In today's world, businesses are increasingly recognizing the importance of sustainability. A key aspect of achieving environmental goals is effectively managing carbon emissions, especially those generated by business travel. 

This blog post will guide you through the process of implementing a carbon budget for business travel, enabling your company to minimize its environmental impact while continuing to thrive.

What Is a Carbon Budget for Business Travel?

Similar to financial budgets, carbon budgets are essential for companies aiming to grow while keeping their emissions in check and adhering to reduction targets. Think of it as setting a "spending limit" for carbon emissions related to travel. 

Integrating a carbon budget into your organizational strategy provides a proactive approach to managing your company's carbon footprint. It ensures that resources are allocated efficiently, enabling your business to operate sustainably while still meeting its growth objectives and market demands.

This involves setting lower-level budgets for individual departments or teams, which are then combined into a single master budget for the entire organization. By aligning this budget with your overall strategic plan, you ensure that your carbon reduction targets are consistently met and integrated into your organizational objectives. 

This elevates the carbon budget from a mere administrative task to a crucial component of your strategic planning process, driving your business toward a more sustainable future.

Key Steps in Developing & Implementing Carbon Budgets for Travel

1. Develop The Business Case To Secure Organizational Buy-In

The process of creating a carbon budget for business travel should begin with a clear understanding of your company's overall sustainability strategy and objectives.

Without this understanding, it's difficult to ensure that your budget accurately reflects the needs of your organization, including the resources required to support sustainable travel programs, initiatives, and employee enablement across all departments. This is where aligning your carbon budget with your broader business strategy becomes essential.

Integrating your budget with your business strategy, KPIs, and sustainability goals is crucial for success. The more your finance and sustainability teams collaborate on your business strategy, the smoother this alignment will be.

The most successful path to organizational buy-in that carbon budgets are an essential tool to implement is one in which you start by clarifying why it’s good for business, not just the environment.

Begin by selecting one or multiple business drivers (e.g. efficiency of spend, customer pressure that’s creating risk of lost revenue, government regulations, etc) that carbon budgets will address, and by quantifying the business outcomes you will be more likely to achieve support for carbon budgets than by simply stating the environmental benefit alone.

2. Leverage Data & Software To Determine Budget Allocations Based on Business Inputs

Many organizations make the mistake of simply looking at previous years’ emissions and adding a coefficient (e.g. “reduce last year’s emissions by 5% year over year”), whereas the organizations that succeed with carbon budgets start with historicals but also factor in future business needs as well (e.g. “growing headcount or revenue next year by 15% just in the EMEA region”).

Software like Clarasight is purpose-built to support your end-to-end budget process, which often begins by unifying data across various sources to both understand your historical emissions and forecast future needs as well. We highly encourage you to incorporate business dynamics into your forecasting, which then provides you with an accurate representation of future carbon budget allocations required for each part of your organization to reach their core business goals.

3. Empower Leaders with Targets, Rolling Forecasts and Performance Management Insights

Targets have shown to be a far more effective way of driving success than policies.

Once carbon budget allocations are determined across your business, it’s essential that you provide leaders and managers responsible for travel decision-making with visibility and insights into their team’s performance against goals.

We have also seen tremendous value in providing smart rolling forecasts that update on a biweekly or monthly basis, so that leaders can see not just utilization of their team’s budget so far this year, but also understand projected emissions based on past performance, seasonality, and anticipated business travel ahead.

Carbon Budgeting Best Practices

Aligning your carbon budgeting process with your overall organizational sustainability strategy is the first best practice. But that's just the start. There are other ways to ensure you have a successful carbon budget that empowers emission reduction and helps your departments meet their individual targets.

