How often should a company re-evaluate its decarbonization strategy?

As corporate concerns about sustainability grow, companies are implementing a variety of sustainability strategies to reduce their environmental impact. In particular, many are developing decarbonization strategies to minimize their greenhouse gas (GHG) emissions, driven by regulatory pressures, investor demands, peer competition, and public interest.

While measuring emissions and developing an initial reduction plan is a key step in a company’s sustainability journey, the strategy must be periodically re-evaluated and adjusted, much like any successful business strategy. Here, we dive into WHY companies may need to update their strategies and HOW they should approach the process.

Why should decarbonization strategies be updated?

Simply put, strategies need updating because both companies and the world around them are constantly changing and evolving. As businesses grow, change, and learn, their strategies should be modified to reflect these new circumstances.

Several factors can drive the need to re-evaluate a decarbonization strategy, including:

• Business growth and strategy: Significant changes in business activities can shift where and how much effort a company should put into decarbonization. For example, if a company plans to implement renewable energy at a few of its manufacturing facilities but then decides to expand the plants to increase production and grow revenue, renewable energy efforts might need to increase as well to account for the emissions tied to this growth.
• Changes to emissions profile: If the main source of a company’s emissions changes over time, the strategy to reduce emissions should change as well. For instance, if a company focuses heavily on operational efficiency actions in its initial decarbonization strategy and makes significant reductions, operational emissions may no longer dominate its inventory. In this case, the company might need to update its strategy to focus more on value chain emissions in the future to lower overall emissions.
• Lessons learned: Implementing decarbonization strategies offers valuable insights. Companies learn what works well and what may be more challenging than expected. Incorporating these lessons learned into the strategy can make implementation easier and ensure that goals remain realistic. For example, if a company intends to purchase green energy from a utility to reduce emissions but later learns that the utility cannot offer as much green energy as expected, it may need to update its strategy to rely on other initiatives for decarbonization.
• External changes: Decarbonization is a global effort, and over time, new technology solutions become available, electrical grids decarbonize, industry best practices evolve, etc. As the world changes, companies should update their strategies to reflect these changes. For instance, if cheaper hydrogen becomes more readily available in an area, a company might update its strategy to take advantage of this new source of energy.

How often should decarbonization strategies be re-evaluated?

Given the range of factors that can influence a strategy and various types of companies, there is no strict “rule” on how often a decarbonization strategy should be re-evaluated. Some EU regulations, like the Corporate Sustainability Due Diligence Directive (CSDDD), suggest annual reviews. Other guidance, such as that from the Science Based Target initiative (SBTi), recommends updating targets and strategies at least every five years (or whenever there is a significant change to a business or its emissions profile).

In general, companies should aim to review their strategies at least every three to five years. This timeframe gives teams enough time to implement a strategy and observe the impacts, while ensuring that changing internal and external factors that could impact a strategy’s success are routinely incorporated. Of course, if significant changes occur (such as a company spinning off a large division), there is no need to wait to re-evaluate the strategy – companies should make adjustments for major occurrences as needed.

How to update decarbonization strategies effectively

While annual updates may not be necessary, companies should perform at least two actions each year to gather critical inputs for future strategy re-evaluation:

• Measure emissions and reduction progress: Companies need to assess whether they are on track to meet their milestones and targets to understand how and if modifications to the strategy are necessary
• Capture lessons learned: Clearly document what works (and what does not) when implementing decarbonization initiatives to ensure that future strategy updates prioritize effective approaches

Every three to five years (or as needed), companies should use this information, as well as information on any other relevant factors that may have changed, to re-evaluate their decarbonization strategies. Key actions could include:

• Updating emission model forecasts with the latest assumptions (including the latest growth forecasts, external decarbonization models, etc.), which can help companies understand their gap to any emissions reduction goals
• Adjusting roadmaps to include different initiatives, more implementation of a particular initiative, different timelines for initiatives, etc., based on lessons learned from implementation so far
• Revising emission reduction targets (particularly if companies have overachieved and met targets early)
• Updating communication around decarbonization strategies, either internally or externally

In addition, it is important to note that companies do not have to change their decarbonization strategy during this re-evaluation process. If emissions reductions are on track, business activities have remained fairly constant, and the industry has not significantly changed, it might make sense to hold the course and re-evaluate in a few more years.

What should companies do next?

Companies that have developed their initial decarbonization strategy have already taken a key step towards emission reductions. However, to maximize the strategy's success, companies need a process for regular re-evaluation. By routinely and deliberately updating their strategies, companies ensure that their emission reduction plans stay aligned with the latest business goals and focus resources, capital, and overall efforts in the right areas.

Key Takeaways:

• Track and measure progress annually to capture critical insights
• Conduct a comprehensive review every three to five years to adapt to internal and external changes
• Adjust and communicate goals as needed to keep strategies effective and relevant