We are observing an almost even split in today’s sustainability teams (according to our live poll). Some are developing custom-built, internal tools whilst others opt for external tools. But why is there a market split? Let’s run through the advantages and disadvantages of both:
Building an Internal Tool
Customisation: It is easy to tailor to your organisation’s unique requirements and processes. You have control over the data structures, visualisation and functionality, allowing for a personalised solution that aligns with your business needs.
Full Visibility: Access to underlying assumptions and calculation formulas that generate your emissions inventory. This transparency can be appealing to organisations seeking independence and strategic alignment as it allows for greater control and oversight compared to many “off-the-shelf” software tools.
Scenario Trial: Experiment and model different scenarios with relative flexibility and ease. This capability allows users to trial various scenarios, such as adjusting the product mix or altering the composition of packaging materials.
Maintenance: Ongoing maintenance efforts are resource intensive. Depending on the internal build archetype, this includes:
Keeping assumptions up to date
Ensuring comparability of emission factors year on year
Centralising millions of lines of supplier data
Managing the various components of the tech stack
Maintenance can become complex and time-consuming, posing challenges for accurate data analysis and regulatory compliance.
YoY Comparison: Replacing assumptions and making changes to the model can make year-over-year comparisons challenging. It becomes difficult to demonstrate historical data consistency, particularly in regulatory contexts, where managing and tracking changes can be cumbersome.
Siloed Expertise and Talent Turnover: Dependency on individual sustainability practitioners and the risk of knowledge siloing means that talent turnover can pose a significant threat.
Engagement and Usability: In-house tools can face challenges when it comes to engaging multiple users and ensuring usability. Limited tech stack seats and customised functionality may restrict access and visibility, making it difficult to democratise usage across the organisation.
Compliance: Keeping up with evolving guidance and regulations, such as changes in methodologies and emission factors, requires timely updates to ensure compliance. These updates evolve at different paces. Managing these updates and maintaining data integrity can be challenging for an internal team with competing priorities.
Buying 3rd Party Software
Eliminate surprise costs: With an external tool, you avoid the hidden costs that come with building a tool in-house (e.g., data licenses, 3rd party measurement validation). When these hidden costs are taken into account, the overall expenditure of building a tool is likely to surpass that of adopting an external tool.
Usability: When dealing with multi-year data maintaining version control becomes increasingly important. An external emission measurement tool can manage changes, version control and data analysis to reduce the management burden and enable greater value capture.
Reduced Customisation: Using a single tool may limit customisation options. It's important to choose a tool that offers customisable aspects to ensure you can tailor measurements and obtain actionable insights relevant to your business.
Budget Allocation: Justifying the upfront cost for an external tool requires reporting a direct ROI. Advice on how to argue for more budget here.
Dependency on Manual Assistance: Ensure it is software you are purchasing, not consultants behind a strong visual dashboard. If the chosen software heavily depends on manual consultant assistance rather than automation, the advantages of investing in software might not be fully realised.
Read more about the key considerations needed to make the right decision here.
Industry Insight: Who is going to pay for sustainability?
We often get asked questions along the lines of: Is value moving into this space? Are these projects going to make financial sense?
Let’s look at this through 3 different sources of value:
Climate financing and investment dollars are growing at a rate of 12-15% year on year, standing at $850 billion today. Project finance in sustainability will hit a trillion dollars annually in the next 1-2 years, and likely keep growing as most project finance starts to assume sustainability characteristics.
Until a few years ago, most banks were considering whether they should even have a climate strategy. Today, most major banks segment sectors based on carbon intensity and use lower rates to incentivise low carbon sectors (e.g., up to 100 basis points discount) and higher rates to ease into divestment decisions with high carbon sectors.
3. Retail Interest
ETS prices/carbon credit is a great indicator of appetite when determining retail interest in sustainability. 5 years ago I would've been surprised to hear anyone speculating about an ETS price cross €90/ton anytime this decade. We’re already firmly in €90-100 territory as of this year.
The question isn’t "is value moving into sustainability?" The questions are "how quickly is value moving?" and "who is best placed to capture it?" The latter is important because not every business that spends on sustainability will be a financial winner.
Policy Pulse | The Latest Sustainability Developments
A breakdown of the key policy updates that you and your company need to know about from the last fortnight.
