Take away 3 points
- Governments agree that action must be taken in order to limiting global warming to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.
- Most of the efforts to transform the current economy to a low-emission model will have to be made by businesses.
- Targets have been put in place for companies to pursue, as were appropriate reporting standards used to monitor them. It is now up to businesses to set up strategies and monitor progress.
Sustainability has become a central issue in fleet management worldwide and is currently identified as the highest strategic priority by fleet managers globally. Governments are announcing increasingly ambitious targets in cutting greenhouse gas emissions all the while new technology is becoming increasingly available and accessible. Companies are therefore expected to set up roadmaps for more viable mobility strategies. OviDrive offers solutions to develop sustainability strategies that would best fit the organisation, provide fleet support services, and fleet management technology allowing for the collection and refinement of data necessary to monitor strategic targets.
Understanding the context
In November 2016, the Paris Agreement on Climate Change came into force. Currently, 192 countries are parties to this legally binding treaty. The agreement sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. It also aims to strengthen countries’ ability to deal with the impacts of climate change and support them in their efforts outlined in Nationally Determined Contributions (NDCs). In their NDCs, countries communicate actions they will take to reduce their Greenhouse Gas emissions in order to reach the goals of the Paris Agreement. Countries also communicate in the NDCs actions they will take to build resilience to adapt to the impacts of rising temperatures [1].
While the Paris Agreement creates a framework for governments, it is expected that the private sector also takes responsibility for reducing greenhouse gas emissions. Businesses are supported in that by actors such as the "We Mean Business Coalition" a platform of seven business- focused non profit organisations that help deliver initiatives, in collaboration with institutional partners worldwide, aiming at developing a just and climate resilient net-zero economy. These activities cover seven areas: Net-Zero, Energy, Urban, Land, Industrial, Enablers, and Resilience [2].
As part of the Net-Zero Area, a coalition of WWF, UN Global Compact, the Carbon Disclosure Project, and The World Resource Institute developed The Science Based Targets Initiative. It aims at providing businesses with a tailored roadmap to reduce emissions in line with the Paris Agreement goals. Companies commit to ‘science-based’ targets that are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement, i.e. limiting global warming to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C. There are currently 2007 companies taking part, out of which 983 have set up science based targets, and 965 committed to the 1.5°C reduction goal. The reason for which companies joint the SBTi initiative is that is linked with economic growth and shows clear alignment with climate regulations and policies, therefore facilitating entry into new markets [2].
Another tool that companies have at their disposal is the Greenhouse Gas Protocol (GHG Protocol), a comprehensive global standardised frameworks to measure and manage greenhouse gas emissions. The standard covers the accounting and reporting of seven greenhouse gases covered by the Kyoto Protocol – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), per-fluorocarbons (PCFs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). It allows companies to credibly measure and report emissions from purchased or acquired electricity, steam, heat, and cooling [3].
Understanding the basics of Greenhouse Gas Emissions
Although the discussion on greenhouse gasses tends to evolve around carbon dioxide (CO2) as the most reported sustainability performance metric it is important to remember the other five gasses that also need to be reported on: methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), per-fluorocarbons (PCFs), sulphur hexafluoride (SF6). Carbon dioxide, methane and nitrous oxide are part of the reporting requirements in automotive fleet management, the remaining gasses apply to industry, production, and manufacturing. In order to simplify GHG reporting, greenhouse gasses are translated into CO2 equivalent (CO2e). The Intergovernmental Panel on Climate Change (IPCC) provides a model to allow easy recalculation of GHG emissions in terms of CO2, called “Global Warming Potential” [4]:
Another essential element of GHG accounting is the understanding of the three scopes that are taken into consideration [3]:
- Scope 1 emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organisation (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles).
- Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling.
- Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly impacts in its value chain (for example emissions related to the production of cars purchased by the organisation).
