The changing environment for setting carbon budgets

Posted: 7th December 2021 Annabel Gray, Project Director

Bring on accountability for setting carbon budgets

With COP26 now under our belts, countries across the world and organisations across all sectors wait in anticipation for how their governments will respond to the climate change challenge. As we know, the housing sector will play a huge role in the green revolution. However, how organisational performance is assessed needs a shape up. It is time for environmental metrics to be given the same airtime as the financials. In a world where most of us respond to the pound sign – rate of return, interest rates, cost per headcount – how do things look when carbon budgets are set and tonnes of CO2e are given the equivalent recognition?

What does this mean?

Most organisations measure performance by relying on accounting metrics from the balance sheet such as gross profit margin, working capital, operating cashflow and rewarding employees accordingly.  However, we need see a complete paradigm shift in the housing sector where a golden thread runs throughout, top down and bottom up, with an emphasis on the carbon budgets.

Outside of the sector, we are seeing fundamental changes to how businesses operate and measure their performance. Sustainability committees are being shut down and incorporated into the executive board agenda. It is front and centre, with environmental strategic objectives being measured in relation to all other business objectives.  These organisations are becoming thought leaders, raising the bar as to where regulation and legislative should be, instead of waiting for Government to tell them.

What is a carbon budget?

The concept of carbon budgets has been around for a while.  The UK Government introduced them as part of the Climate Change Act 2008, under the EU Emissions Trading scheme. And since Brexit, this mechanism has been governed under the UK Emissions Trading scheme, which was established through The Greenhouse Gas Emissions Trading Scheme Order 2020. The UK’s carbon budgets are now set based on the reduction required to achieve net-zero emissions by 2050. Obviously, this is a macro-level concept but an important framework to mandate the year-on-year carbon allowance required to facilitate the big picture elimination.

Inspired by this concept, we are seeing organisations starting to replicate this at a business level, setting overall carbon budgets, with directorate/operational allocations for everyone to deliver within.  The likes of Aberdeenshire, Ayrshire, Hampshire Council’s have made great progress with this.

How does it help?

Setting carbon budgets is a way to help facilitate the implementation of an organisation’s net-zero strategy.  The implementation of carbon budgets across key directorates/teams and tying them into the performance management framework and governance structure is a way to help ensure the correct behaviours are driven throughout an organisation.  This will become particularly effective if individual objectives set to align with them are relevant to their roles and their power to influence.  This approach makes everyone in a business responsible for the role they can personally play in the challenge of net-zero.

Organisations that have set carbon budgets have dived deep into their business operating model, giving them the same consideration that financial budgets would have to be set, monitored and reported on.

This involves resources finding time to answer the following core questions on carbon budgeting:

  • What emissions sit with which departments, how are they mapped across the organisation’s operations?
  • How often should carbon budgets be monitored and who is responsible for this?
  • What reductions are required from which teams and by when?
  • How does this impact the financial business plan?
  • What initiatives are required to drive the reductions and by when?
  • How should core business decisions be assessed to understand the impact on the carbon budget?
  • At what frequency should formal performance reporting against the carbon budget take place?
  • Who is responsible for setting year on year carbon budgets and approving them?
  • How should employees be rewarded for delivery against their departmental carbon budget?
  • Who is directly accountable for ensuring delivery in line with the corporate and operational carbon budgets?

By building this thinking into an organisation’s ecosystem, it creates the setting for environmental change. Organisations can feel comfortable that they have a framework to direct their journey to net-zero but also a workforce – from top-down to bottom-up – all focused on delivering it.

The largest power to influence sits with people – their employees, how we behave and choose to operate.  Everyone has a role they can play, and most people want to play their part but do not yet specifically know how to.  What’s more, people want to be recognised for the role they have played.  Organisations that empower their workforce with employee-based targets that individuals specifically have the power to influence will have a much larger success rate for implementing change.  When corporate level carbon budgets are translated into tangible carbon targets, the operational workforce are more likely to respond effectively. Simply put, everyone has their role to play, they want and can play it.

 

To find out more, contact our Project Director and Sustainability Lead, Annabel Gray.

 

sustainability and carbon budgeting: windmill

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