In this episode:
A growing number of Canadian companies are making major commitments to reduce their climate emissions through setting “science-based” targets, with some pledging to more than halve their emissions in the next decade. A new Ivey research initiative – Corporate Strategies for Net-Zero – is engaging with these leading companies across key sectors of the economy, exploring the firm-level strategic dimensions and implications of such ambitious action.
In the third part of the Ivey Net-Zero Event Series – we explore initial insights emerging from this research, discussing key questions that many executive leaders are now grappling with:
- How can an ambitious approach to climate action shape your organization’s strategy for success in the emerging net zero economy?
- What are the key factors and critical capabilities your company needs to consider in setting ambitious climate targets?
- How do you avoid “greenwashing”?
We tackle these questions and their implications for managers across all organizations with our high-level panel, featuring guests: Teanne von der Porten, MBA '05, Executive Director, ESG, KPMG Canada; David Huck, Director Sustainability, CP Rail; and Rob Klassen, Professor, Ivey Business School. This session is co-hosted by The Ivey Academy and the Centre for Building Sustainable Value and will be moderated by Mazi Raz, Assistant Professor, Ivey Business School.
Other ways to listen:
Note: the views, thoughts, and opinions expressed in this multimedia content do not necessarily represent those of Western University, Ivey Business School, or The Ivey Academy and its affiliates. This content has been made available for informational and educational purposes, and its appearance on the Site does not constitute an endorsement.
About the Ivey Net-Zero Series
Hundreds of businesses are making commitments to achieve net-zero greenhouse gas (GHG) emissions by 2050 (or earlier) in line with the goal of the Paris Climate Agreement. These commitments are being driven by a range of factors including investor pressure, the risk of stranded assets, evolving national policy frameworks and ratcheting societal expectations. The urgency for action has been accelerated with the dire warnings of the most recent IPCC Report and the forthcoming Climate COP in Glasgow in November 2021.
Establishing a credible path to net-zero presents major challenges, uncertain risks and transformative opportunities for firms to shift or completely alter key aspects of their business model, value chain and competitive positioning. Firms can capitalize on strategic opportunities, such as the possibilities of new products, services and markets, and novel ways of interacting with or serving customers.
However, much of the discourse ‘lumps together’ these strategic considerations with the technical complexities of pathways, technologies, solutions and measurement, which impede clear strategic thinking on the net-zero transition. As we enter a decade of unprecedented transformation and disruption, the leaders will likely be the firms that take a strategic approach to net-zero – aligning ambitious emissions reductions with long-term business strategy, innovation and value creation.
Created in collaboration with the Centre for Building Sustainable Value, the Ivey Net-Zero Event Series focuses on the strategic implications and opportunities for businesses in pursuing a net-zero strategy for climate emissions.
Full Podcast Transcript:
SEAN ACKLIN GRANT: Welcome to the Ivey Academy Presents Leadership in Practice where we discuss critical issues in business, unpack new research, and talk to industry leaders about the latest trends. The Ivey Academy and Ivey Business School are located on the traditional lands of the Anishinaabek, Haudenosaunee, Lunaapeewak, and Attawandaron nations. This land continues to be home to diverse Indigenous peoples whom we recognize as contemporary stewards of the land and vital contributors of our society.
A growing number of Canadian companies are making significant commitments to reduce their climate emissions by setting science-based targets, with some pledging to reduce their emissions by as much as 50% in the next decade.
In our latest installment of The Ivey Net-Zero Series, we welcome Teanne von der Porten. MBA '05 and Executive Director ESG at KPMG Canada. David Huck, Director of Sustainability at Canadian Pacific Railway. And Ivey business school Professor Rob Klassen. Professor Mazi Raz is our guest host.
Our panelists explore emerging insights from a new Ivey research initiative, Corporate Strategies for Net-Zero. And discuss the key question that all leaders now must answer, how can an ambitious approach to climate action shape your organization's strategy for success in the Net-Zero economy of the future? Let's get into it.
MAZI RAZ: Rob, in your understanding, who are the likely audiences for these public commitments?
ROB KLASSEN: Well, thanks, Mazi, first of all for the invitation to join the panel today, and for just the discussion that I think we're all anticipating around a very complex topic. I think when we look at setting targets for companies, there's really multiple stakeholder groups that one might be speaking to as a senior executive when you work with your team to decide where the target should be. And in part the target is also partly driven by how ambitious you are around that.
So if you think through just those simple factors I've noted now, you can certainly see investors as being one of the key target audiences for targets that you're setting. And if you think through how you might set the targets for investors, it might be very different than if you see communities as your primary stakeholder group when you're thinking through how ambitious you want to be in terms of addressing climate challenges.
And then, of course, there's other stakeholder groups like customers. Customers have increasingly paid a great deal of attention, whether they're and I as consumers or whether they're large-scale businesses ultimately making millions or billions dollars worth of purchases.
