Establishing the nominal¹²⁶ and activity growth of an organisation until 2030 requires a two-step approach. Organisations must first understand how activity growth and inflation drive the nominal (or financial) growth of their organisation, then validate realistic activity growth projections and adapted inflation assumptions.

Operate a distinction between activity growth and nominal growth

The modelling of costs, savings and investments requires a split of the nominal (or “financial”) growth into:

• Budget growth resulting from activity growth: by what percentage will activity indicators¹²⁷ such as number of plane tickets or litres of diesel, grow until 2030.
• Budget growth coming from inflation: what is the expected yearly inflation until 2030.

In the recent context of increased inflation, this approach is essential to identify the weight of activity indicators, in driving both the carbon trajectory and the financial modelling. Inflation is still used to calculate the yearly evolution of prices (see below).

Define the nominal growth rate and preferred inflation assumptions between present year and 2030

Firstly, organisations need to establish a high-level but realistic estimate of their nominal yearly growth rate until 2030. This timeframe exceeds the common financial planning timeframe of organisations. It therefore usually requires a discussion at senior leadership level, covering the following:

• What is a realistic growth rate for the organisation, based on:
  • the understanding of the drivers of past growth
  • the assessment of the trends in our current and future environment
  • historic data (10 years usually, statistical approach)
• To what indicator should this growth rate be applied, as it best represents the organisation’s business model? For most organisations, expenses are a better indicator than revenues. Not only are they linked to the carbon footprint, but they also eliminate potential fluctuations in revenues and related deficits or surpluses.
• Are there highly impactful changes in the organisation’s business model which suggest that GHG emissions¹²⁸ will not grow linearly compared to footprint baseline? Examples used for some organisations include: the development of a new operational activity of significant size, or the regionalisation of the operating model.

Secondly, the most suited inflation assumptions need to be identified, based on the geographical footprint of the organisation. The model uses the International Monetary Fund (IMF) inflation projections by country, by region or global, or a mix of these projections. For large organisations with a global operational footprint, global projections offer a realistic estimate. For organisations with large headquarters expenses in Europe for example, a weighted mix of Europe and global inflation can be relevant.
Finally, it is important to document the assumptions used to define the growth: this will allow organisations to better understand differences between predicted growth and actual growth and improve the future modelling.