Net Zero: What Does That Mean for Corporates?

In its 20-year history, the Carbon Trust has had the opportunity to work with over 75 companies worldwide on the design of climate targets based on the latest scientific developments. Setting such targets provides different benefits to companies that include credibility, improved brand reputation, boosting investor and stakeholder confidence, and increasing the resilience of the organization against different climate-related risks, among others.

Although the fact that corporates setting science-based targets (SBT) will contribute to meeting the goals of the Paris Agreement (limiting global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C), reaching net zero by mid-century is a requirement to remain on the pathway to meeting those goals.

The science-based targets initiative (SBTi) has defined net zero for corporates as follows:

“To reach a state of net zero emissions for companies implies two conditions:

1. To achieve a scale of value-chain emission reductions consistent with the depth of abatement achieved in pathways that limit warming to 1.5°C with no or limited overshoot and;
2. To neutralize the impact of any source of residual emissions that remains unfeasible to be eliminated by permanently removing an equivalent amount of atmospheric carbon dioxide.”

Meeting these two conditions creates different challenges for organizations. To start, only a few companies have developed either a full greenhouse gas (GHG) inventory or at least a high-level screening that gives them confidence to understand where their main emission sources lie and thus, where they need to invest more time and resources to maximize impact. Secondly, there is often limited knowledge within sustainability teams on what tactics can be employed to meet net zero pledges, making it difficult to gain the required internal buy-in for such a commitment.

Understanding that these complexities exist, and that consensus is required, the SBTi is developing guidance for corporates on net zero and planning to publish it just before the Conference of the Parties (COP) 26 from the United Nations. Meanwhile, there are some steps that organizations can already consider for their net zero strategies:

• Set climate SBT in line with a 1.5°C decarbonization ambition;
• Include all your value chain emissions in the scope of your climate targets;
• Consider targets within a 10-year time frame.

The level of stringency of standards toward target-setting criteria is only expected to increase with time, so these actions will help your company to better understand its current position and what actions are required in the medium and long term.

Net zero targets are not just a challenge for organizations, they also provide an opportunity to reduce exposure to climate risks through abatement, neutralization, and compensation. Focusing on these three areas allows companies to explore bespoke roadmaps that will lead them to net zero. 

Abatement comprises all those measures that a company undertakes to reduce the emissions within its own operations and the rest of its value chain. For emissions that the organization is unable to prevent in a given year, neutralization is another option, through projects that result in the absorption and long-term sequestration of emissions. If these first two alternatives are not sufficient, compensation becomes relevant as an alternative to finance climate action beyond the boundaries of the company. Compensation does not only comprise the acquisition of carbon credits (or offsets), but rather different types of financing mechanisms oriented to accelerate positive climate impact. Making good use of these tools allows companies to design net zero strategies that are aligned with their business vision, while at the same time such strategies will contribute to the long-term success and permanence of the company.

It is understandable that companies may find it challenging to comprehend the various technical concepts, and the fact that the standards are under constant evolution does not make the situation easier. Therefore, it is important that companies remain open to the possibility of strengthening their internal capabilities with external support, either for very specific areas of knowledge or where experience is needed to find and propose pragmatic solutions to its own circumstances.

So, what does net zero mean for corporates? It means a huge opportunity to contribute to efforts to curb anthropogenic climate change while also hedging their business against a broad set of potential climate impacts, both transition and physical.

There are a series of steps all organizations should consider in their journey toward net zero:

1. Develop a full GHG emissions inventory that includes the whole value chain;
2. Design a GHG emission reduction strategy that is ambitious and that enables emissions reductions as early as possible;
3. Set climate targets based on the latest scientific evidence – science-based targets;
4. Execute your abatement strategy and complement with neutralization and compensation instruments;
5. Monitor progress and report on a yearly basis.

Currently, there is no chance that we can close the existing gap with the level of ambition required by the Paris Agreement unless all types of organizations react swiftly by setting both ambitious climate targets and bespoke strategies to meet them. Doing it correctly, requires a good understanding of the strategy of the company, growth projections, and the latest tools, methodologies and criteria available.

In the Carbon Trust, our team of experts can support you on your journey to net zero with a portfolio of services that meet your needs, which could range from the development of a hotspots analysis of GHG emission sources, to the design of comprehensive reduction plans to help you meet your climate goals and targets.

For more information, please visit www.carbontrust.com or email: Miguel.Chavarria@carbontrust.com.