Blog
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Decarbonization Specialist, Sustainable Infrastructure Advisory, IFC
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Senior Investment Officer, Sustainable Finance/Global Infrastructure, IFC
Jun 27, 2024
Renewable energy, while generating only a fraction of the lifecycle emissions compared to fossil fuels, still relies on carbon-intensive inputs and supply chains. These upstream greenhouse gas (GHG) emissions can make up to 95% of total lifecycle emissions for renewable energy developments. To contribute to the achievement of the Paris Agreement, as well as ensure a just transition for host communities, the renewable energy industry can play an important role in accelerating the development of green product markets. One such company leading the way in this is Voltalia, a France-based IFC client operating on four continents. IFC recently partnered with Voltalia to define targets and actions needed to reduce GHG emissions from the company’s supply chain. Our collaboration with Voltalia uncovered invaluable insights. Here are three initial steps that other renewable energy companies can take to start decarbonizing their supply chain.
Step 1: Set a baseline
Start by quantifying your GHG emissions baseline, including material Scope 3 GHG emissions categories. A comprehensive scan of the current Scope 3 GHG footprint is crucial for understanding transition risks and opportunities. Although sourcing the necessary data can be challenging, the process provides an opportunity to develop stronger internal relationships and co-develop new processes, particularly in supplier engagement and data collection led by procurement. Accurately setting and validating the baseline is essential. Rushing the process can lead to incomplete emissions information and improper strategic advice. To ensure increased acceptance of results as well as support for targets and solutions, it is vital to collaborate with key internal stakeholders.
Step 2: Set meaningful targets
Define ambitious targets and communicate them effectively with both internal and external stakeholders. Consider the following:
- Rapidly scale up renewable energy while acknowledging that the limited availability of low carbon inputs will initially increase Scope 3 emissions. In this context, aim to reduce the intensity of GHG emissions in the supply chain, measuring progress with a GHG intensity key performance indicator (KPI).
- Renewable energy developers and energy system retailers can best influence lifecycle emissions through project design and input sourcing decisions. Set KPIs and targets to drive improved GHG emissions performance and connect renewable energy development to greening value chains.
- Recognize that current science-based climate mitigation pathways, frameworks, and typical KPIs for decarbonizing the energy sector, might not be well-suited for renewable energy business models, because:
- Renewable energy businesses’ GHG emissions profiles tend to be dominated by upstream rather than production emissions.
- Annual project pipelines and contract arrangements can vary, leading to significant year to year fluctuations in organizational footprints.
- Translate top-line climate commitments into specific operational targets that implementing teams can track. Since external users might find these targets complex, it is important to provide benchmarks or other simplified explanations, too.
- Consider targets focused on supplier commitments such as working with SBTi-aligned manufacturers or purchasing low carbon components. Progress is already underway with many notable solar panel manufacturers seeking SBTi alignment themselves.
Step 3: Gain buy-in and build internal capacity to implement the Scope 3 strategy
The limited availability of low-carbon components and their high cost currently impact developer margins. As economics improve, it is crucial for companies to have a clear strategic vision for pursuing renewable energy developments using low-carbon materials and equipment, recognizing it as a competitive advantage.
In addition, addressing Scope 3 decarbonization is new for many staff and management, making it essential to use the process of developing a strategy as a capacity building exercise.
The key questions for companies to consider include:
- Are there business opportunities for which developing a lower-carbon supply chain for renewable energy could unlock?
- What are your cost tolerances for integrating low-carbon components and materials, and what risks and opportunities exist in supply security and supplier engagement?
- Are you able to articulate the value of such decarbonization actions and identify financial and strategic benefits across business performance areas?
- How would your Scope 3 targets influence investor decisions and open new financing avenues? Scope 3 targets are one of the fastest-growing indicators used in Sustainability-Linked Finance.
- How strong is internal cooperation between sustainability, procurement, and business strategy teams? Will one of them lead supply chain decarbonization efforts, or will you create a new cross-functional team for them? What are the pros and cons of each option, and which one best suit your goals and constraints?
IFC is committed to supporting market development in vital infrastructure sectors in emerging markets and achieving the goals of the Paris Agreement. Our cross-industry teams provide global and regional insights, develop new relationships, and deliver key insights for our clients. For more information, read about the IFC’s Sustainable Infrastructure Advisory, Sustainable Finance and Global Energy.
- For more information about our brand-new Future Grids Alliance, click here.
- Learn more about IFC’s Sustainable Infrastructure Advisory work, Global Energy practice, and Sustainable Finance activities in Infrastructure.
- For a recent blog on supply chain decarbonization strategy for a renewable energy client, click here.
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