ESG is an umbrella term that refers to the environmental, social, and governance aspects of a company or organization.
These three factors are very useful for potential investors and shareholders to observe when deciding on whether they want to invest, specifically, it gives them an indication of how socially safe and aware the company or organization is.
More specifically, the environmental aspect looks at how the company functions in relation to nature, whether they produce outputs and services safely without harming the environment or instead their production destroys a lot of natural resources. The social factor refers to how well the company treats its employees, shareholders, citizens, and community. This factor looks at how strong these relationships are, and can be measured in terms of employee well-being, or diversity with the community and its citizens. Lastly the governance factor refers to how the company is governed, or simply put how it is run. This can more specifically relate to how the board of directors are composed and function, their rights, and audits.
A greenhouse gas is a gas that traps heat and makes the planet warmer as a result. Most greenhouse gas (GHG) emissions are produced when fossil fuels are burned, as well as in industrial processes and land use.
In discussions on climate change, usually there is a focus on carbon dioxide (CO2), which is the most dominant greenhouse gas produced (contributing by ~75% GHG emissions). Nonetheless, other gases are: methane, nitrous oxide, and trace gases.
Over the past 30 years, total greenhouse gas emissions have grown from right above 30 billion tons to about 50 billion tons. To go more in depth, the 5 major contributors geographically have been: China (~12 billion t); USA (~6 billion t); India (~3 billion t); Indonesia and Russia (~2 billion t). Lastly, the 3 sectors that contribute most to GHG emissions, are: Energy (electricity, heat and transport); Agriculture, Forestry and Land Use; Direct Industrial Processes.
World’s most responsible companies are embracing sustainability as a business imperative whilst aligning ESG issues with their missions and purposes.
Carbon reporting follows generally the GHG Protocol, divided into 3 scopes:
• Scope 1 – Direct emissions of the company and controlled entities
• Scope 2 – Indirect emissions in terms of energy sources the company purchases
• Scope 3 – Indirect emissions considering all the steps of the value chain (up- and down-stream)
It is to be noted that, while the 1st & 2nd scopes are mandatory for reporting, the 3rd is voluntary (even if it is a crucial part, accounting between 60-90% of the overall GHG emissions).
As discussed above, there are currently too many carbon emissions being released into the environment, thus, to minimise this, certain policies and regulations are put into place. Since the US is the second highest in greenhouse emissions globally, the Environmental Protection Agency (EPA) has implemented many acts and policies such as the Clean Air Act, and more specifically have implemented policies such as the Affordable Clean Energy Rule. Other regulations include the Cross-state Air Pollution Rule (CSAPR), and the Mercury and Air Toxic Standards (MATS). The policies and rules in the US aim to reduce pollution of gases such as oxides from nitrogen and sulfur dioxide, and mercury from coal- and oil-powered plants. Moving geographically to Europe, the European Union has implemented a 2030 climate and energy framework. It aims to raise the ambition and goal of reducing greenhouse emissions at a bigger magnitude as a longer time goal, by focusing on the current ambitions and goals in the short term. They have also created a detailed governance system for its member states and respectively companies and organisation within those states to follow.
Emissions in the Automotive Industry: comparison between car productions
The automotive industry is one of the most important in the economic scenario, but it is also one of the most argued in relation to its environmental impacts. In fact, this sector is one of the most polluting ones.
The following case study analyzes the emissions coming from the production of cars, making a comparison between the production of Internal Combustion Engine Vehicles (ICEVs) and the Electrical Vehicles (EVs). Usually when we think of the automotive sector’s emissions, we refer to the environmental impact deriving from the use of the vehicle. Actually, it is also relevant to focus on the carbon footprint of making a car: car manufacturing covers a significant part of the polluting process, this is directly linked with Scope 1 of the GHG protocol. For this reason, many companies are reviewing their production and how to measure their Carbon footprint.
Working on this analysis has been very challenging to find accurate information. As a matter of fact, the need for more transparency about emissions data concerning the production process emerged. Institutions and the industry strongly have to work together on this in order to easily reach sustainable goals which are also underlined by the 2030 agenda and by GHG protocol.
The production consists of the production and transformation of raw materials, manufacturing of components and vehicles assembly.
A study from Tsinghua University in Beijing comparing Chinese vehicles shows that CO2 emissions from EV’s production are 14,64t. around 60% higher than ICEV’s emissions.
Another survey conducted by Greenpace has also revealed that EVs have a larger carbon footprint during production than comparable ICEVs. According to the IFEU (Institute for Energy and Environmental Research) the reason behind this difference is connected to the battery of EVs which requires an intense use of energy.
However, looking at the entire life-cycle of cars, the production process is just a part of the total emissions which include maintenance, use and fuel/electricity production.
At the moment it is, in fact, strongly important to prioritize the reduction of ICEVs’ production. According to the German Aerospace Center study on car transport in order to keep global warming below 1.5°C is necessary to phase out ICEVs sales by 2025. The industry has already started to work on EVs’ production in order to reduce emissions, promoting recycling and remanufacturing.
By Irene Miraglia, Maddalena Peola, Sergio Morgante, Rado Damianov
NUNES, Breno; BENNETT, David. Green operations initiatives in the automotive industry: An environmental reports analysis and benchmarking study. Benchmarking: An International Journal, 2010.