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Beyond the Buzzwords: Understanding Net Zero for Businesses

Published on 05/07/2024 by Acclaro Advisory

‘Net Zero’ is the latest buzzword in the corporate world, reflecting a surge of interest in sustainability efforts. From climate-positive goals to science-based targets, there’s a lot of talk – but what does it really mean for businesses? We’re diving into the what, why and how of net zero targets to help businesses see beyond the buzzwords and commit to real action.

The Net Zero concept is by no means a topic that emerged from a standing start. Managing carbon emissions has been a steadily growing trend that has ramped up over the years.  This slow growth, culminating in the current boom, can be viewed as predominantly a consequence of stakeholder pressures demanding action.

Key drivers for net zero change:

  1. Asset owners requiring protection against damage to physical climate risks – from catastrophic wildfires in Chile to deadly floods in California and heatwaves in Pakistan to name a few, climate events are happening in fast succession and are causing disruption and damage.
  2. Investors applying downward pressure on their investments to measure and manage their response to climate change risks and opportunities.
  3. Large businesses are applying downward pressure on their suppliers to measure and manage their response to climate change risks and opportunities.
  4. Government response – On the 27th June 2019, the UK became the first major economy in the world to pass laws to end our contribution to climate change. The legislation committed the nations of the UK to reduce all greenhouse gas emissions to net zero by 2050. Since then, the Government has published the Net Zero Strategy (Build Back Greener), the main climate change policy document (updated in April 2022).
  5. Delivering solutions to align with climate change mitigation and energy efficiency is a significant business opportunity.
  6. Company reputation. In a competitive job market, sustainable core values are quickly being taken on for businesses. Living up to these values is fundamental to attracting staff.

These drivers are pushing companies to set Net Zero carbon targets and use them as key marketing tools.

What is Net Zero?

In essence, Net Zero means that a company is eradicating its emissions through actual reductions by investing in new efficiency technologies and engaging with staff to change their energy usage patterns. This results in a reduction of CO2 emissions, while any remaining emissions would be offset by investing in schemes to remove an equivalent amount of greenhouse gases in another part of the world that is outside of the company boundary. As a very simple example, planting trees removes CO2 from the atmosphere. Therefore, a company can offset its total emissions by funding a project that permanently removes carbon from the atmosphere. But there are complications, as we shall see shortly.

In practice however, it comes down to the corporate responsibility of the company as to how far a business goes to reduce its emissions before offsetting. The current buzz over Net Zero can easily result in many companies taking the ‘easy’ option and offsetting their way to achieve Net Zero status without investing in actual emissions reductions. Or in some instances ‘Net Positive’, which is when a company offsets more than it needs to become Net Zero.

What is the problem with some ‘net zero’ pledges ?  

The problem comes when too many companies opt for the easy way out and simply offset without ensuring real reductions. While offsetting is a noble initiative in many cases, in other cases the verification that projects truly remove carbon from the atmosphere is a difficult one.

Let’s take the tree planting example. Planting trees does not result in an instant removal of carbon from the atmosphere. It starts with planting the tree, managing the land, allowing the tree to mature and maintaining the tree which then gives the desired effect of removing carbon from the atmosphere. During the tree’s maturity lifetime there are a whole host of issues that can occur – it can become diseased, be eaten by herbivores, or the land can be sold, and the tree can be burnt for fuel and therefore release the carbon it had stored. Therefore, whether maligned or not, companies must be reducing their overall emissions and using offsetting as a last resort to achieve Net Zero.

What makes a good net zero target?  

We have come across many examples of Net Zero targets.  When setting targets, we recommend the approach below to ensure that these good intentions don’t fall into the same pitfalls that some businesses have by hastily releasing targets without consideration of the background work that goes into it:

  1. Capture your direct carbon emissions baseline. This includes your direct and indirect emissions from owned operations of the business – electricity, gas, fuels, heat and steam. This is your scope 1 & 2 carbon baseline.
  2. Capture your scope 3 emissions. These are your indirect emissions that are created by your business, for example, procuring products and services has a carbon footprint, paying transport companies to deliver goods and services emits carbon, employees getting to work, and even working from home, all come with a carbon value. It is likely the measurement will need to be estimated, so it won’t be perfect, but it’s a start. However, you will need to build up a complete picture of emissions if you want to state that you are Net Zero.
  3. Now set your target ambition – consult with the company on timescales, aggressiveness, why you want to set a target, who is it aimed at, who is responsible, who is sponsoring the programme. This will align your business and enable you to build your roadmap. Remember that climate change is a ticking clock, so achieving it by 2050 is vital.
  4. Build a roadmap – create segments of emissions that will be reduced during periods of time. Start with those under your control first, then expand out. Start with immediate actions over the next 5 years that are aligned to your business ambitions. Beyond that, things can start to become hazy, but you can identify segments that you will approach.
  5. Build interim targets. Factor in electricity decarbonisation, vehicle decarbonisation, heating decarbonisation within buildings. For goods and services consider lower carbon replacement products and supplier zero carbon pathways. The interim targets show thought and planning.
  6. Determine the role of offsetting, and if you choose to use them, research them thoroughly and choose quality credible offsets, not the cheapest on the market.
  7. Commit to your target and be 100% transparent about it. If you have excluded emissions sources, then disclose this and explain why. Displaying annual progression is an important part of committing to the set targets.  The aim isn’t to just set a target, it’s to be proactive and display accountability throughout the company effort of achieving it.

Need a hand setting targets?

We can support on building your net zero roadmap as part of your wider net zero strategy.

How to spot a poor net zero target: 

From our experience, some key target-setting traits that showcase a lack of effort, especially from large companies with significant emissions, include the following:

  1. Net Zero target incorporates scope 1 & 2 emissions only with no mention of scope 3 emissions.
  2. There are no long-term targets for absolute reductions.
  3. The only target is for 2025 Net Zero and will be completely based on carbon offsetting projects.
  4. Disclosed information will lack detail about initiatives to reduce actual emissions, or information will consist only of token gestures such as the company will purchase electric vehicles by 2035 (the sale of new petrol and diesel cars will be banned from 2035, pushed back from the original target of 2030).  Or the company will purchase renewable energy from their energy provider.

Achieving Net Zero isn’t just about setting ambitious goals – it’s about taking real, meaningful action. Companies need to move beyond quick fixes and commit to genuine emissions reductions. By adopting practical strategies, engaging stakeholders, and leveraging new technologies, businesses can not only reduce their carbon footprint but also enhance their reputation and resilience in a rapidly changing market.

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