Analysing your portfolio to decarbonise profitably is simple: just focus on 3 essential parameters for each product/service/industry. First, determine the net revenue per unit of product/service making up your portfolio. Second, estimate the greenhouse gas (GHG) emitted per unit of product/service (prefer a calculation over their complete lifetime: from materials sourcing, to production, to consumption and maintenance, to disposal. I.e., life cycle assessment is the key here). Third, measure the sales volume for each product/service. If your company is active in more than one industry, do that for the products and services of each industry making up its business-level portfolio. Want to enter the champions league? Then, also integrate in your analysis the contribution margin as well as cost and sales synergies associated to each product/service/industry among your product and business portfolios. Once this is done, multiply the current and projected sales volumes by the revenue and GHG parameters per unit for each of your products/services. Thus, you obtain two key figures: the total emissions as well as the total revenues associated to each of your products and services. Then, divide the total emissions by the total revenues for each product/service/industry. And yes, the magic happened. For each of your revenue sources, you are now able to compare the GHG intensity per € of current and projected net revenue (expressed in kgCO₂ equivalent/€). Hence, you can strategically reshape your portfolio structure by prioritising elements contributing the most to your revenues while emitting the least. On the contrary, portfolio elements – including assets and processes enabling to deliver them – with uncompetitive GHG intensities per revenues generated can progressively be slowed down or even disposed. This is the basis for reducing your emissions – i.e., fighting against climate change – while maintaining your revenues and even generating new ones by answering the growing demand trends for sustainable offerings (see next section). However, this corporate demeanor will also shrink your costs. For instance, a 2024 BCG survey showed that cutting corporate GHG emissions led to financial benefits by decreasing operating costs thanks to renewable energy, efficiency gains and waste reduction (1). By investigating a little more, you can also estimate the potential for reducing the carbon footprint of portfolio elements contributing substantially to your net revenues, yet emitting too much currently. Eventually, the results of this second phase will allow you to define where you should concentrate some of your R&D efforts over the coming years. Nevertheless, ranking your portfolio according to GHG intensity first requires to establish a carbon accounting in your company. Browse the solutions explorer and discover how you can do that! This will also unlock your ability to set internal prices for your corporate emissions. Already done and seeking what could be the next step? Then discover how your company can slash its emissions through products and services redesign!

Kontext

According to a 2023 World Economic Forum and BCG study, sustainability-marketed consumer packaged goods sales grew at 2.5 times the rate of conventionally marketed products (with a compound annual growth rate (CAGR) of 7.8% for sustainable ones against 3.1% for conventional ones) between 2016 and 2021 (2). Furthermore, a McKinsey study from 2023 highlighted products with ESG features materialised better sales growth, i.e., their CAGR was up to 1.7% higher than those without (3). But what is a greenhouse gas intensity exactly? Well, this term defines the GHG emissions of something divided by an operational feature of the latter (e.g., the number of units produced (kgCO₂ equivalent/unit), of full-time equivalent employees (kgCO₂ equivalent/person), etc.) (4). Hence, this is a crucial ESG feature for sales reasons as well as a pivotal KPI for management purposes. Indeed, a company knowing its product or service carbon intensities is capable of benchmarking against market averages, identifying decarbonisation hotspots and communicating credibly to its customer about its impact on climate (5). Managing portfolios in a “greener” way is a GHG reduction measure initiated at the strategic level of a company (6). Hence, this corporate behavioural shift should be initated by the top management. Furthermore, in bigger corporations such as groups or investment holdings, this corporate best practice can be applied a step higher, i.e., at the business-level portfolio by analyzing GHG intensities of each industry the group is active in. Nevertheless, a trap to be aware of for both product-level and business-level portfolios is that reducing GHG intensities – i.e., relative emissions – serves the final aim of shrinking absolute corporate emissions. To exemplify this widely generalised trap, the weighted average carbon intensity of the FTSE All-World equity index for instance declined by 4.1% each year between 2016 and 2022 on a revenue basis (7). Yet, its absolute emissions climbed by 2.3% pa (7). This means that despite decreasing their relative emissions over time, companies in the FTSE All-World hence emitted more in 2022 than in 2016. Their efforts to decarbonise paid, but were not enough successful to decrease their overall carbon footprints while developing their business. Now you better know how to proceed and what you should focus on, slashing your emissions profitably by reshaping your portfolios is at your fingertips… Are you ready to make it happen in your company?

Referenzen

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