Why do your carbon footprint? What is it for?
Many companies are asking this question.
As a reminder, the carbon footprint, it is the photograph, at a given moment, of all of a company's greenhouse gas emissions.
Measuring is good, but it's not enough. This is in fact the starting point for a strategy to reduce GHG emissions: we only reduce what we know. This reduction strategy takes the form of an action plan.
And reducing emissions, beyond the obvious climate interest, is also a lever for better economic performance.
Why? Because reducing your emissions very often makes it possible to save money at the same time. This is what the work of our Expertise team teaches us.
And then, measuring and reducing your emissions makes it possible to protect yourself from the increase in the carbon price, transition risks and competitive risks.
Clearly, investing in a carbon footprint means investing in an essential tool of a global strategy and not only in the company's climate or CSR strategy.
1. The economic performance of an action plan
1.1 Mostly profitable stocks
Sami's expert team has been working for several months on the economic costing of action plans that can be put in place within companies to reduce their emissions.
For nearly 60 actions, concerning mobility, logistics, energy, eco-design or even digital technology, for each of these actions, our experts carried out a financial assessment and a carbon assessment.
Clearly, from a financial point of view, it is a question of calculating the sum of the financial costs with and without implementing the action. And from a carbon point of view, to calculate emissions with and without implementing the action.
These two evaluations make it possible to calculate what is called the abatement cost: for one ton of CO2 avoided, how much will it cost in net, i.e. by subtracting from investments the savings related to the operational costs of the action. If this cost is negative, it is because the action is financially profitable (possibly after a certain number of years), otherwise it means that it will cost the company more to deploy this action.
As a result, out of the 57 shares evaluated, 48 are profitable over the life of the share.
A few examples:
“We realize that for many of the actions put in place, there is an alignment between carbon interest and financial interest. The company has an interest in implementing these actions from a financial point of view because they are profitable. And at the same time, they will make it possible to reduce greenhouse gas emissions.”
Guillaume Colin, Head of Expertise, Sami.
1.2 How are these results obtained?
In order to carry out financial and carbon evaluations, two indicators are used: CAPEX, which reflects the investment costs necessary to implement the action, and OPEX, which reflects the operational or variable costs related to the implementation of the action. The latter are very often negative because the actions put in place make it possible to save energy consumption and therefore money each year over the entire life of the action.
Take the example of thermal renovation of offices.
- Financial CAPEX: this is the average amount of thermal renovation work (from 200 to 400€ per m² of renovated area).
- CAPEX carbon: these are the initial emissions emitted during renovation work (around 190 kgCO2eq per m² renovated).
- Financial OPEX: this is the difference between the amount of the energy bill after the energy renovation work and this same bill before the renovation work (we go from around €12 in operating costs per m² before renovation, to around €2 per m² after renovation, to around €2 per m² after renovation).
- OPEX carbon: this is the difference between emissions related to space heating after renovation and these same emissions before work (we go from around 55 kgCO2eq per m² before renovation, to around 10 kgCO2eq per m² after renovation, to around 10 kgCO2eq per m² after work).
Over 50 years, the lifespan of a thermal renovation, this action thus makes it possible to save 131 euros for each ton of CO2 avoided.
1.3 Sobriety, efficiency and low-carbon energies, different profitability horizons
“Sobriety actions are the ones that pay off the most quickly because they require no, or very few, investment costs - their indirect cost lies in the feasibility of behavioral or organizational changes. On the other hand, certain efficiency actions and those to implement low-carbon energies are more expensive to invest and therefore the return on investment will be longer.”
Guillaume Colin
Thus, limiting the plane in your travel policy is, for example, a sobriety action that is immediately profitable. This is also the case of reducing the heating in its premises by 1 degree (no investment costs but a reduction in emissions and immediate financial savings) or of training its employees in eco-driving: the cost of training is low compared to the financial savings and the reduction of emissions allowed by this action.
On the other hand, the profitability horizon is longer for most efficiency actions and those on the deployment of low-carbon energies and technologies. This is the case with our example of thermal renovation of buildings. Initial investment costs inevitably require waiting a few years before the work is financially profitable.
The maturity of the actions implemented is also an important factor of profitability since very often the most expensive actions involve technologies that are still poorly tested or not widely deployed: e-fuels, hydrogen or even the capture and sequestration of CO2.
1.4 The benefits and limitations of action plan costing
Calculating the abatement cost for each measure thus makes it possible to quantify the overall cost of an action plan for a defined volume of emissions to be reduced. This element thus integrates the company's decarbonization strategy.
Beyond the overall cost, the abatement cost can also allow the company to define a priority in the implementation of the action plan:
- in increasing order of cost per ton of CO2, i.e. starting with negative costs and therefore profitable actions.
- by time to return on investment: first implement the most profitable actions in the short term, for example.
Be careful, however, that abatement cost and the economic calculation of the action plan cannot and should not be the only criterion in the implementation of measures to reduce greenhouse gas emissions.
First, because the abatement cost is above all an estimate. There is no question here of a calculation based on the euro, due to the uncertainties surrounding, in particular, the carbon price or the price of energy in the years to come. Let's go back to our example of thermal renovation of buildings. In order to calculate operational or variable costs (OPEX), it is necessary to integrate an energy price and therefore make assumptions about future developments in the energy markets (will prices remain stable, increase or decrease?).
