Over the past 18 months, the gears have shifted when it comes to climate change, with pressure for both transparency and proactivity now coming from seemingly every angle: the general public, government legislation for net zero, climate groups, corporate customers and investors. Consequently, corporate commitments to climate action are on the rise.
In September 2020, EcoAct’s 10th annual Sustainability Reporting Performance of the FTSE 100 found that 45% of companies are now committed to net zero by 2050 or earlier. Good news for our climate. However, the report cautions that comparatively few companies—only 16% of the entire index—have an adequate strategy in place for meeting this increasingly urgent global goal. This is bad news, not just for the climate, but for business.
How can organisations build a robust strategy to achieve such a seemingly distant target which, as yet, has no internationally agreed definition and all at a time when we are grappling with the implications of a global pandemic? The aim of this article is to provide some clarity on the term net zero, lay out five key components of a robust net zero strategy and demonstrate how climate action translates to organisational resilience, which is more important now than ever before.
Net zero: a clear definition
Simply put, net zero is a state where we add no incremental greenhouse gases to the atmosphere. This means emissions output is balanced with removal of carbon from the atmosphere via carbon sinks (e.g. forests, mangroves, carbon capture, etc). Essentially, what is emitted must be removed to equal net zero.
However, with global temperatures already rising, net zero cannot simply be a carbon accounting exercise (and certainly not one we can wait until 2049 to start undertaking). Fundamental to net zero must be significant carbon reductions aligned to the decarbonisation pathway needed to limit global warming to 1.5 deg C. Therefore, we must rapidly reduce emissions to as close to zero as possible and offset, via removal, any emissions we are unable or are still working to reduce.
Despite no agreed international definition, since we published this explanation in February 2020 it is fast becoming consensus among climate experts and industry bodies as a robust interpretation of a net zero target.
What does net zero mean in practical terms?
How can an organisation build a credible strategy for successfully achieving net zero and what is really in it for an organisation? The following are five key components of a net zero strategy and the opportunities that they can present.
1. Decarbonisation aligned with climate change science
As mentioned, a net zero ambition is going to fall prey to criticism unless it includes an ambitious emissions reductions target. We recommend setting a science-based target (SBT), which are deemed best practice in target-setting. Climate disclosure frameworks, like the investor-led CDP, are now looking for these commitments.
At this time, it can still be a market differentiator for many organisations. For example, Landsec was recognised for climate leadership in our annual research, being the first in its sector not just to set an SBT but to have met its target so far by achieving a 40% reduction in its emissions.
With a national net zero target set for 2050, the expectation for emissions reduction is going to get stronger, legislation is going to get stricter and the costs of carbon removals will be great unless a business can successfully decarbonise. Having an ambitious target and, perhaps as importantly, a clear understanding of where actions need to be taken to achieve this target and the costs involved will ensure a business is well prepared to weather the increasing demands of the climate agenda.
2. A clear understanding of climate risks and opportunities
This month, chancellor Rishi Sunak announced that it will be mandatory for all large companies and financial institutions to disclose their exposure to climate risks by 2025 to support the greening of the UK economy.
This comes during the year that that the World Economic Forum named climate change as the top global risk both in terms of impact and likelihood. Just one year prior it had published a report titled Outbreak Readiness: Protecting Lives and Livelihoods across the Global Economy, which warned of the increasing risk of global pandemic and outbreaks of infectious diseases and the need to reduce our economic vulnerabilities. Given the context, this provides us with a sharp reminder of the necessity of heeding the warnings on future risks.
Risk disclosure is being demanded by government as well as investors, and net zero strategies are going to be much stronger if we understand both the risks and the opportunities that we face from climate change but also from the transition itself. This is how we can create adaptation and mitigation plans to future proof our organisations and seek out potential value in order to turn the net zero transition into positive business transformation.
3. Inclusion of the full value chain
Many organisations find that the largest part of their carbon footprint is their value chain emissions. These are emissions which fall outside of the organisations’ direct control. Organisations are coming under increasing pressure to demonstrate that they are taking responsibility for their full climate impact and the growing expectation is that a net zero strategy should encompass all emissions, direct or indirect of an organisation.
This poses many challenges, particularly for large organisations with complex supply chains or multiple products. However, it also holds the key to potentially large emissions reductions, increased efficiency, supply chain resilience and collaboration which can lead to new market opportunities.
For example, EcoAct worked with Telefónica, a multinational telecommunications company headquartered in Madrid, to set up a supplier engagement programme with its largest suppliers. This has proven extremely effective at getting these companies to set their own targets for a variety of environmental KPIs, which in turn are contributing to Telefónica’s value chain emissions reduction targets and helping it to build a more climate-resilient supply chain.
To achieve the emissions reductions required is going to need transformational change for businesses—but this is quite possibly where the largest opportunities lie.
Consumers and other businesses are going to look to companies to provide them with the means to reduce their own emissions and solve their sustainability challenges. We are increasingly seeing businesses, not only realising the urgency of the climate crisis, but recognising the importance of transforming their businesses and bringing to market more sustainable products to remain competitive.
Unfortunately, there is no silver bullet for tackling climate change. Very few organisations will be able to eliminate all their carbon emissions today or potentially even in 2050. Offsetting, via credible, verified carbon credits, allows us to take urgent action to neutralise our emissions as we continue our efforts to reduce. The carbon market also provides a valuable source of finance to help share renewable technologies, preserve and regenerate precious habitats and improve the livelihoods of communities while reducing and/or sequestering global carbon emissions.
Earlier this year, we supported British designer Anya Hindmarch in making her new “I Am A Plastic Bag” project carbon neutral. The bags, made out of an innovative new fabric created from recycled plastic bottles and coated with plastic from recycled windshields, result from a collaboration with suppliers to innovate new processes to reduce environmental impacts. To attend to remaining carbon impacts, carbon credits were purchased from a wind power generation project that aims to close the supply–demand energy gap in India with renewable energy and provide employment opportunities to local communities.
For many companies the carbon credits they purchase provide an additional means of engaging their internal and external stakeholders through stories of sustainability in the company and its climate targets.
Perhaps most importantly, climate is no longer the siloed responsibility of sustainability teams. The change that net zero requires and the growing demands of investors and customers for proactivity on climate places the net zero agenda firmly in the laps of business leaders, board members and senior managers. The decisions we as business leaders make today around climate change have more bearing on our future resilience than ever before.
Stuart Lemmon is chief executive (Northern Europe) of sustainability and climate consultancy EcoAct.