As people become increasingly aware of the damaging effects of carbon emissions on our planet, they are working to reduce their carbon footprint. However, this isn’t just a task for individuals. Businesses can — and should — play a part, too. It’s up to the business leaders at the helm to drive the change.
The role of business leaders becomes especially clear when you look at the industry’s contributions to greenhouse gases in the United States. In 2021, industry contributed to 30% of total greenhouse gas emissions in the U.S., making it the largest contributor to emissions of any sector.
Strictly speaking, the term “carbon footprint” refers to the amount of carbon dioxide (CO₂) a business’s activities release into the atmosphere. However, the term carbon footprint is often used to refer to the total amount of all greenhouse gasses that a business’s activities release into the atmosphere. This could include other gasses beyond CO₂, like carbon monoxide, nitrous oxide, and chlorofluorocarbons.
- What is a carbon footprint?
- Factors contributing to high carbon footprints
- How to measure your carbon footprint
- Strategies for emission reduction
- Examples of sustainable business practices
- Encouraging employee and customer engagement
- Government regulations and industry standards
- Looking ahead: Innovations and challenges
What can businesses do to enact change that actually makes a difference? This article explains the factors that contribute to your business’s carbon footprint, how to measure your footprint, and provides tips for emissions reduction. We also cover relevant government regulations that every business leadership team should know.
What is a carbon footprint?
A business’s carbon footprint, also called a greenhouse gas footprint, refers to the total amount of greenhouse gasses, such as carbon monoxide and methane, that the organization releases into the atmosphere. These emissions may come from various sources, from the energy the business uses to the CO₂ emitted by its delivery vehicles.
Why are greenhouse gas emissions such a big deal? These gasses trap heat in the Earth’s atmosphere, making the planet warmer. Global warming interrupts many delicate planetary balances, from ocean currents to weather patterns and animal habitats. For example, increasing ocean temperatures can kill off seagrasses, which serve as food for other ocean creatures.
In general, greenhouse gas emissions are measured in tons. Specifically, carbon dioxide emissions are measured via CO₂e, or carbon dioxide equivalent. This is given as a number and refers to metric tons of CO2 emissions equal to the same global warming potential as one metric ton of other greenhouse gasses.
While such issues used to be relegated to the remit of environmentalists, businesses are increasingly aware of their role in combating carbon emissions. In 2021, 9% of companies surveyed measured their carbon emissions; in 2022, that number had crept up to 10%.
Experts say more sweeping change is needed, not only for the planet’s benefit but also for the benefit of individual businesses. By understanding their own emissions, companies can work towards net-zero goals, which may help them save money and resources.
The acknowledged importance of environmental issues like carbon emissions in business is evident in the increasing attention paid to such issues in MBA programs. MBA programs focused on topics like sustainability and ecological and social awareness are on the rise, for instance.
Factors contributing to high carbon footprints
Human activities are the primary source of greenhouse gas emissions, with industry playing an especially big role. Major sources of greenhouse gas emissions include the following:
- Burning of fossil fuels. Fossil fuels are a major source of power around the world. Companies contribute to the burning of fossil fuels through their energy consumption, for example, powering offices and manufacturing plants.
- Transportation. Emissions from vehicles are another major factor in greenhouse gas emissions. A company that engages in logistics is one example. However, even non-logistics providers play a part. For example, a supermarket isn’t a logistics provider, but it must consider the greenhouse gasses emitted by suppliers who deliver their goods.
- Deforestation. Deforestation can worsen the impact of emissions. Trees help to mitigate the negative impact of CO₂ in the atmosphere. When they’re cut down – for example, to clear land for real estate or to use trees for products like paper – this protection is lost.
- Waste creation. When businesses generate waste, that waste goes to a landfill. Waste in landfills contributes to greenhouse gas emissions through anaerobic decay. Additionally, the burning of solid waste at combustion facilities puts nitrous oxide into the atmosphere.
- Agriculture. Food production contributes to greenhouse gas emissions in various ways. First, there are emissions from farm equipment, like tractors. Then, there is the fact that agriculture generally requires clearing land, contributing to deforestation.
Tackling these issues isn’t just good for the planet. It’s good business sense – as some experts are already arguing. Research shows that consumers around the world want to see businesses doing their part to help the environment; 81% of those surveyed globally feel this way, suggesting there can be strong customer loyalty for companies that lead the charge.
Take the example of Unilever, which released a dishwashing liquid that required less water use than other brands — sales of the product shot up, as did sales of Unilever’s other water conserving products.
In terms of carbon footprint specifically, there are also plenty of examples. Microsoft and Honda are two big names that have cut supply chain emissions, for instance, and saved money in the process. According to one report, emission reduction activities have saved companies involved some $14 billion in a single year.
How to measure your carbon footprint
Reducing your carbon footprint makes good sense if you’re a business leader. First, it’s the ethical thing to do. Additionally, taking an eco-conscious approach can help win customer loyalty. Surveys suggest that modern consumers are eager to support environmentally friendly companies.
The first step for businesses that want to reduce their carbon footprint is to figure out where they stand. With accurate, concrete metrics, they can establish your starting point – and then track progress as they take steps to reduce emissions (the next section discusses some strategies).