And then, finally, if you think about many companies, now they're trying to attract the best talent. And so when we think about whether a company should set a target or not, it can, in fact, be appealing to future or current employees and how do we interact with those individuals, how do we position our firm for that.
And all that gets embedded, in one way or another, into the choices we make as executives about how we set targets, what ambition we're setting those targets. Or if we don't even set targets at all, there's still a message being communicated to the marketplace in that sense too.
MAZI RAZ: Excellent, very well. Robert, I'm going to stay with you and ask you another question here, and that is about your research. The research titled Corporate Strategies for Net-Zero is one that you lead.
And it is exploring strategic aspects of firms making major commitments to climate action, especially, I understand this about science-based targets. Could you start us by giving an overview of the research? And, specifically, what were the central questions you were exploring? And up to now, what have you been discovering? Some of the key insights about it.
ROB KLASSEN: We've been gathering data, we've been building a better, deeper understanding over the last year. But I would suggest we're probably only partway in, and there's much more to go. But I think it's really interesting to unpack some of the insights we see emerging now. Now Just by way of background, I think it's important to differentiate between two broad approaches that seem to be emerging in the public debate, in corporate debate, and how we think about net-zero.
Much of the work that's been done to date has focused very much on broad scale sectoral approaches, so how does the entire transportation sector, for example, approach the challenges of net-zero. How does the industrial sector approach the challenges of net-zero.
And then, of course, you see differences between countries as well. And so Canada's approach, because of our particular bias towards natural resources and so, on might take a different approach than would, say, some other countries in Europe, and so on.
And so you think about these primary what we call units of analysis, where do you think? Where are you asking the question? And to whom are you asking the question? So much of its action at the sectoral or national level.
The research project that we under-- are undertaking and is in process is really trying to move down to the firm level strategy. So even within the manufacturing sector, you would expect to see firms take different strategies based on a whole variety of factors, largely unknown until we ask the right questions. But at least from our perspective, there's the expectation that you will see diversity within particular sectors.
And it's important for managers to say, yeah, what do I do with my firm? Not just what does the whole industry doing? And so that was the genesis of the research that we have here. I think it's important to see what we were trying to do here.
And there's really four questions we were trying to probe. First of all, if we think at the firm level how does a strategy actually emerge. Is it something that naturally occurs? Does it grow out of some particular earlier set of initiatives? Is it externally imposed? We wanted to ask those questions of managers. And what does it do for competitive positioning?
Second is really around the decision-making process. How does a firm, senior managers, frontline managers, technical experts, external experts, work towards a strategy? Then we start to get at what's changing because of that type of discussion and strategy underway? How does our relationship with customers change? How does our relationship with suppliers change?
And then, finally, while there's been a lot of discussion about risk, we really wanted to focus on innovation as well. And so try to keep a balanced perspective. We see them as two sides of the same coin, the coin being the strategy towards net-zero. Yes there's risk elements you're trying to manage very actively, but there's also innovation that you're trying to manage at the same time.
But there's really three scopes in terms of potential net-zero strategy for companies. And, again, this is at the company level where we think about scope one is directly from your operations. It might be in terms of heating buildings, it might be other sorts of equipment running, it might be the actual process that's being used itself, might emit carbon dioxide or something like that.
Scope two on the other hand is indirect emissions, but still related directly to your company. So indirect is a bit of a misnomer, but it's energy that you-- is used but actually is emitted by someone else. So the electricity provider, the natural gas extraction, and so on, that goes into you using that energy.
Then the last one is really this idea of scope three. This is where we now start to worry about the value chain or some of the use term supply chain where it's outside your organization but directly embedded in your products and services.
So three scopes, three different challenges if you think about that. You have a lot of control over scope one. You do have some control over scope two. But, again, it's somewhat debated-- or sorry, linked to your energy sources that are available to you as a company, and it varies by region in the country. And then scope three is the broader supply chain.
So just by way of background, we have about 30 companies in Canada that have committed to science-based targets at this point in time. And it's growing, it's expanding. But these are companies that cut across all sectors.
First of all, the level of ambition in terms of making reductions towards net-zero in just the next 10 years-- so remember, this is not to zero yet, this is percentage reduction from current levels-- are roughly in the order of 50%.
And it doesn't matter whether you're looking at the building industry-- those could be just retail operations at large owned buildings-- or whether you're looking at heavy industry or manufacturing. Very similar levels of ambition at this point in time for this group of companies. And they do cut across all sectors.
Science-based targets is one particular approach to thinking about net-zero. I won't say it's the only one. But it's an important one because it is based in the science of climate change, and it's based in being replicable in terms of different firms within the industry moving in the right direction.
So our study, we looked at 10 case studies. Most of the firms we looked at-- and they are remaining anonymous based on just the way we conduct research at the University here. So 10 leading companies, most of which are part of the SBTI target group, primarily Canadian headquarter, some industries actually aren't yet able to sign up for SBTI, particularly the energy sector.
