the impact of COVID-19 on environmental disclosures
published 10.28.20
Most companies today do not include remote workers when measuring their carbon footprint. This made sense a year ago when only a small portion of people worked remotely. By contrast, in 2020 an estimated 59% of employees worldwide are working from home. With companies like Facebook, Twitter, and Square considering making this the new normal, what are the implications for carbon accounting?
At qb., our GHG accounting work has taught us that emission reductions in one area can lead to increases in other areas of the company. Keeping in mind that 2020 is not your average year, we take a people-first approach to our accounting to really consider the ways in which things have shifted. We’re constantly asking: how much has the pandemic affected the movement of people, and what impact should that have on environmental disclosures?
Here are the three most significant changes we have noticed this year:
1. Remote work
With COVID-19, a large number of people started working from home and it is estimated that 20% of people will not need to return to the office at all. This has immediate impacts on transportation and energy use. We would expect emissions to decrease, right? Not really, it depends...
Source: iea June 2020
Analysis from the iea shows that working from home will reduce our CO2 footprint only if people use their car to commute to work, for journeys greater than ~4 miles and in areas that have less fuel-efficient cars (the average car in the US consumes around 45% more fuel than the average in Europe over the same distance). This means that for trips that would have otherwise been made walking, biking, or by public transport, working from home could lead to a small increase in emissions as a result of extra residential energy use.
Overall energy use has dropped by 20% yet, residential electricity consumption increased from 20% to 30% in the US, and 15% in Europe after the lockdown began.
So, will net emissions decrease?
Yes, according to the graph below. The reduction in emissions from personal transport outweighs the increase in residential energy consumption.
And, will it last?
There is no guarantee that car use will remain low in the long run. An Ipsos survey in China reported a 57% reduction in the journeys made by bus and subway but a doubling in the share made by private cars due to perceived health risks.
2. Business travels:
Working from home has also decreased the number of business trips. During April, Europe and US flights were down by 90% and 50% respectively ( ~15% of which are corporate passengers). This has not only decreased emissions but also reduced costs to companies. Finance teams have realized that it is not necessary to make trips like visiting offices in another city and will likely not want to go back to the same level of spending. Analysts estimate business travels could decrease by up to 25% going forward.
According to McKinsey, travel will return depending on the length, purpose, and sector in which travelers work as represented in the diagram below.
3. Demand for goods and services
COVID 19 has had a big impact on the demand for goods and services, which affects direct and indirect emissions (scope 1 and 2) and has led to a shift towards automation that can lead to future emission reductions. The impact has varied depending on the industry. For example, demand for healthcare, semiconductors, and the industries that make and use advanced electronics has soared. One factory recently ran at more than 90 percent capacity with only about 40 percent of the typical workforce.
On the other hand, the overall industrial production index in Europe dropped by 25% from February to April 2020. This will cause emissions from manufacturing to plunge in 2020. But it is not likely to last for the coming years as production rapidly rebounded from April to July.
Moreover, scope 2 emissions won’t decrease as a result of changes in the energy mix from the grid. Closed borders, stalled factories, and component shortages are slowing the deployment of renewable energy capacity, which is expected to fall short of last year’s figure by 13%.
in short:
on average, scope 1 emissions decreased as the production of goods and services fell mid-2020, and this is likely to last as companies shift towards more automation.
scope 2 emissions from electricity purchased decreased as office and factory energy use dropped, yet the composition of energy coming from the grid did not change as much.
scope 3 emissions were the most impacted. business travels decreased and will likely stay low in the future. commute emissions fell and are likely to stay lower than 2019 levels as more employees choose to transition to working from home permanently.
residential energy use increased, and depending on the mode of travel this can be greater than the emissions offset by employee commute.
It is becoming increasingly important for companies to disclose scope 3 (indirect, non-electricity co2 emissions). Working from home emissions had a sharp increase and not accounting for this can drastically reduce the disclosed carbon footprint.
But if there is no methodology for measuring emissions for remote workers, how much of the home energy use can be attributed to work? How does this vary by country? How do we find a time-efficient way to measure this for all employees? Companies will have to become innovators and collaborators in order to figure this out together and correctly account for the differences.
If you’re struggling with this within your organization, please reach out. We would love to help find a solution that works for your unique talent mix.
by María Otero-Estrada
Consultant
