The Benefits for Corporations Leading the Transition To Net Zero

Just over a year ago, at the end of 2021, global banks, international investors, government officials, and other world leaders gathered at COP26 to align strategies, targets, and investments to achieve net zero by 2050. However, there were three main criticisms: commitments made were not enough to limit global warming to 1.5 degrees, implementation plans weren’t robust and detailed enough, and there was an abundance of greenwashing. Greenwashing occurs when entities advertise and overhype their promises to be more sustainable but fail to meet those commitments, misleading the public into thinking they are “green” without taking meaningful action. It has been enabled by ineffective international reporting standards and weak regulations to enforce them. The gap between commitment and reality was a source of major backlash after COP26. It pressured leaders at the COP27, hosted in November 2022, to escalate the guidelines for credible net-zero pledges and supporting publications on emission reductions, reinforcing the accountability of corporations and investors. During the conference, the United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities released a report with insight into making net-zero promises and following a detailed roadmap to achieve them. Even though the procedure is not yet mandatory, the report clarifies the universal guidelines of reporting and provides a baseline for the development of sustainable corporate strategy and changes in regulatory frameworks. It is also aligned with reporting standards being adopted by bodies like the Securities and Exchange Commission in the US as well as the EU (as referenced in my previous article). 

Companies are not only receiving top-down pressure from governments into making ambitious emissions reduction commitments and global organizations supervising their progress, they are also facing bottom-up pressure from investors, customers and employees that value the integration of ESG (environmental, social, and governance) principles into their corporate practices. As stated by the former CEO of Patagonia, Rose Marcario, "I think that companies are realizing that their customers and their employees expect them to take a stand. You can't live in the gray area anymore. There's too much at risk right now.” Sooner rather than later, companies must integrate sustainability into their business model to remain relevant in a world with a growing environmental consciousness. 

Companies with net-zero targets in the Forbes Global 2000, a ranking of the largest companies in the world, have doubled since last year, reaching 40%. A strong business case further supports the implementation of a corporate transition plan toward carbon neutrality. According to a survey conducted by Nielsen, 81% of global customers strongly believe that companies should help preserve and restore the environment. Corporations ahead of the sustainable curve benefit from a competitive advantage because people want sustainable solutions and are willing to pay more for them. According to GreenPrint’s Business Sustainability Index, “66 percent of US consumers and 80 percent of young US adults (ages 18-34) surveyed are willing to pay more for sustainable products versus less sustainable competitors.” A report by the nonprofit CDP found that 80% of the companies listed in the S&P 500 index estimate that the cumulative financial benefits of climate action equals $4.8 trillion. The market has evolved to include sustainability as a success factor in a company’s future prospects. Those who fail to address the transition could be penalized by investors and customers. 

Some companies view sustainability-related spending as a cost, instead of an investment. They see the evolving regulatory frameworks and anticipate their need to comply. However, being at the forefront has its advantages. IBM sustainability expert Bob Willard states that sustainable practice integration could increase an SME’s profit by around 50% within three  to five years. The evidence shows that making net-zero pledges as part of a sustainability plan is beneficial for a company’s performance; but where to start? First, the whole business needs to be aware and on board with the established ESG principles. The company should lead by example and combine efforts from its leaders, employees, suppliers, and partners. This will foster a strong corporate culture around sustainability and facilitate the implementation of this plan. Secondly, businesses need to identify and quantify the emissions of all areas of the company, including indirect emissions coming from the value chain (Scope 2 and 3), as discussed in my previous article. 

This is somewhat challenging because all businesses have different environmental impacts and emissions profiles. Nonetheless, this information helps the company identify the biggest areas of opportunity for emission reductions. Thirdly, they should compile the information in a report and be ready to disclose it to the public to enhance transparency. These reports should include a breakdown of the company’s emissions, followed by clear reduction targets, and a roadmap to achieve them. A best practice that I’ve seen is with companies that approach this process as iterative, rather than sequential. Instead of spending a lot of time evaluating the exact emissions stemming from each part of the value chain and building the perfect plan, companies should focus on their biggest sources of emissions and start implementing some initiatives to reduce them.

Most environmental experts state that the transition from using fossil fuels to renewable energy is crucial to meet net-zero commitments because the former represents 70% of global emissions. In Mexico in particular, the emissions reduction stemming from adopting solar energy in a company’s operations as well as promoting solar within a company’s value chain provides a significant reduction in CO2 emissions, given the high carbon intensity of the electricity grid. Considering in addition the savings and high return on investment that solar energy can provide, as well as the multiple financing options available, it should no doubt be a starting point for a company in its net-zero journey.