And so we wanted to include some energy sector companies, and so those aren't technically SBTI approved but still do have ambitious climate targets. And so part of our data collection is really around digging and deeply with managers to understand what they were doing.
But, really, we are identifying four key factors. And this is emerging from our discussions with senior executives in those firms, as well as observing how they sort of have worked over the last few years based on their public data, and so on, that's been filed as well.
And so, first of all, there's really four factors. The first one is really which stakeholders are driving their particular climate strategy, and how does the climate strategy for net-zero speak specifically to those stakeholders. Then there's what capabilities are there.
And some capabilities are already in place in many of the firms. And I'll point to that in just a second. But then other capabilities are really new and emerging. And this is really the interesting part from a research perspective, is how do we help managers understand what the right new capabilities are? It's not just a smorgasbord of picking anything one wants.
And then both of these contribute to the overall vision and commitments that the company is making. And, finally, the really cool part that's coming out of this is that there are new models and new ways of thinking about the business model that's emerging as well.
Really, what I like to point to is much like my opening comments, thinking about investors, customers, and employees as all being critical stakeholders. These are the messages we were hearing from a broad array of executives. Whether they were in the finance function or whether they were in the sustainability function, these groups speak-- or are particularly interested in the net-zero commitments that are underway.
And so when you think about the capabilities, one of the most challenging pieces that companies are wrestling with is around scope three, how do we work with suppliers and customers? Because sometimes the way customers use our products or engage with our services actually has an incredible climate impact as well. I'll just give a simple example.
If you think about the shampoo that you might use at home, where you can think about where the biggest impact from that might be. It's actually not the manufacturing, it's the hot water that we use in the shower or otherwise to actually clean our hair. And so you can think of, well, what role or implication does the company have in managing customer behavior there to improve and move towards net-zero?
What we're seeing, though, is really interesting in the sense that companies are extending beyond their traditional innovation and supply chain partners. So traditionally much of that has focused on using suppliers, knowledge, building up new capabilities and materials, and so on with suppliers, or working with customers to better understand their needs.
And with net-zero, we're really seeing that envelope of engagement expanding. And so now we're starting to see much more engagement potentially with competitors around this. So it's not anti-competitive, it's around building synergies and building scale to explore new options to move towards net-zero.
It's also thinking about working with NGOs and other community-based organizations to sort of say, well, are there different approaches than we currently use if we start to think about building out a net-zero business model? And as part of that clearly innovation, is a message that's not a dominant message yet, but it's starting to emerge as one of the areas where some companies are focusing on. And I would suggest those are actually some of the leading companies in some cases as well.
Now I want to just spend one brief comment here about the CEOs as being the critical drivers for a company to adopt a public facing net-zero strategy. And that's important because that drives much of the resource allocation in the organization, as we were hearing from our managers, and also how we think about the decision making processes, accountability, and so on. So it really does require something at that level.
But the other piece that we're seeing is that there's this paradox or tension occurring. If the company puts forward a very ambitious target, people applaud the target, but then they're skeptical that it will actually be met in the medium to long-term.
On the counter point, if a company puts forward a very achievable target based on a very detailed analysis, we end up hearing almost the opposite, well, you aren't being ambitious enough because you know you can get there. Surely, you can do more.
And so it's this tension between how ambitious do you want to be with maybe not all the Is dotted and Ts crossed, versus how achievable do you want it to be. But, well, could you do better? Is kind of the big question. And so managers are very much facing this tension between these two perspectives.
MAZI RAZ: Thank you, Rob. This has been very interesting from a perspective of what your initial questions were when you embarked on this research project, and what these new early insights are. But they are quite interesting in and of themselves.
And let me bring David into this conversation. And then, Teanne, right after that I'll come to you, if you don't mind. In light of what we just heard from Rob, could you share some of CPE's own journey to setting science-based climate targets. And, of course, if you don't mind, along the way, let us know how important it is for CPE to have a leading position on climate relative to other sectors or to its own sector.
DAVID HUCK: Absolutely. Thanks, Mazi. For a bit of context, for CPE freight railways are very few intensive business. And across North America there are seven class one freight railways, CPE is one of them. And collectively we operate a fleet of more than 30,000 diesel electric locomotives.
So diesel represents one of our largest operating expenses, and represents about 96% of our own company's GHG emissions or scope one emissions and 80% of our overall emissions. So because of how energy intensive the industry is, there's been a long focus on energy efficiency and emissions reductions as across the sector.
For CPE, since 1990 we've actually improved our fuel efficiency by more than 44%. And as a result have been able to avoid about 33 million tons of GHG emissions in that process. So there's been a lot of effort and attention paid into this for years and decades for it for the rail sector and transportation companies.
And so for us that's meant how do we work with our locomotive fleets to modernize them, updating our rolling stock or the railcars we work with, making our network more fluid. So components and tracks, how we configure trains and use data tools and optimize routes and those sorts of things. And so a lot of effort and attention paid to optimizing assets really to drive that emissions reduction and saving on fuel costs as well.
