Last reviewed 18 September 2020
Net zero is an organisational aim for many, but what does it mean and what do companies need to think about when starting their net zero journey? Laura King outlines some practical considerations.
The science is well established. Globally, we need to significantly reduce our emissions of greenhouse gasses (GHG) to avoid seeing dangerous levels of global warming. The impacts are now crystallising and firms are starting to fully appreciate the challenge. In the most recent version of the World Economic Forum’s Global Risks Report, environmental challenges dominated the top 10 risks, and of these, issues related to global warming — such as extreme weather — were within the top 4 risks identified by likelihood and impact.
As corporate citizens, companies have a moral duty to consider the impact of their activities on the environment. However, as the financial and operational risks to business become increasingly apparent, tackling climate change is also becoming a strategic issue.
One way in which companies can identify and address the climate-related risk is by setting targets to become net zero.
How is net zero defined?
Although, scientifically, net zero is well-defined — for example, within the IPPC’s Special Report, there is no official definition within the corporate sector and companies can use a number of different approaches to achieve carbon neutrality.
To address this, the Science Based Targets initiative (SBTi) instigated a stakeholder-inclusive process in 2019 to develop a framework for setting robust corporate net-zero targets. In its initial assessment it reached several conclusions, including that:
decarbonisation constitutes the most effective tool; and
companies should resort to carbon removals as an option to mitigate the impact of residual emissions. Not as an alternative to decarbonisation.
In essence, to achieve net zero, companies should look to reduce their emissions to as close to zero as possible. Any residual emissions can then be accommodated using carbon removal measures.
Considerations for the net zero journey
Understand why net zero is important
Without a business case and a clear outline of why resources should be invested, it would be hard to embark on a net zero journey. Part of getting buy-in is to understand the material risks to the company as well as the opportunities. As a starting point, understanding the risks relating to the physical impacts of climate change (for example, extreme weather) can help identify tangible issues that might arise for the company.
Once the risks and opportunities are identified, it is important to ensure that the company’s over-arching strategy is in line with any climate ambition to avoid future conflict. It is not always necessary to embed specific climate-related statements into the strategy, but it is essential that the company is committed to responsible, sustainable business.
Put in place a transformational programme
Any ambition to achieve net zero will incorporate the whole organisation, and as such will require input from employees at every level. It is likely that emissions outside the organisation’s immediate control will also need to be addressed, so the programme will also eventually need to include other stakeholders such as clients and customers.
To do this, it will be necessary to put in place a programme to drive forward engagement and transformation.
Identify where engagement is needed
How engaged are senior executives, staff, customers and suppliers? Any goal to achieve net zero will need ownership at all levels. Executives will need to provide a steer and allocate resources. Staff will also be fundamental to success, from suggesting ideas, to changing their behaviour. To help get everyone on board, identify what communication and education is needed at every level.
What is in scope?
When setting a target for net zero, it is important to identify the boundaries of what is and what is out of scope.
Firstly, this means deciding what energy use is going to be counted. The SBTi requires that companies follow the GHG Protocol when defining their emission types. This means that energy is accounted for under three scopes.
Scope 1: Direct GHG emissions that are owned by the company, for example, from company-controlled boilers.
Scope 2: Indirect GHG emissions from purchased electricity.
Scope 3: Indirect GHG emissions that are a result of company activities but not controlled by the company, for example, production of purchased materials.
Secondly, it will also be necessary to identify the organisational boundary, for example, whether subsidiaries or joint ventures will be included.
It is important to remember that for the majority of organisations, the largest sources of emissions are classified within scope 3. As these emissions are not under direct control, they are particularly hard to account for and often quite complex.
As the hardest part of the jigsaw, scope 3 emissions are often tackled after scopes 1 and 2 are better understood. However, companies are increasingly starting to approach the issue by concentrating on the factors that are most material to their business. For example, an office-based organisation might focus on emissions from employee travel, while a manufacturer might focus on purchased goods.
What is an appropriate target?
Credible targets should be science based. It should be in line with what is required to keep global temperatures below 2°C, compared to preindustrial temperatures — although the most ambitious companies are now pursuing a 1.5°C target.
In order to set any target, a baseline year will need to be chosen. The baseline year will need to include enough data to accurately assess the company’s emissions and be representative of business-as-usual operations. A target year will also need to be set — this can include short-term target years that monitor progress towards a longer-term goal (also see below).
If using the absolute emissions contraction approach as defined by the SBTi, an example target would read as follows: “Company A commits to reducing absolute scope 1 and 2 GHG emissions by X% by 20XX, compared to the baseline year of 20XX”.
Companies should also look to include a proportion of scope 3 targets. The SBTi requires that if an organisation has more than 40% of its emissions falling under scope 3, it should set a target that aims to address 66% of those emissions.
Roadmap for reducing emissions
Here, it is important to identify what is credible and how this can be achieved. Some reductions might be relatively easy, whereas others will take time, so it is important to consider how progress will be made.
Before setting a timeline, review other companies in the sector, as well as consulting with key stakeholders. Considering targets set by peers will provide an insight into how bold your own target is, ambitions set by others in the value chain may be important when considering how to reduce scope 3 emissions.
Carbon removal, or offsetting, should only be used when emissions have been reduced to their lowest possible amount. Care should also be taken when deciding how to offset emissions. Any carbon removal mechanism used should be additional to natural sequestration processes already happening and certified to a credible standard, such as the Gold Standard or Verified Carbon Standard.
Setting a net zero target is becoming increasingly important for companies looking to address the impacts of climate change. In achieving net zero, companies should:
ensure that climate action is embedded in the company’s strategy
put together a transformation programme
determine clear operational boundaries and associated emissions
identify how they will reduce emissions
set an emissions reduction trajectory and targets
consider how best to offset any remaining emissions.