Peering into the future

Projections for Net-Zero Pathways

In today's investment landscape, achieving net-zero emissions is a paramount goal for companies and investors alike. 'Viable' is our innovative tool designed to provide detailed net-zero due diligence, creating three distinct projections for evaluating the future emissions pathways of potential acquisitions.

These projections—Business-as-Usual, Exogenous, and Internal Transformation—are informed by exogenous trends and guided by frameworks like the GHG Protocol and Science Based Targets initiative (SBTi).

1. Business-as-Usual (BAU) Pathway

The Business-as-Usual (BAU) pathway assumes a scenario where the company continues its operations without any significant changes to its current practices. This projection is crucial as it establishes a baseline, illustrating what the future would look like if the company grows at the selected growth percentage without implementing any new internal reduction measures or responding to external trends.

The business-as-usual pathway utilizes the GHG Protocol Standards as the foundation for estimating the emissions of companies. For Scope 1 and 2 emissions, industry benchmarks from a comprehensive database of 10,000 companies are used. For Scope 3 emissions, we have painstakingly amassed a database of benchmark emissions from many different types of companies in different geographies. This enables us to estimate emissions for categories like business travel, commuting, transport and distribution. Specifically for Scope 3-1 & 3-2, Viable leverages national economic Use Tables, scaled down to company levels, to estimate purchase goods and services emissions—typically the largest and most challenging sources of emissions to quantify. These benchmarks provide a robust starting point for modeling potential internal transformations.

Methodology

For the BAU pathway, Viable uses historical growth data and extrapolates it forward. The model assumes that external conditions, such as regulatory frameworks, market demands, and societal behaviors, remain constant. This means that no new environmental policies are enacted, and no significant technological advancements are adopted within the company.

This scenario is essential for investors to understand the potential risks and impacts of inaction. By comparing the BAU pathway with the other projections, investors can gauge the urgency and necessity of adopting sustainable practices.

2. Exogenous Pathway

The Exogenous pathway accounts for a myriad of external trends that are expected to influence the company's operations and emissions profile over time. These trends are categorized using the STEEP framework: Societal, Technological, Environmental, Economic, and Political.

Examples of Exogenous Trends

• Societal: Increased remote working, deurbanization, and a workforce that is increasingly environmentally conscious, particularly among Gen Z.

• Technological: Decarbonization of the electricity grid, advancements in energy efficiency for vehicles and heating systems.

• Environmental: More frequent and severe weather events causing population shifts and changing consumption patterns.

• Economic: Rising cost of living due to inequality and conflicts, influencing both production costs and consumer behavior.

• Political: The rise of populism, which may conflict with social welfare and environmental policies.

3. Internal Transformation Pathway

The Internal Transformation pathway models the impact of internal measures that a company might deploy to improve energy efficiency and reduce carbon emissions. This projection includes typical measures adopted by companies within the same industry, providing a realistic and achievable roadmap to sustainability.

Typical internal measures might include:

• Energy efficiency upgrades in manufacturing processes.

• Transitioning to renewable energy sources.

• Enhancing waste management practices.

• Implementing carbon capture and storage technologies.

By evaluating these measures, the Internal Transformation pathway provides a detailed view of how proactive changes within the company can significantly alter its emissions trajectory.

SBTi as the Net-Zero Target Pathway

While there has been rightful criticism of the Science Based Targets initiative (SBTi)recently, its essence is still a fundamentally useful target pathway for defining the scale and speed of decarbonisation required for 'net-zero'. Therefore Viable overlays a SBTi reduction target pathway necessary to meet both near-term (5-year) and long-term (2050) net-zero goals. This ensures that the projections are aligned with internationally recognized standards and best practices for sustainability.

Bridging the Pathways: A Comprehensive Approach

The three pathways provided by Viable are not just isolated scenarios but part of a comprehensive approach to understanding and achieving net-zero emissions.

1. Baseline Understanding: The BAU pathway sets the baseline, helping investors comprehend the stakes of inaction.

2. External Influences: The Exogenous pathway incorporates a broad range of external factors, global trends and societal shifts, that are outside of your control, but will affect your net zero challenge.

3. Proactive Measures: The Internal Transformation pathway demonstrates the tangible impact of proactive internal measures.

Conclusion

For investors, understanding the potential future emissions pathways of a company is crucial for making informed, responsible investment decisions. Viable's detailed projections—grounded in robust methodologies and informed by the GHG Protocol and SBTi—provide a comprehensive toolkit for evaluating the viability of potential acquisitions in the journey towards net-zero emissions. By leveraging these insights, investors can not only mitigate risks but also contribute to a more sustainable and resilient future.