And so as a result of that, railways are currently the most fuel efficient way to move freight long distance overland. Approximately three to four times more efficient than highway transport. Each train is roughly the equivalent of around 300 trucks from Canadian roadways. And a single ton of freight can move on to CPE 250 kilometers on a single liter of fuel.
So while this has all been really significant and progress is made, obviously, the global challenges around climate change are necessitating far more action and at a much quicker pace than that 1% to 2% improvement per year that we've enjoyed as an industry.
And so tackling that requires, like Rob was saying earlier, a change in approach, a new leadership, commitment, sort of adoption of new approaches and skill sets and an innovation mindset to how we're going to move forward to meet those internal and external stakeholder expectations. And for us that meant setting our own strategy and clear objectives around that.
And so where we started as an organization, there's expectations coming from multiple places. So you're talking with customers, you're engaging with your investors, the communities, your own employees, your board of directors are getting questions around that when they're meeting with investors. We hear it all the time through our sustainability team.
So, really, what we did as an organization was just to do our homework, to really start to think about this in a unique way. We started with some fundamentals. And so, really, what it was is, do we have a climate position? How do we feel about climate change? What does this represent? And what's the challenge for our organization so we had a points to start from. So aligning our company as to where we stood on this so that we could move forward from that current point.
Another key part of this the company's been responding to CDP for over a decade. We've been a contributor very early on to that but as we've been responding to that, we hadn't really dug in as deeply into the scope three emissions that was discussed earlier. So that's a part that we spent a lot of time and effort, was to truly understand and report on the transparency of our greenhouse gas footprint as an organization.
And then that led into trying to understand risks and opportunities that the organization is facing. So we also tackled something called scenario analysis, which is informed by the Task Force for Climate Related Financial Disclosures and some methodologies through there.
So with that understanding, we then also looked externally to see what other leading organizations were doing to paint a picture of what best practices could look like. And then ultimately, how do we embed some of these practices into our capital expenditure programs and things to really create the fundamentals or embed ESG into our greenhouse gas decision making into our processes.
So that really led to the climate strategy that we developed as an organization. And in 2021, that was released publicly. And as part of that, we really focused on setting targets as to guide the approach that we were taking as an organization. What that document does is we put it out into the community, charting our path forward on how we plan to reduce our GHG emissions, how we'll be looking at our own physical risk of climate change across our network.
And then the opportunity that we have as being a very efficient operator of the transportation sector, how do we leverage that further to support further reductions in the supply chain. But also take opportunities to maintain that competitive advantage, but ultimately attract business to the railway as well.
And so what that strategy did for us was really demonstrate that commitment at the highest levels in the organization, at the board and CEO for climate action, providing that framework for implementation. And just how we want to report and move forward so that we're sending really strong signals to our investors, customers, employees, and so on.
So the target that we set is a base for that locomotive portion. It is a science-based target. We work to and explore different methodologies. Like Rob was talking about, in the past we've worked with Environment Canada and others since the mid '90s to do sort of incremental improvements on GHG emissions. But that approach is-- it wasn't enough. It's not adequate to do 5%, 10% here and there. What we looked for was that science-based approach.
And so that led us to the science based target setting initiative. They had a rail sector methodology that we followed and set a target around our locomotive operations to improve the intensity by 38.3% by 2030 from a 2019 baseline.
MAZI RAZ: David, just a few minutes ago Rob was-- when he was sharing the elements of the research and some of the early insights around the four key factors, the critical stakeholders that were also influencing division commitments. And you did talk to us and you did mention to us that you went on this journey of listening to some of these stakeholders to the employees and investors and some of the customers.
Along the way, did you find a unique group, maybe the investors, maybe the employers-- the employees that were the higher influence in shaping your vision and setting your commitments?
DAVID HUCK: Yeah, there's no doubt that financial markets and investors are increasingly responding and interested in how corporations are preparing for and responding to climate change. And ultimately that growing recognition, that climate risk is financial risk.
And so there's a lot of interactions that we've had with our investors, with some of our large investors. There's just changing investor sentiment about what action looks like and what's good enough so that the example Rob was talking about where it was, what is enough and what's too much? And how do you strike that balance? And to sort of meet those expectations, and where your organization is at.
And so what we've done in recent years is working with some of our shareholders who are pretty active in this space, the company now hosts an advisory vote at our annual general meeting about our general action plans around climate change and performance in that area.
But, ultimately, it goes extends beyond that. We're facing those expectations from customers, government agencies, employees, communities, competition also from our peers who are acting in this space too. And so there's a lot that's moving in this area. So it's been coming from a lot of different sectors.
MAZI RAZ: Yeah, a confluence of factors.
DAVID HUCK: That's right.
MAZI RAZ: Teanne, first let me thank you for being so patient. Through the whole call that you've been absorbing and-- I'm noticing that you're nodding to many things that it's being shared here with people. I need your help to give us a sense of where corporate Canada is regarding climate action. I mean, you have a unique position in advising and supporting firms across different sectors. Where do you see progress?