There are various carbon footprint calculators and life cycle assessments business leaders can use to measure their organizational carbon footprint. One method is the Greenhouse Gas Protocol from the World Business Council for Sustainable Development and the World Resources Institute. Alternative approaches have been developed by the United Nations, the U.S. Environmental Protection Agency (EPA), and the Nature Conservancy.
A basic calculation will consider two types of emissions:
- Direct emissions. This refers to any company activities that result in greenhouse gas emissions.
- Indirect emissions. This refers to any emissions resulting from a company’s purchases – for example, of electricity. Other examples of indirect emissions range from emissions related to waste to employees commuting.
To simplify the process, try an online carbon calculator tool that takes care of the math. There are also consulting services that focus specifically on helping businesses reduce their carbon footprints.
Strategies for emission reduction
So, what steps can businesses take to reduce their carbon footprint? There are plenty of actions that can make a difference. Here are some ideas for inspiration:
- Switch to renewable energy sources. Explore renewable energies, like wind power or natural gas. Businesses can also make energy efficiency improvements in their daily operations, like switching to energy-efficient light bulbs.
- Embrace sustainable practices. In addition to taking steps toward energy efficiency, consider other sustainable practices. For example, businesses that aren’t already separating recyclables from waste can start now. This means sending less waste to landfills.
- Try carbon offsetting. Ideally, a company will go carbon-neutral. However, this isn’t always possible, especially in the short term. If a business can’t go CO₂-neutral yet, consider carbon offsetting measures. For example, the business might commit to planting trees to combat deforestation.
Whatever measures your business take, set them out in a concrete document – for example, in a corporate social responsibility (CSR) agenda. This will help hold the organization accountable for its goals.
Examples of sustainable business practices
A look at how other businesses have achieved carbon emission reduction can help demonstrate the impact of such sustainable development measures. With a business leadership team committed to sustainability, it’s possible to make strategic decisions that really do make a difference. Programs like those offered by IMD can help leaders acquire the skills necessary to incite change. The businesses below prove why sustainability measures matter.
Hewlett-Packard
HP holds itself accountable for cutting carbon emissions through annual sustainability reports. The company’s product portfolio improved energy efficiency by 300% from 2015 to 2021. They have helped customers join in the carbon-cutting too, by providing safe sites to return old computers and printers to.
Apple
Apple’s Restore Fund shows how offsetting carbon emissions can make a difference. Through this initiative, the company plans to reduce 75% of all of its emissions by 2030. It involves measures like planting trees and turning to renewable energy sources for manufacturing.
Google aims to achieve net-zero emissions by 2030, relying exclusively on carbon-free energy use to operate their data centers and offices. Their website includes details on how they measure and report their carbon footprint. This exemplifies the value of transparency.
Encouraging employee and customer engagement
While emission reduction initiatives can be spearheaded by the organization, the leadership team will need buy-in from employees and management to enact change. Leadership training can provide senior managers with the skills needed to get others on board.
For example, say you want to reduce electricity usage. One way to do this is to make sure people always turn off presentation equipment, computers, and lights in conference rooms after they’re done with them.
To encourage employee engagement, set out clear policies (such as turning off lights after leaving a conference room). You can also raise awareness and inspire action by sharing your progress. Communicate your carbon emissions baseline to your teams and then share improvements with them to keep everyone motivated.
Depending on the type of business you run, you may also be able to get your customers to help with emissions reduction. For instance, companies that deliver goods may encourage customers to use green-friendly packaging that reduces waste. Another example is clothing companies that accept used clothing from consumers, keeping it from ending up in landfills.
Again, it all starts with executive leadership implementing a clear vision and making strategic decisions toward that aim. Transformation initiatives of any kind require a strong captain at the helm. For pointers on initiating transformation initiatives, view IMD’s executive programs.
Government regulations and industry standards
Emissions reduction has become such a serious topic that governments around the world are implementing measures to make sure companies are doing their part. For example, in the U.S., the EPA has rules governing commercial truck emissions. Globally, companies can look to the ISO 14064 standards, which guide businesses, governments, and other organizations in how to quantify and cut carbon emissions.
It’s important for executives to stay abreast of such developments, so they can prepare for potential legal changes accordingly. For example, the EPA is considering new rules regarding certain sources of climate change, like oil and natural gas usage.
A lack of awareness about such legal developments can raise the risk of regulatory compliance issues. The implications can be serious and include hefty financial fines. Skirting by environmental regulations can result in serious consequences — one compelling case for repercussions being the VW emissions scandal.
Clearly, regular monitoring of eco-related legislation is a valuable part of any business risk management strategy. Industry trade associations, business networks, and environmental organizations can be valuable sources of information about environmental legislation. Educational programs like those offered by IMD can also be a useful resource.
Looking ahead: Innovations and challenges
As the world continues to take action against climate change, new technologies and policies for measuring and reducing environmental impacts are inevitable. Continual education is a must for companies that want to do their part.
It’s up to business leaders to keep up with the evolving global business landscape, and prioritize sustainability and emissions reductions accordingly. Equip yourself and your organization with the tools, insights, and strategies offered by IMD’s array of programs, ensuring a brighter and more sustainable future.
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