A centennial corporation that produces large-scale diesel engines needed to identify the concrete steps necessary to transition its portfolio of fossil fuel engines to carbon-neutral products while balancing the constraints of the business and market with the pressure to expeditiously reduce emissions. The specific steps required to gradually turn its portfolio from gray to green—and the appropriate pace of that transition—were unclear. The manufacturer needed to understand its options; to understand options, the team needed data. That need raised a series of questions:
The engine manufacturer partnered with Guidehouse to sort through these data questions. First, they needed to establish their carbon footprint and climate reduction targets in accordance with the Science Based Targets initiative. SBTi, a partnership between environmental nonprofit CDP, the United Nations Global Compact, the World Resources Institute, and the World Wide Fund for Nature, has become a reliable global standard guiding climate targets for corporations. Working within the SBT framework was a first step toward organizing around clear, meaningful metrics.
The team needed to decide if they were reaching for an SBT of 2 degrees, fewer than 2 degrees, or 1.5 degrees Celsius. In a perfect world, any business might choose the most aggressive pathway, aiming to set a net-zero target in line with a future in which global temperatures rise no more than 1.5°C. So far, over 500 companies, representing more than $13 trillion in market capitalization, have made this pledge. But the difference between a 2- and 1.5-degree target can be monumental in terms of operational and financial impacts. Determining how ambitious the organization can be while maintaining profitability requires careful research and consideration. What would it take for a diesel engine manufacturer to set 2- or 1.5-degree targets? Finding the answers required a deep understanding of current market conditions and anticipated market changes in the various regions where clients are located. It also necessitated a good grasp of current technological capabilities as well as the costs and timelines associated with developing technologies.
For example, the company knew that the engines in their future portfolio would be a mix of electric and those that utilize liquid fuels, such as hydrogen. But while the technology to create hydrogen fuel certainly exists, the sustainable infrastructure required to generate hydrogen fuel at an industrial scale does not. In order to know how quickly hydrogen-fueled engines could become a part of their portfolio, they needed to understand how quickly the technology and infrastructure to enable that product would be available. This type of analysis and forecasting would need to happen repeatedly to determine multiple timelines for various factors.
Ultimately, the company and Guidehouse were able to gather, organize, and analyze the needed data to determine that the middle path—the below-2-degree target—is the most ambitious yet achievable plan. This data also allows the manufacturer to reach new levels of transparency with stakeholders. Every client and investor clamoring for the lowest possible emissions products as quickly as possible will need to know why the company chose a mid-range SBT. Being able to demonstrate how aggressive their target actually is when situated in context helps the corporation explain its sustainability value to customers and investors. With this increased level of transparency, the corporation and its stakeholders are embarking on the company’s decarbonization journey together.
Once targets were established, the corporation worked with Guidehouse to develop a roadmap for decarbonization of their production and supply chain. The map is based on the technological opportunities in the market for building a virtually brand-new supply chain, as well as a keen understanding of the implications of those changes on production, costs, and emissions. Again, this presented a data challenge: within a complex organization and its sprawling value chain ecosystem, what decarbonization opportunities existed? What would the financial and environmental implications of each be?
The corporation needed a marginal abatement cost curve to evaluate and prioritize the opportunities by expense, potential ROI, and emissions reduction. This required a detailed inventory of emissions reductions so each could be ranked within that cost curve. Once again, this information would come from a broad range of sources and need to be integrated into a single, clear metric. Once this data was collected and translated into a marginal abatement cost curve, decision-makers were able to create a clear decarbonization roadmap. This roadmap also includes a governance structure to facilitate the target achievement process across company divisions over the decades ahead. For clients and investors wondering if the diesel engine manufacturer would be capable of delivering the sustainable products they will need in a decarbonized future, the corporation now has a clear and affirmative answer, supported by data: yes.
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