When defining a sustainability strategy one must understand the different targets that can be set out and use the correct terminology. A “Zero Emissions” strategy is not the same as a “Zero Carbon” strategy. One must take into consideration the greenhouse gas emission that will be targeted (only CO2 or all GHG), the scope of emissions, as well as other initiatives that will be part of the company’s efforts. The following chart explains the difference between available options [5]:
Understanding Greenhouse Gas Accounting
Greenhouse gas accounting is crucial for setting up sustainability goals and defining strategy. It will influence decisions on the choice of technology, data collection and processing tools and organisational efficiencies. Six data points need to be collected split into two groups: (1) information needed to define the scope of GHG accounting, i.e. organisational boundaries, owned and leased assets, and purpose of use, and (2) information to calculate the amount of GHG fleet specification, fuel/electricity type and amount, and mileage.
In terms of organisational boundaries businesses can chose between Equity Share Approach, whereas a company accounts for GHG emissions from operations according to its share of equity in the operation or the Control Approach, under which the company either applies the Financial Control Approach, whereas the company accounts for 100 percent of the GHG emissions over which it has financial control, or Operations Control Approach, whereas company accounts for 100 percent of the GHG emissions over which it has operational control.
In terms of owned and leased assets, it must be defined what type of lease is in place, whether it is a finance/capital lease or an operating lease. A finance/capital lease result in assets being considered to be wholly owned assets in financial accounting. Operating leases, on the other hand, enable the lessee to operate the asset, but do not give them the risk or reward of owning that asset. As a result, under the Equity share approach or the financial control approach fuel and charging for the business use of owned vehicles (including finance lease or capital lease) will have to be reported respectively in scope 1 and 2. Fuel and charging for the business use of operating leased vehicles will however have to be reported as part of scope 3. Conversely, under the Operational control model Scope 1 is consistently applicable for fuel consumed for business use, and Scope 2 is consistently applicable for charging consumed for business use [5].
In terms of purpose of use and mileage, it must be defined under which situation emissions occurred, “business use” emissions, “commuting” emissions and “private use” emissions of a company car will need to be recorded for each car as this will have impact on the scope of emissions. For example, emissions from transportation in vehicles owned or controlled by the reporting company are accounted for in either scope 1 (fuel) or scope 2 (electricity), while emissions from leased vehicles operated by the reporting company not included in scope 1 or scope 2, are accounted for in scope 3 (upstream leased assets). Employee commuting will most often be reported as scope 3, and private use of the company vehicle will not be reported [5].
In terms of fleet specification, CO2, CH4 and N2O emissions for each vehicle are published by the manufacturer. Cars recorded in the fleet repository will therefore have GHG figures already available. If the data published by manufacturers is correct is another matter. The following information needs top be recorded: finance model, number of cars in each country, car category (e.g. C-Segment, J-Segment), powertrain, emission factor, TCO- financial evaluation [5].
In terms of fuel/electricity type and amount, one must take into consideration that different fuel types will have different emission factors. It is therefore crucial to record which vehicle uses which type of fuel. When it comes to electric vehicle charging, one must take into account whether the energy comes from renewable sources or burning of fossil fuels [5].
Data collection for correct reporting
Corporate climate action is considered key in driving the transition towards a low-carbon economy. Therefore, businesses are expected to set up strategies to achieve the ambitious sustainability goals laid out by governments worldwide. Monitoring the delivery of the strategic goals is of crucial importance and reporting tools have already been set up. However, without the right systems in place to effectively end efficiently assemble data from the fleet, the reporting will be suboptimal. OviDrive offers services ranging from facilitating the development of the sustainability strategy that best matches strategic corporate targets to providing tools, such as a fleet ERP to support global centralisation, collection and maintaining of Primary Data to enable efficient GHG reporting and keep project costs low.
Conclusion
Change in an organisation is a complex process that requires significant experience and expertise. When change is implemented in a multinational organisation a careful examination and consideration of local cultural environments must be applied in order for the process to be successful. Different organisations will have different needs in different global locations in addressing the challenges they are facing when introducing innovation. OviDrive’s global team of experts can help businesses avoid mistakes and adjust the process to achieve the best cultural fit of the change model applied in the organisation.
References
- UNFCC. The Paris Agreement, retrieved 27.10.2021
- We Mean Business Coalition, retrieved 27.10.2021 as cited in [5]
- Greenhouse Gas Protocol, retrieved 28.10.2021
- Pachauri, Rajendra K., and Andy Reisinger. "IPCC fourth assessment report." IPCC, Geneva 2007 (2007). as cited in [5]
- OviDrive B.V. Sustainability: The Data Challenge (2021)