The abatement cost should therefore be seen as an indicator to give orders of magnitude. It is also possible to distinguish several price scenarios (for example low prices, median prices or high energy prices) in order to refine the costing and the profitability results.
Another limit on the abatement cost, it highlights sobriety actions for which, as we said, the investment costs are zero or low and therefore actions that are profitable immediately or almost immediately. It is obviously a very interesting and necessary lever to meet our climate objectives, but some of its actions have a fairly low potential for reducing emissions compared to efficiency actions or the implementation of low-carbon energies, requiring more expensive investments. These sobriety actions (reducing the heating temperature, carpooling for employees or limiting the use of planes during business trips, for example) also require behavioral changes and are therefore sometimes difficult to get employees to accept. The action plan cannot therefore be limited to these actions alone.
Finally, just because a measure has a positive abatement cost does not mean that the company should do nothing. Because in many situations, the cost of inaction will actually be much higher, in the short or medium term, than the cost of action.
Moreover, this is the other major economic interest of the carbon footprint: to be able to protect yourself physical risks and transition risks future, which are sometimes hidden costs today but which are likely to weigh more and more heavily in the years to come.
2. The carbon footprint, or how to anticipate transition risks
Transition risks are the impacts (positive and negative) associated with the establishment of a low-carbon economy.
2.1 Staying competitive
More and more companies want to decarbonize their purchases, as inputs are often a very important source of emissions. Reducing their direct emissions will not be enough to meet their climate goals. They must therefore make sure that they can also reduce the emissions of their value chain and therefore those of their suppliers.
This is why large companies, for example, are increasingly paying attention to the carbon footprint of their purchases.
9 major French groups (EDF, Engie, Sanofi, Sanofi, Orano, Orano, Orano, ADP, Bouygues Construction, Thalès, Naval Group and Schneider Electric) have thus joined the Alliance for decarbonization and energy transition launched by the PactePME association in order to support SMEs that are their suppliers in a collective decarbonization process (Alliance in which Sami plays a role in supporting SMEs).
Let's also mention La Française des Jeux, which launched a program in December 2023 to reduce the carbon footprint of its suppliers, Schneider Electric, which wants to push its 1000 largest suppliers to halve their CO2 emissions by 2025, or even SNCF, which has included since last year for its 55 largest suppliers a price per ton carbon in its tenders in order to monetize their GHG emissions.
In short, starting a process of measuring and reducing greenhouse gas emissions is already and will become more and more a factor of competitiveness in the face of the growing demands of contractors.
This is also the case for mainstream customers, who are increasingly sensitive to the carbon footprint of the products they buy.
Finally, this dimension is not restricted to the private sector. The law on green industry in France, published on October 23, 2023, ratifies the mandatory implementation of environmental criteria as early as July 2024, and in particular greenhouse gas emissions in public procurement.
2.2 Anticipating the rise in carbon prices
The carbon price is also a major factor for the competitiveness of companies.
As mentioned above, it is impossible to predict what its exact price will be in 2, 5, 10 or 20 years from now. That said, with the strengthening of regulations, there is a good chance that this price will increase regularly and considerably in the long term in order to promote decarbonization.
On the European market, the Carbon Border Adjustment Mechanism (CBAM) came into force on 1 October 2023. Progressively, suppliers outside the European Union in highly polluting sectors (cement, aluminum, fertilizers, etc.) will be taxed according to the carbon intensity of their exports to the European market. At the same time, new sectors will integrate this European carbon market, free pollution rights will be gradually abolished and emissions quotas will be reduced.
All of these elements should contribute to fuelling a rise in carbon prices in the years and decades to come. On the EU emissions trading system (EU ETS), the quota price is now around 60 euros per ton of CO2 after reaching 100 euros in February 2022. But according to economists at the London Stock Exchange Group, the European Union's new climate target (a 90% reduction in emissions in 2040) could push the carbon price above 400 euros per ton by 2040, more than 6 times more than today. According to the authors, this price of 400 euros would thus represent the “potential cost that companies that will not be able to decarbonize by this horizon” will face.
“If a company wants to know its exposure to this financial carbon risk, the starting point is to know its emissions. If it does not know to what extent its value chain is carbon intensive, it risks paying much more for its raw materials or being less competitive downstream because these carbon taxes will increase margins.”
Guillaume Colin
2.3 Complying with new regulations
The major challenge that awaits companies in the coming months and years is the implementation of the new European directive on extra-financial reporting, the CSRD.
Among the new reporting standards, one is devoted entirely to climate change, the ESRS E1. Companies will have to postpone, each year, their complete greenhouse gas emissions (scopes 1, 2 and 3) but also present what their climate transition plan is, how this plan makes it possible to bring them towards an objective compatible with limiting global warming to 1.5 degrees, what actions are implemented to achieve the objectives set by the company, what are the means deployed to achieve them or even what are the anticipated financial effects of physical and transition risks related to climate.
In addition, the carbon footprint is the gateway to measuring the impact of the company on the climate but also the impact of the climate (via the financial transition risks that it induces) on the company.
The companies that will be subject to the CSRD are those that meet at least 2 of the following 3 criteria:
- more than 250 employees
- more than 25 million euros in balance sheet
- more than 50 million euros in sales
In total, in France, around 6,000 companies should be affected by the CSRD.
And to meet extra-financial reporting obligations, these 6,000 companies will be increasingly demanding carbon from a carbon perspective on their suppliers. So there will be a trickle of regulatory pressure on mid-sized businesses.
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