

Is your organisation part of the transition to the low carbon economy (LCE)?

EXCELLENT Answers

No EXCELLENT answers have been published for this question.

GOOD Answers

No GOOD answers have been published for this question.

OKAY Answers

No OKAY answers have been published for this question.

POOR Answers

No POOR answers have been published for this question.

Climate change caused by man-made carbon emissions threatens the basic necessities of human life all around the world - access to water, food production, health, land, biodiversity, peace and stability. Climate change is an unprecedented issue, unique to our civilisation, and action is needed to prevent dangerous anthropogenic (human induced) interference with the climate system.

Transitioning to a low carbon economy (LCE) has been identified as a key method by which climate change can be mitigated and remediated against. In addition, reference to the “Green Economy” is becoming more frequent , this refers to a wider movement that considers resource efficiency and social inclusion in addition to a LCE.

Participating in the LCE is defined as delivering the products, goods and services which through their use enables the adaptation, mitigation and/or remediation of the impacts of climate change, resource depletion and/or environmental erosion. It may also be assumed to be an economy powered by low carbon energy (renewables or nuclear), and where a variety of actors are engaged in ensuring the mix of the products, goods and services business delivers is increasingly 'green'.

According to wider definitions, businesses whose products, goods and services don’t contribute to the LCE can still support the transition by making operational changes in the way these products, goods and services are provided (e.g. by moving to low carbon energy sources and increasing resource efficiency).

The Paris Agreement on climate change is a landmark agreement to combat climate change and to accelerate and intensify the actions and investments needed for a sustainable low carbon future. Its primary aim is to limit the global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels. It brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects, with enhanced support to assist developing countries to do so. While the USA withdrew from the accord in 2017, to date 175 countries have made pledges explaining how they intend to deliver on the goals, as have individual American states in defiance of the federal government. As such, the Paris Agreement remains a binding global climate effort of unprecedented force and ambition and sets favourable conditions for all economic actors to transition to the LCE.

Given goals and agreements made at national and international levels, business action and inaction on climate change is an increasing source of investment risk and opportunity. Many investors already have long track records of addressing the impacts that climate change may have on their portfolios and have adopted policies to guide their investment decision making. Investors have influenced corporate practice and reporting on climate change and encouraged governments to adopt policy measures that accelerate the transition to the LCE. The transition to the LCE will affect company cash flows and profits. It is therefore the view of mainstream investors that businesses must to determine how to manage this transition and its impact.

For individual companies the transition to the LCE includes setting and achieving reduction targets for key resources and emissions (which are a focus of a parallel Responsible 100 scorecard), greening the products and services mix, and engaging suppliers and other stakeholders.

Low carbon economy (LCE)

A low carbon economy (LCE) is an economy powered from low carbon energy sources, delivering goods, products and services which, through their use, serve to adapt, mitigate and/or remediate the impacts of climate change, resource depletion and/or environmental erosion.

An example of ‘goods, products or services’ that through their utility enable us to ‘adapt, mitigate or remediate’ the impacts of ‘climate change, resource depletion or environmental erosion’ is illustrated here.

Green Economy

A green economy is defined by UNEP as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. It is low carbon, resource efficient, and socially inclusive.

Paris Agreement

The Paris Agreement aims to respond to the threat of global climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial level and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.

Scope 1, 2 and 3 Emissions

Scope 1, 2 and 3 Emissions – The GHG Protocol Corporate Standard classifies a company’s Green House Gas (GHG) emissions into three ‘scopes’: Scope 1 is defined as ‘emissions from sources that are owned or controlled by the organisation’; Scope 2 is defined as ‘emissions from the consumption of purchased electricity, steam, or other sources of energy (e.g. chilled water) generated upstream from the organisation’; Scope 3 is defined as ‘emissions that are a consequence of the operations of an organization, but are not directly owned or controlled by the organisation’.

Based on data from many companies that have conducted comprehensive assessments of their Scope 3 emissions, it is evident that Scope 3 GHG are by far the largest component of most organisations’ carbon footprint.