TEANNE VON DER PORTEN: Thanks, Muzi. I'd say that we're seeing progress in five main areas. The first one is on greenhouse gas emissions quantification, as was mentioned on the call. And then the second is really moving to a forecasting. So companies are getting support to develop an emissions inventory forecasting model that's capable of handling business as usual, as well as various potential emission reduction scenarios and initiatives.
Third is really looking at the board and management, climate upskilling. So there's a lot of conversations about this, but there's not a lot of knowledge internally. So companies are seeking support to provide training to the board and management on climate, risks and opportunities, and industry trends, and emission reduction approaches.
Fourth is, of course, the carbon reduction transition plans. So where the company is looking for help to identify and assess and prioritize decarbonization initiatives evaluated from a capital and operational planning, as well as a procurement perspective.
And credible and science-based emission reduction targets are being set for the short, medium, and long-term with climate related KPIs to track performance and roadmaps are being developed. And then I'd say fifth is really that enhanced engagement with stakeholders that David was talking about to really better understand the climate reporting and disclosure expectations.
MAZI RAZ: That's fascinating. And in fact, as you were discussing these, as you were sharing them with us, I was able to somehow map them to what Rob was discovering as well. So they aligned quite interestingly. Thank you.
Teanne, here's a curious point. In the past, historically many firms have been able to meet some of these expectations through efforts of a very specific part of the organization. Think about a sustainability team or a smaller sustainability departments. Is it still the case? Or perhaps firms are realizing that the new climate commitments require a much more holistic and whole of organization approach?
TEANNE VON DER PORTEN: Yeah, that's a great question. Definitely an emerging necessity is coming from a cross-functional governance structure and controls to support climate commitments and reporting. Really, from the operational level or ultimate management, up to the board, there's a lot of scrutiny now on how climate issues are being governed internally. So this really requires frequent connection and communication throughout business operations.
And, really, I can't stress enough the importance of the CFO and finance team because they can leverage existing skills and data and systems, controls, and relationships and changes to any financial standards and requirements to really drive that climate agenda. And I'd say in addition, the audit committee responsibilities should be expanded to include oversight of climate related disclosures.
MAZI RAZ: That's fascinating. One of my family members is an accountant. Her new job right now is actually helping all of Canada try to figure out how to incorporate ESG measures and metrics in decision making. So you're right, finance has become one of the areas in departments that has significantly upped the game in this respect. Sorry, Rob, did you have a comment?
ROB KLASSEN: Yeah, I was just going to say I certainly want to echo Teanne's comments that-- at least that's what we were hearing as well-- is this idea about it. I had the term unified strategy, but I think it's also about reporting and how it plays out in organizations.
That if you don't have the finance team as part of the discussion and part of the accountability for this, you're missing out on some synergies that could be there. Because, in fact, they have a wealth of expertise in risk management. It just is redefining how we think about risk or capital allocation programs, and so on.
MAZI RAZ: David, I have a question. As I was listening to your earlier comment about what has been taking place at CPE, you mentioned a couple of examples around innovation that has been taking place over there. I like to ask a perspective on the role of innovation in major emission reductions.
And, of course, another tension that might actually be embedded in this, which is the tension of being innovative around new technologies and new business models, but also recognizing that as organizations, they play out in a larger ecosystem with suppliers, with other partners. How does one balance this approach to being innovative, at the same time trying to remain in coordination with other standards, perhaps, that has been set before in the ecosystem?
DAVID HUCK: Yeah, certainly we can appreciate that tension. So in kind of talking about the real sector in North America where we're highly integrated. So we operate the same type of equipment and the same standards. We're one of the most highly regulated industries in North America. And just the standardized approach to things is super critical.
Along with high expectations around uptime, reliability, and consistency, and how we operate. And so an issue somewhere along the mainline can have this cascading effect very quickly. And so we have to balance that with these are the new approaches and the innovation that is a requirement of our climate strategy. And being able to deploy those new models and retooled portfolios that Robert was talking about earlier, that's super critical in that.
So for us how we balance that as an organization is for to have our own internal innovation as well. So to really start to look at what are those opportunities that we can leverage to reduce our own GHG emissions in that area.
So it's-- as we do that work, though, we need to collaborate with people across our supply chain in the entire sector and the regulatory bodies to make sure that these new solutions are being deployed in a way that's safe.
We have the opportunity to experiment, test, and learn and demonstrate. And ultimately about building that capacity for a new way of doing things. And that might have a significant change from how we currently operate today, to be open to do some of that things.
MAZI RAZ: But, David, is-- from your perspective, is this a collaboration only amongst the people in your value chain or perhaps? Could it also exists amongst competitors as well?
DAVID HUCK: Well, and that's what I mean. I think the competitors piece is absolutely critical in this too. At some points we're-- the competition forces us to be sharper, to move quicker, to do things in a more positive way, to have that competitive advantage. But at that same time, we all-- with that integration piece that we have, it's really critical that we're all sort of doing things in unison as well.
