By Jim Hietala, The Open Group, VP Sustainability and Market Development
In the coming years, Enterprise Architects will increasingly be called upon to take a leading strategic role in designing, establishing, and refining their organizations’ climate change response and climate data management.
As ever in this role, it will be important to really grasp the priors of the situation – why this has become a necessity, and what the opportunities are created by engaging with it – in order to have a consequential and long-lasting impact on it.
Understanding The Territory
For the climate crisis, there are really two separate pressures which are triggering a strategic shift for organizations in almost every sector and market, either of which would in itself constitute a reason to act.
The first comes from a practical assessment of how the regulatory environment is set to change in the near future.
Legislation around the recording, reporting, and reducing of greenhouse gas emissions, alongside other environmental impacts, is already with us, and more is coming soon. From the US SEC Climate-Related Disclosure rules and the Disclosure of Climate-related Matters proposition from the Canadian Securities Administrators, to the European Commission’s Corporate Sustainability Reporting Directive which is being joined by the EU’s rules on European Sustainability Reporting Standards and the Climate-related Financial Disclosure policy which is now active in the UK, among others, major markets are collectively preparing to enforce climate policy on a business level, across industry sectors.
While the aims, purviews, and methods of compliance inevitably vary across these legal mechanisms, they share a common impact in terms of broadening business attention onto so-called Scope 3 emissions, and establishing significant consequences for those that do not act.
Scope 3 emissions encompass a business’s supply chain, gathering together impacts which sit outside of on-site emissions such as those from a factory’s diesel generators (which count as Scope 1 emissions) or emissions associated with on-site energy usage such as an office building’s usage of grid power (which is Scope 2).
This is a vast range of activities for a business to gain visibility of and measure. The harvesting of raw materials as production inputs, the commuting of employees to and from business sites, the usage of leased services like cloud computing, and the end-of-life disposal of sold products all fall under Scope 3.
In terms of potential consequences, the most stringent examples are comparable to the most punitive business regulations of any kind, anywhere in the world. In the EU, for example, fines are established at the country level, and Germany’s framework states that non-compliance can lead to a fine of whichever is the highest out of €10m, 5% of total annual turnover, or double the profits gained or losses avoided as a result of the breach.
Of course, no single piece of legislation will demand complete, granular, perfectly accurate Scope 3 reporting overnight. Collectively, however, they will soon form a regulatory environment in which an enterprise can no more do without environmental reporting than they can do without robust financial auditing processes.
The second, distinct pressure for strategic change can be much more succinctly stated. It is what WEF founder Klaus Schwab means when he calls climate change the ‘single greatest threat there has ever been to our planet and livelihoods’, or what the IPCC indicates when it states that climate change has already ‘led to some irreversible impacts as natural and human systems are pushed beyond their ability to adapt’.
That pressure is the existential imperative of climate change.
Architecting An Appropriate Response
To some, it may seem odd to present these as parallel, equivalent pressures on businesses. Surely, the continued viability of civilization as we know it should far outweigh any governmental or regulatory proposal in our thinking about the future?
The importance of the changing regulatory environment, however, lies not just in its ability to trigger business action: it is a real opportunity for businesses to transform themselves to a more meaningful, consequential sustainability approach.
A report co-authored by the WEF and Boston Consulting Group, ‘Net-Zero Challenge: The supply chain opportunity’, found that the supply chains of just eight sectors, including food, construction, and fashion, account for more than 50% of global emissions. It also found that 40% of the emissions could be abated with already-available measures like circular manufacturing and renewable energy. Even achieving net zero emissions in those supply chains, according to the report’s investigations, would only raise costs for end-consumers by 1%-4% on average.
That can not be achieved solely on the basis of changing production workflows and adopting alternative approaches, however. To act effectively, businesses will also need to establish a comprehensive view of real emissions informed by supplier data, set ambitious targets and procurement standards on the basis of that view, and develop governance mechanisms which align emissions targets with other business incentives.
In other words, organizations will need to realize the vision of a holistic, compatible, and detailed emissions data strategy which the impending regulatory environment also demands.
At this point, readers will have understood how Enterprise Architects are uniquely placed to enable and empower this response to the climate crisis. Creating robust, interoperable, productive, and efficient ways of handling data, and architecting the business systems necessary to act on that data accurately and with agility, is Enterprise Architecture’s very purpose.
Achieving a broad sustainable transformation will demand the widest possible collaborative efforts from our area of specialization. At The Open Group, there is a forthcoming TOGAF® series guide in development on Digital Sustainability, which will provide a starting point for practitioners seeking to extend their skills to environmental initiatives. We also invite participation in the ongoing work of The Open Group Open Footprint™ Forum, which is developing the technical standards necessary for accurate reporting and sharing of carbon information within and between organizations.