Answering YES

All Businesses MUST

Explain their philosophy or values that shape practices and policies towards the LCE and climate change

State how their business is contributing to the transition to the LCE by revealing the proportion of the goods, products and services they currently sell which adapt, mitigate and/or remediate the impacts of climate change, resource depletion or environmental erosion, as a percentage of all goods, products and services sold. Businesses should use FTSE Russell’s 3X3 matrix in the glossary and explain how they have calculated (or estimated) this proportion

Describe any future intentions regarding the transition to the LCE, including any relevant plans or targets set

All Businesses MAY

Explain any operational shifts that have resulted in reducing carbon intensity or increasing resource efficiency

State how their business may be supporting others and therefore indirectly contributing to the transition

Describe how they work with suppliers or channel partners to influence the shift to a low carbon / resource efficient economy

Describe any activities that encourage their customers to use their products more thoughtfully or efficiently in order to reduce their use-phase carbon emissions

Describe any activities that show leadership in shifting other stakeholder groups towards a low carbon / resource efficient economy

Explain whether they belong to any trade associations that are actively opposing specific policies to reduce GHG emissions and/or LCE, and what actions they have taken in response to this.

Explain the extent to which their business plans and models are consistent with maintaining global temperature increases below two degrees Celsius

Explain whether they have been engaging with policymakers over any legislation to reduce GHG emissions and what policy outcomes they have / will advocate for

Explain, if they operate internationally, whether their climate change policy positions are aligned across different geographies and if so, what policies and practices do they have in place to ensure this

Describe any other relevant issues

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question, listing the business reasons, any mitigating circumstances or other reasons that apply

All Businesses MAY

List any practices that are relevant but not sufficient to answer YES

Mention any future intentions regarding this issue

DON'T KNOW is not a permissible answer to this question

NOT APPLICABLE is not a permissible answer to this question

Version 2

To receive a score of 'Excellent'

The transition to a low carbon economy is recognised as a key strategic issue to avoid future business risks associated with the effects of climate change and therefore ensure future business growth.

Examples of policies and practices which may support an EXCELLENT statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

Policy

  1. The company has an ambitious, rigorous policy in place with a commitment to action on climate change, resource depletion and environmental erosion
  2. There is a nominated board member or board committee with explicit responsibility for oversight of the climate change policy
  3. Company’s policies are continuously reviewed and evolve to reflect new standards
  4. The company has integrated environmental, social and governance issues into overall business strategy with defined objectives for each department and allocated budget.

Targets

  1. The company has set long-term (>5 years) relative or absolute targets for reducing its greenhouse gas emission and other resources (e.g. water, other manufacturing inputs)
  2. Emissions
    a. The company has reduced its operational (Scope 1 and 2) greenhouse gas emissions over the past 3 years
    b. The company has published its data on operational Scope 1 and 2, water and waste and had the data independently verified
    c. The company reports on scope 3 emissions
    d. The company has set quantitative relative or absolute targets for reducing its operational (Scope 1 and 2) greenhouse gas emissions (<5 years targets)

  3. Other resources (water, waste, relevant manufacturing inputs e.g. virgin plastic):
    a. The company has reduced its use of water, generation of waste etc over past 3 years
    b. The company has published data to support this and had it independently verified
    c. The company has set quantitative relative or absolute targets for reducing its resource use (<5 years targets)

Engagement

  1. The company has incorporated environmental, social and governance issues into executive remuneration
  2. Awareness and compliance with the policy is widespread among staff, and there is a commitment to the issue from leadership
  3. The firm lobbies and campaigns for others to follow suit, or for practice/legislation to be improved
  4. The company supports domestic and international efforts to mitigate climate change
  5. The firm champions the issue or best practices regarding the issue

Performance and Reporting

  1. Performance matches claims, purported values and public statements
  2. Performance against policy targets is monitored, measured and reported publicly, clearly and effectively
  3. Performance against targets is independently verified
  4. The firm goes above and beyond the standards of various recognised frameworks and legislation
  5. The company provides information on the business costs – for example, capital investments, costs of carbon permits – associated with climate change
To receive a score of 'Good'

The business demonstrates a commitment to transitioning to the LCE and has clear practices in place to adapt to, mitigate or remediate climate and environment related harm.