And so we do have a number of efforts around things like biofuels, for instance, in our own sector, and how can we deploy those more effectively across our equipment. And so it's testing and learning and working with our OEMs, our manufacturers to make sure that those systems are reliable.
And that understanding the challenges around biofuels that, how do we have to change our operations? Will these fuels be available to us in the supply that we need? Will they operate under the challenging winter conditions that we face? And can we get from Winnipeg to Calgary with the same amount of fuel? So lots of things to work through. And the industry has to do that together.
MAZI RAZ: Very interesting. Thank you. I appreciate that. Rob, much of your research is focused on sustainability in what you call value chain or supply chain. One of the largest challenges firms face now is reducing the scope three emissions, in part because of the new capabilities.
And you did mention that as you were going over the early insights of the research has come out. Can you give us a sense of the challenges firms face in regards with these new capabilities? And, perhaps, if you have encountered how they might come up with effective responses to these challenges.
ROB KLASSEN: Yeah, I think I can certainly follow up on one of David's points about the measurement of scope three. This is actually the first challenge. I mean, how big is the problem? Where exactly in the supply chain does the largest emissions apply? What factor or influence does the firm have over those?
It might be through a selection of alternative materials, biofuels would be an excellent example. Or it might be through an alternative technology altogether that the firm might actually have to start to explore other suppliers, or new ways of configuring the industry.
And so the capabilities around that measurement, around that search for new innovative solutions or seeding new innovative solutions, if, in fact, that may be the only route there, I think it's also a capability that firms are exploring.
But what we also noticed was that firms are trying to still stay aligned to their original business model in the sense that if you've been serving customers in consumer products with a particular set of processes or operations, for example, you will probably stay in a somewhat similar space. It's not that you're suddenly going to flip to an entirely new market.
And so in that sense as positive or encouraging that the capabilities can start where you are, but it does need to expand dramatically in terms of thinking about who you're building connections with, who you're sourcing new ideas from, and then how you're fostering those new ideas to come to marketplace.
Either with competitors, possibly, because of the integrated nature of your industry, or alternatively just on your own because you truly do see a new business opportunity there as well. And so we did see examples of all of those.
MAZI RAZ: We have been talking quite a bit about some of the challenges, and then perhaps opportunities and innovative approaches in getting to net-zero.
Is net-zero enough? How about net-positive? What are your takes on this one?
TEANNE VON DER PORTEN: I'd say that's a really great question. I looked at it because what's more important now more than ever to address, greenwashing. And I think that's getting to it a little bit as well. So what we try and work with clients with is to achieve most of their carbon-- most of their targets by actually reducing emissions versus buying offsets.
So, really, when you're designing your net-zero plans, the goal needs to be to bring total emissions to zero, where that's the ultimate goal, versus what some large polluters are claiming, which is to reach net-zero emissions.
But that can also mean that they're just purchasing their way there via offset credits. So I think it's really important to make sure that you're right. Just saying you're reaching net-zero emissions isn't enough if you're doing majority of that through purchasing versus actually changing your emissions internally and making a difference on an absolute scale.
DAVID HUCK: And, I guess, from CPE's perspective, we have not set a net-zero commitment at this point. And that goes back to Robert's model where he showed the ambition versus what's achievable. So for our company, it's not about-- we don't-- there's no clear pathway. The silver bullet doesn't exist, and that's why that innovation piece is so critical as part of this.
And so for us, it's about what can we achieve, and focus on that and be communicating about what we are doing. And it gets to that point of that's the challenge around some of the greenwashing aspect of this too. So what can you conclusively do? What have you evaluated and you have confidence that you're able to deliver?
And so that's been the approach that CPEs taking. So while we all recognize that net-zero is absolutely critical, we need to start somewhere. And we want to start with that science-based approach that works best for our business.
MAZI RAZ: Both of you brought up greenwashing, and that's an interesting conversation to have right now. Teanne, maybe I'll start with you. And then, David, if you don't mind, I'll follow up with you on this point. From your vantage point, how do you suppose companies can maintain the high level of ambitions that perhaps needed for the private sector to achieve the science-based targets that they set? But also at the same time maintain credibility with key stakeholders. Maybe a simplistic question, and this is how can companies avoid being accused of greenwashing?
TEANNE VON DER PORTEN: Yeah, that's a great-- it's a great question. And just feeding off of what David said, it's actually great strategy to just start somewhere. And that's what I would encourage as well, start somewhere instead of setting these net-zero 2050 targets, which a lot of companies are doing then they're running to us saying we don't know how to get there. So you're kind of doing it backwards. You have to understand your business and see what's actually achievable, and then actually show real progress.
So I'd say some suggestions are definitely to be transparent on your business as most material climate risks, and how they are being proactively managed. So the transparency around showing how you're managing these risks and what your plan is. For example, a TCFD report also demonstrates that on the climate side.