Consider these four best practices for making your carbon budgeting process successful:

• Connect your data: Disparate and disconnected data is a challenge for sustainability teams. Data is critical to the carbon budgeting process, allowing you to understand emission sources, reduction opportunities, and past successes. Connecting your data and accessing clean, current data will improve your carbon budgeting process. 
• Use historicals as a baseline: Don't start from scratch! Use historical data as a baseline. Analyzing past business travel patterns helps you understand emission trends and drivers. Comparing actual emissions to past performance allows you to better predict future emissions and identify areas for improvement. 
• Map your critical drivers and KPIs: Understanding which factors most contribute to your emissions will let you know exactly where to focus your reduction efforts. Determining metrics like anticipated trips/person by function as well as the most emissions-intensive and popular travel routes within your business are critical to your organizational performance and carbon budget. ‍
• Make dynamic adjustments: Agility in your carbon budgeting process empowers you to make adjustments when needed. Changes in travel patterns, technology, or regulations may require adjustments to your budget. Incorporate flexibility through rolling forecasts or scenario modeling to stay ahead and adapt your budget as needed.

Expert Insight: Prepare a Master Carbon Budget with Cascading Allocations

Your master carbon budget consolidates the carbon budgets of every individual department. Department, program, and business line budgets feed into your master budget to inform how emission reduction efforts are allocated company-wide.

For a successful master carbon budget:

• Don't budget in a silo: Collaboration is key. Input from across the organization, from sustainability managers to the executive team, is crucial for determining emission reduction targets and allocating resources effectively. 
• Do have a budget calendar: A detailed budget calendar keeps the process on schedule. This ensures timely completion and prevents projects or teams from missing the resources they need to achieve emission reduction goals. 
• Don't lose sight of the data: Establish a process for data hand-off between stakeholders, models for each department, and a method to consolidate everything. Accurate and consistent data is essential for a comprehensive carbon budget. 
• Do measure and report: Use your master budget to measure your company's emission reduction performance and ensure resources are allocated effectively. Compare budget or forecast data with past performance through sustainability reporting to track progress towards company goals.

Preparing a successful master carbon budget requires collaboration, processes, tools, and underlying data. By collaborating across teams, having the right processes in place, and using technology to connect data, you can create a single version of the truth and ensure a comprehensive budget that considers every part of the business.

Expert Insight: Top-Down vs. Bottom-Up Carbon Budgeting

There are two primary approaches to developing a carbon budget:

• Top-down carbon budgeting: Senior management sets an overall emission reduction target for the business and allocates carbon budgets to each team based on company-wide objectives. This approach considers past performance and existing conditions.
• Bottom-up carbon budgeting: Individual teams prepare carbon budgets based on their specific needs and activities, aligning with company-wide objectives. Departments present their budgets for approval, and the budget committee reviews and approves or adjusts them.

Neither model is inherently better. They each have their own pros and cons, and the best approach depends on your organization's structure and priorities.

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Determining the optimal budgeting approach requires careful consideration of your organization's unique culture and the preferred working styles of your teams. Empowering teams to contribute from the ground up fosters a sense of ownership, while a top-down approach provides clear direction and alignment with overarching strategic goals.

Recognize that flexibility is key. The ideal approach may evolve year to year, adapting to specific objectives and shifting priorities.

For ultimate agility and responsiveness, consider a hybrid approach. This allows you to leverage the strengths of both methodologies. For instance, a long-term strategic plan might benefit from a top-down approach, while short-term budgets may be better served by a bottom-up model that captures granular insights from individual departments.

Expert Insight: Streamlining the Carbon Budgeting Process

The goal of every sustainability team should be to streamline the carbon budgeting process. Many businesses face challenges with lengthy budget iterations and require a dynamic solution that can adapt to shifting priorities, changes in travel patterns, or evolving sustainability goals. 

Here are some key recommendations for streamlining your process:

• Efficiency and Accuracy: The key to improving carbon budgeting is finding efficient ways to manage the process without compromising accuracy. Automation eliminates manual errors and streamlines data collection, consolidation, and reporting, significantly improving efficiency. 
• Cloud-Based Solutions: Cloud-based Carbon Planning software can further streamline the process by automating data integration, reporting, and analysis. This minimizes manual data entry and allows for real-time collaboration and updates.
• Scenario Modeling: What-if scenario modeling is crucial for forecasting and evaluating the potential impact of different factors on your carbon budget. Cloud-based EPM systems provide a single source of truth and facilitate data integration for accurate and efficient scenario modeling.

By embracing these best practices and leveraging technology, sustainability teams can optimize their carbon budgeting processes, improve accuracy, and effectively manage their organization's carbon emissions while achieving critical business goals.

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