Examples of policies and practices which may support a GOOD statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

Policy

  1. The firm has strong policies in place, and can usually be held accountable for them
  2. The company has nominated a board member or board committee with explicit responsibility for oversight of the climate change policy

Targets

  1. The company has set energy efficiency or relative or absolute greenhouse gas emission reduction targets

  2. Emissions
    a. The company has published information on its Scope 1 and 2 greenhouse gas emissions
    b. The company has had its operational (Scope 1 and 2) independently verified
    c. The company reports on scope 3 emissions
    d. The company has set quantitative relative or absolute targets for reducing its operational (Scope 1 and 2) greenhouse gas emissions

Engagement

  1. Firm often engages in dialogue with stakeholders. There is not yet a formal structure for engaging with stakeholders but there is a clear plan of action for this
  2. Firm makes a demonstrable effort to disseminate and enforce these best practice policies across its workforce and stakeholders
  3. The firm may be signed up to lobbying organisations, but it follows other firms, rather than influencing them
  4. The company supports domestic and international efforts to mitigate climate change (e.g. through membership of business associations that are supportive)
  5. The firm is actively responsive to feedback and public-facing debate, supporting, if not contributing to, progressive dialogue

Performance and Reporting

  1. The firm has strong policies in place, and can usually be held accountable for them
  2. Performance generally lives up to policies, but occasionally falls short
  3. Performance is regularly monitored and measured against targets, and can be reported publicly
  4. The commitment of the firm is demonstrated across most of its activities, products/services and policies
  5. There is a commitment from the firm to improve upon its performance in this area and a clear roadmap to achieving this
  6. The firm generally carries out policies and best practices, but is not a leader in its sector
  7. Firm meets the standards of various recognised frameworks and legislation, and may exceed them
  8. Where negative impacts are demonstrably unavoidable, various practices and policies are in place to mitigate these effects
  9. Firm adopts good practices on issues that are highly material to its operations. It also supports issues of low materiality
To receive a score of 'Okay'

Business contributes to the LCE on an ad hoc basis/ has some policies and practices in place to adapt to, mitigate or remediate climate and environment related harm but the issue is not a priority for the business

Examples of policies and practices which may support an OKAY statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

Policy

  1. The company explicitly recognises climate change as a significant issue for the business
  2. The company has a policy (or equivalent) commitment to action on climate change stated in general, indefinite terms that cannot be measured
  3. The company does not necessarily prioritise this problem and in some cases, it allows the problem to persist to further some other aim (e.g. prioritises fairtrade over local sourcing)

Targets

  1. The company has set energy efficiency or relative or absolute greenhouse gas emission reduction targets
  2. The company has published information on its Scope 1 and 2 greenhouse gas emissions
    Engagement
  3. The company sometimes engages in dialogue with stakeholders, but generally only when specific issues arise.
  4. The company commits to disseminating and enforcing best practice policies across its workforce and stakeholders. However, follow-through may be inconsistent or ineffectual
  5. The company engages in some dialogue on the issue and displays a willingness to learn from better / best practices
  6. Wider engagement on climate change issues is in response to public pressure

Performance and reporting

  1. The company complies with any legal or regulatory reporting requirements
  2. The company cherry picks which aspects of its environmental activities it should report
  3. The company can demonstrate future strategies to improve reporting
  4. The company can provide satisfactory explanation that an issue is not relevant or applicable to the business
To receive a score of 'Poor'

The business acknowledges performance below expectations or no evidence of policies, practices/ or statements supporting the transition to the LCE or adapting to, mitigating or remediating climate and environment related harm

Examples of policies and practices which may support a POOR statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

  1. The firm has adopted some practices that seek to address the issue, but these practices are very poor, ineffectual or fail to be monitored or measured
  2. There are inadequate or no channels for the firm to be held accountable, either because the issue is not measured or reporting is not made publicly available
  3. The firm fails to meet minimum standards or regulations.
  4. The policies and practices the firm pursues perpetuate the social or environmental harm
  5. The company actively undermines its critics, lobbies the government or is engaged in PR activity to deny the problem exists (e.g. large oil companies denying climate change)
  6. Firm does not engage with stakeholders nor is it responsive to their concerns