The second is setting absolute or intensity-based emission reduction targets, whatever that may be that makes sense for your business. And the suggestion is really to cover at least 50% of your primary operations. And it is important to-- oh, I would encourage five year targets in five year increments. And then you want to show some sort of a demonstrated year over year progress towards that commitment.
And showing three years of consecutive metrics actually are really important too. Even if you may not be improving every year, you're showing that we are at least tracking it and we're heading in the direction. And you can have a rationale for why maybe you didn't achieve any reductions that year, but you are being transparent and responsible with showing what you're doing.
And I'd say disclosing a link between the achievement of climate targets and executive variable compensation we've seen has worked really well too. And then obtaining or thinking and preparing to obtain external assurance over material climate metrics. We're seeing that's becoming more common, is it more assurance work over scope one and scope two greenhouse gas emissions.
And then when you're developing your roadmap to decarbonization, it's important to show some sort of a dedicated CapEx for those decarbonization initiatives. Otherwise if it's not included in your business planning or financial planning, it's not going to happen. And that may include investment in technologies and partnerships.
And it is also important to consider how much carbon capture offsets will contribute to that. So I would just say the really-- the key takeaway there is that climate targets and metrics, as well as transparency of progress to these are essential. And I'd say that the days of that storytelling are over. And it's time for stronger demonstration of that progress through metrics that move the scale towards meeting targets.
MAZI RAZ: Teanne, this invitation for transparency and demonstrating targets and how far apart you are-- how far along you are in achieving these targets, it's quite important. But here's a question, though, with the current state of ESG standards, or as they're evolving, as they're changing, how can organizations make sense of the best ways of demonstrating these achievements along the way?
TEANNE VON DER PORTEN: Like in terms of the standards that are coming in?
MAZI RAZ: Yes, yes.
TEANNE VON DER PORTEN: Well, maybe we should ask David first. He's probably dealing with that right now. [LAUGHS]
DAVID HUCK: Yeah, and I think that's my comment here as well, I think, with-- when you're thinking about greenwashing-- and I'm a corporate reporter. I mean, my best defense against that is just robust transparent and balanced reporting and clear metrics. Like, you're moving towards a state where you're having third party assurance of key information. And so it's just clarity and consistency, and then alignment with these standards.
And I think what we're seeing, actually, is a process where there's alignment now starting to happen. And these standards coalescing from having multiple to some concentrated measures with what the work that ISSB is doing, for instance.
And so for us we do report against GRI and FASB. We have also developed a TCFD response as well. And so it's starting with that, and then just improving upon those practices. And as you're doing that, you're embedding those things throughout your organization and starting to engage with people in your finance team or within your corporate risk function.
Where before, this is going to be largely something that was done with the environmental or something to that effect. I think what's really clear is that's going to happen with this too, is that this is not going to be a linear process. This is going to be incremental. And we're going to see step changes.
I do see that expectation of performance, really, the evolution of ESG reporting on climate change went from how much emissions? To what are you doing about that within your own operation? To how is that impacting you to setting targets? And ultimately it's how are you meeting those targets? And that's where the credibility lies, within that too.
And so what we'll see is with the technologies and tools that are being deployed, Canadian Pacific has developed our own commitments around a hydrogen locomotive program. We're building three locomotives right now and retrofitting them with hydrogen fuel cells and batteries. We're also employing two electrolysis plants to generate our own hydrogen supply from a solar farm at our corporate campus.
And so what we're doing there-- and this is, sort of, it's globally significant. This is new ground that's being broken, that we're really testing alternative fuels in a heavy transport industry. And that kind of works, it's going to take time. But those are the right solutions to be exploring now, and thinking about how you're communicating as to what are you doing now while you're building for the future.
MAZI RAZ: Thank you. I appreciate that. Rob, in your research with these 10 companies, the case studies that you have been engaging, have you encountered evidence of companies facing or perhaps countering greenwashing as well?
ROB KLASSEN: Well, I think it's always that concern in the background for many organizations if you try to-- and let's just take a basic perspective that you're trying to do the right thing, but things happen along the way. And so I think one of the biggest challenges is companies aren't used to thinking with 30 year time horizons.
If we say net zero by 2050, which is a common demarcation point, we can think about how does an organization plan 30 years in the future. There are a few organizations that are used to doing that where the assets live very, very long lives. So you can think of the-- a utility industry or other sorts of industries like that.
But in most other industries, it's not that long lived assets that we're focused on or the business processes. And the business models aren't built for 30 year time horizon. And so one of the biggest challenges that I think organizations are wrestling with, and it links to this idea of greenwashing, is how do we embed this ongoing attention to net-zero so that it will move beyond my personal career span in the next two to three years?
If I leave the organization as a senior executive, will it continue beyond my time in the organization. And it's only once the organizational processes are built up, whether they're an ideally across functional processes are built up, that you start to see it have longevity. And that's where companies are really wrestling right now. How do we do that? We saw some positive steps forward.
