Are Northern American Companies Competitive on Carbon?

November 16, 2023 EcoVadis EN

Achieving anything close to net-zero emissions by 2050 represents a global transformation. Companies are and will continue to be at the center of this shift. Early movers will be well-positioned to unlock a smoother transition for the world – and opportunities for themselves.

Most companies will need new change muscles – and fast. Across our network, only about a quarter of companies have clear decarbonization ambitions and are already on a low-carbon journey, our second Carbon Action Report found: On average, 77% of carbon-rated companies, on a five-point scale ranging from Insufficient to Leader, are either at the lowest or near the lowest maturity level, meaning they have no or barely any elements of the GHG management system present.

We see that the world is already fragmenting in how many companies are stuck in the starting blocks. Geopolitical and economic forces are dampening progress in some areas, while elsewhere, customers, investors and governments exert enough pressure (or give enough incentive) for companies to get on with the task. That said, could some business leaders – particularly in Northern America, but also in other geographies – be seeking to retain their existing approaches to carbon as long as various stakeholders permit? It seems “yes,” given there’s been only a moderate acceleration toward decarbonization for it to be strategically relevant to most companies’ value-creation agendas.

Consider how out of 5,500 companies in the US and Canada, 79% were rated as either Insufficient or Beginner on carbon management. Among them is a bulk of SMEs who are often constrained by skills and resource gaps, as well as large companies (1,000+ employees) likely intimidated by the scale of the challenge. 

Figure 1: Carbon maturity distribution in Northern America (SMEs versus large companies).

*Due to rounding, this and other chart totals may not equal 100%.

For companies at the absolute baseline, the degree of the change required in the coming years may seem formidable but, in our view, isn’t unattainable and without precedent – encouraging examples exist across Northern America. One small manufacturing company in the US moved up almost the entire maturity ladder, from Insufficient to Advanced, in just two years. Now, it adds up to the 1% of Northern American SMEs on this level.

Figure 2: Progression of Northern American (NA) companies with at least two assessments.

Advancing up the maturity ladder requires companies to demonstrate progress on a wide range of carbon best practices, from setting targets across all three emissions scopes to using renewable energy. About 12% of our Northern American network reported having either Scope 1 or Scope 2 reduction targets. This falls further for value-chain emissions, with 6% having active Scope 3 targets. On that aspect, companies in the US and Canada are performing better than the typical company in our network, yet lag in switching to renewable energy sources – about 22% reported using renewable energy, 9 percentage points less than the global average.

In our analysis, compared to the broader EcoVadis network, companies in the two countries perform relatively better on several key carbon indicators. (See the performance on six selected ones from dozens tracked in our carbon assessment methodology). On some metrics, however, they can be considered less competitive – for example, few organizations (1% in NA and 2% overall) currently calculate product-level carbon data, allowing businesses along the value chain to get actual emissions data tied to their product mix. This is not to put the underperformance into the spotlight but to show there is space to claim that contender spot.

Why is that? Buyers are increasingly discerning about carbon reductions and are looking for ways to de-intensify their supply chains. Already, 200 companies are using our GHG management solution to benchmark their suppliers’ carbon practices and impact systematically. They will continue to cede growth to early adopters doing a better job of serving rising carbon expectations.

Also, regulation can rearrange the rules of the game dramatically. The EU is ready to implement a Carbon Border Adjustment Mechanism that sets the price on carbon-intensive products imported into the bloc. Any non-EU producer of an evolving set of products will be taxed for the emissions linked to its EU sales, regardless of its size or home-country regulations. With this backdrop, companies should raise their ambitions on carbon to build more competitive businesses. Latecomers will face rising costs to cover carbon intensity for their value chains.

A significant portion of greening your business can actually be ROI positive, even without a price on carbon. For example, using renewables is sometimes cheaper and helps against changing fossil fuel prices. Could the rest consider any other cost-effective moves in the absence of renewables? Training employees on energy conservation and climate action pays back in any environment. So far, only 15% of the Northern American companies are doing so.

Now, as they come to face the hard part – delivering on the urgency and opportunities in decarbonization – our Carbon Action Module offers companies context and recommendations for getting started or making progress on their journeys. To learn more about how companies can take action, visit ecovadis.com/carbon.

About the Author

EcoVadis EN

EcoVadis is a purpose-driven company whose mission is to provide the world's most trusted business sustainability ratings. Businesses of all sizes rely on EcoVadis’ expert intelligence and evidence-based ratings to manage risk and compliance, drive decarbonization, and improve the sustainability performance of their business and value chain. Its AI-powered risk mapping, actionable scorecards, benchmarks, carbon action tools, and insights guide a resilience and improvement journey for environmental, social and ethical practices across 200 industry categories and 175 countries.

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