1. ISSB launches two global sustainability disclosure standards - The International Sustainability Standards Board (ISSB) launched its inaugural standards in June, the IFRS S1 and IFRS S2. These are focused on giving companies a globally standardised method of disclosing sustainability (S1) and climate-related (S2) risks to investors.
Key disclosures the standards require include:
Strategy and governance - how a company considers climate risks in its strategy, who is involved in decision-making, and what the risk management process is.
GHG emissions - absolute Scope 1, 2 and 3 emissions in line with the GHG Protocol Corporate Standard.
Climate-relatedscenario analysis - an assessment of the company strategy for resilience to climate-related changes. This includes a company’s ability to invest or redeploy resources to respond to climate risks or opportunities for climate mitigation.
These have been developed to be interoperable with other standards:
Taskforce for Climate-related Financial Disclosures (TCFD) - ISSB built off of the TCFD and fully incorporates its recommendations, so disclosures will be consistent with TCFD as well as similar standards from SASB.
Global Reporting Initiative (GRI) - ISSB partnered with the GRI which defines standards for wider sustainability reporting. The new standards are therefore designed to be complementary with ISSB covering financial stakeholders, and GRI wider stakeholders.
The disclosures will become mandatory if adopted by individual countries, with Britain, Canada and Japan already indicating interest. Whether these standards are adopted as widely as IFRS accounting standards will be clearer once they may be used in reporting from January 2024.
2. UK Climate Change Committee calls out worsening Government progress on Net Zero -
The UK Climate Change Committee (CCC) published its 2023 Progress Report assessing the UK Government's progress in reducing greenhouse gas emissions and achieving Net Zero.
The CCC found that the government's progress on emissions reduction has been "too slow" and that there is a "real risk" that the UK will not meet its 2030 emissions target. The report also highlighted a number of areas where the government needs to take urgent action, including:
Developing more demand-side policies to reduce emissions from transport, agriculture, and buildings.
Increasing the pace of deployment of renewable energy technologies.
Reversing emission-intensive strategies for airport expansion, road-building and oil and gas development.
The CCC also warned that the government's current strategy is too reliant on specific technological solutions, such as carbon removal and sustainable aviation fuel, many of which have not yet been deployed at scale.
The report called for the UK to "regain its international climate leadership", but has been dismissed by the Government that points to its existing record for emission reduction.
3. EU makes mixed progress on laws for Nature - The EU passed into law its landmark legislation on fighting deforestation in commodity value chains. This will force companies to conduct due diligence into whether any deforestation occurred in their supply chains.
However, progress on passing its Nature Restoration Law has stalled due to objection by centre-right MPs. This law aims to bring 30% of degraded ecosystems under restoration by 2030, in line with the global agreement set at the COP 15 biodiversity summit last year. This has seen opposition due to food security concerns of returning agricultural land to nature, and the cost of restoration.
Liberal MPs are putting together a compromise deal ahead of a vote next week.
Sustainability Trailblazers | How Daylesford Organic is pushing boundaries on food & farming
Daylesford Organic stands as a true champion of sustainability and organic farming practices. Whilst weaving sustainability into their business model from their inception, 21 years ago, they continue to push the boundaries of the food and farming system with innovative thinking. Here's just three ways in which they are leading the way:
Localised Supply Chain - Daylesford Organic has taken a remarkable approach by owning the majority of their supply chain. They maintain control over crucial stages of production, starting from the fields where their animals graze, all the way to their abattoir, production units, and even their own pubs, cafés, restaurants, and farm shop. 60% of their food is sourced from fields adjacent to their operations, reducing the need to rely on external suppliers and allowing them to act swiftly on sustainability initiatives while having direct access to primary data. Beyond that, more than 80% of goods at Daylesford purchases are from UK suppliers with an average supplier relationship length of average length of 10 years.
Re-evaluating Yield Metrics - Daylesford is leading the way in rethinking the traditional approach to yield assessment. Instead of focusing solely on weight, they consider factors such as calorie content and nutrient density. With increasing indications towards mandated nutritional data reporting and working to maximise nutritional value per tonne, Daylesford is well-positioned to drive future advancements in this area.
Clear Branding - Daylesford’s unwavering commitment to organic farming practices is kept front and centre as they incorporate "Organic" into their name. This strategic branding demonstrates their dedication to maintaining organic practices at the core of the business. It also helps unlock the business case for sustainable practices - it’s in their name and their nature.