And I think as you do that, your position around the credibility of your targets and your annual reporting of your progress against those, or maybe misses, obviously, happened too, it becomes more routine. And people are able to better take in what they're hearing and process it in light of what's been happening in the past.
I think the biggest challenge is that if an organization sees this as a once and done task, that you're entirely missing, I think, the big challenge that's there. It's the implementation challenge that's the struggle. And that's a longer term journey that requires innovation, requires all of the other aspects that have been highlighted by both David and Teanne as well.
MAZI RAZ: All right, I appreciate this and very much like this idea of thinking about the areas that we still don't know much about. I'd like to open that very specific question to Teanne and David and say, having heard the conversation that we have today in the last 50 odd minutes, where do you think they are areas that we still don't know a lot about, that are very critical important for us to collectively tackle?
TEANNE VON DER PORTEN: I'd say, from my perspective, companies are in a really hard time with the scope three emissions, and addressing the supply chain. If you can-- it's just where do you draw those boundaries for that industry, and then how do you access the data from suppliers. Which a lot of suppliers don't track certain data that is required for the metrics for ESG metrics and climate metrics. So I'd say that's one of the biggest challenges right now.
DAVID HUCK: And for a railway company where our scope three emissions are not as significant as maybe a bricks and mortar retailer type of business, but we these are significant scope three emissions for a lot of other companies.
And so for us, we're starting to see the emergence of these opportunities and models where if we're able to identify and reduce and create some sort of attributes around greenhouse gas emissions savings in our own business, how do we share that with customers who are interested in that low carbon economy, and help to accelerate the scale and scope of what we're trying to accomplish?
Ultimately, the-- well, organizations need to make those changes. There needs to be some consumer support for that on the back-end of the customer who wants to commercialize these opportunities as well.
MAZI RAZ: Rob, what about you, from your perspective?
ROB KLASSEN: Well, I think one of the opportunities, to follow up on the theme there, is really around, in some cases, customers are struggling to figure out what their emissions are-- and sometimes larger-- because of the fragmented industry that's there.
And so sometimes larger suppliers can, in fact, step in as intermediaries as well and say we can help in terms of helping you understand we-- yes, the rail industry, we are a source of emissions, but we are also able to help track, monitor, demonstrate improvement, and so on. And that's true in the agricultural industry, that's true in other large industries where the customers are actually quite fragmented, but the supply base is actually quite concentrated.
MAZI RAZ: That's fantastic. We're almost at the end so I one to ask if any of you have a final closing thoughts that you'd like to share. Maybe some final closing thoughts.
TEANNE VON DER PORTEN: I would just say that it's just really important to start your journey. I think it's intimidating for a lot of companies, and they don't know where to start. So there is help out there. So it's important to continually be connected internally with your internal stakeholders, as well as externally with your external stakeholders.
And then from all that information, like Rob so clearly said, you're benchmarking across the industry, and then you're choosing what are the priority areas to actually focus on. And then really focus on those top three to four maybe priority areas for your company, and just start disclosing there. And then you can modify as you go because it's a journey. It's a very long journey. And every year doesn't have to be the same. You can focus on different things as you go, but just start. And that's the best way to start going.
MAZI RAZ: That echoes David's point about this process being non-linear, it involves many, many, many, many, many different steps along the way. David, how about you?
DAVID HUCK: Yeah, and I've been at this for a while now with Canadian Pacific. And I could give myself some sort of direction as to what I would really focus on is that you learn as much as you can about your business, start to engage with people who are beyond your particular function, and learn more about how decisions are made.
And then ultimately what you'll find is there's actually quite a few allies within your organization who are interested in action and moving things in this area. And ultimately you're working with those. Those are the coalition of the willing that you find that critical mass, and you're able to start to make some of that significant change as well. So keep digging. And there's a lot of opportunity out there, but you're going to have to work outside of that silo to really get that broader impact that you're looking for.
MAZI RAZ: And, Rob, where are you taking your research?
ROB KLASSEN: So at this point we are continuing to put together the final report on that, likely, will be emerging in the next number of months. But what we'd really like to do is-- maybe borrowing a phrase from David-- look for a coalition of the willing where we can push this further forward in terms of how practice is developed, both within the organization but in bridging to other organizations, extending the horizons to think about net-zero.
And in doing so, really try to identify those practices that are most promising to help companies move forward. And at the same time, balance the risk that clearly is presented by climate change as well. And so we really want to focus on both things, the opportunity as well as the risk, and best practices around that.
SEAN ACKLIN GRANT: Thank you for tuning in to leadership and practice. We'd like to thank our guests Teanne van der Porten, David Huck, Rob Klassen, and Mazi Raz. Leadership in Practice is produced by Melissa Welsh, Joanna Shepherd, and me Sean Acklin Grant. Editing and audio mix by Carol Eugene Park.
If you like this episode, make sure to subscribe. You can also find more information by visiting iveyacademy.com. Or follow us on social media @IveyAcademy for more content, upcoming events, and programs. We hope you'll join us again soon.