Business innovation | Opinion

How to meet the net-zero challenge

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While companies with $11.4tn in revenues are committed to stretching net-zero emissions targets, the pace of change still needs to accelerate and carbon negativity ultimately to be the goal

A clear developing business trend has been a steady stream of companies setting out their plans to cut emissions, using science-based targets to ground their efforts and establish concrete targets. 

More than 1,500 companies have now set goals to reach net-zero emissions between now and 2050, a number that has roughly doubled in the past 12 months, according to analysis by the New Climate Institute. Right now, businesses with combined revenues of more than $11.4tn – equivalent to more than half the US GDP – are on the road to net-zero. There are big names signed up – the fact that these include the likes of Ford, Facebook, Swiss building materials maker LafargeHolcim, the giant Asian food producer C.P. Group and business services provider EY, indicate the breadth of business involved. 

The key motivators for net-zero moves are multifaceted. The financial and reputational risks faced by businesses in the case of inaction are a key driver. Elsewhere, incoming and future regulation that puts a meaningful price on carbon – such as carbon taxes or cap and trade schemes – or that requires transparency on climate strategy – such as mandatory reporting of climate risks to stakeholders – will continue to drive activity. 

First move advantage 

But many companies have seen an opportunity to be a first mover, getting out in front of anticipated regulation and consumer demand and expectation.

At the global flooring company Interface, famously the development of its sustainability strategy was prompted when a group of employees at a newly acquired business asked, “What is your company doing for the environment?” Tellingly, Jon Khoo, the company’s head of sustainability, sees a subtle but significant change evolving, predicting that “going forward, customers, investors, employees and fellow businesses are increasingly going to be asking, ‘What are you doing for the climate?’.” 

But what does it mean to be net-zero? And, if timelines are in decades before it is achieved, is it really ambitious enough? 

Ultimately, becoming net-zero means fulfilling climate goals through a reduction of CO2 and other greenhouse gas emissions, which can be monitored over time. Companies can achieve it by reducing the direct and indirect climate impacts of its business or investment activities within a specific timeline. 

Establishing internal net-zero targets is a key milestone for companies to meet. And for those who are well underway, the next step is to find a way to be restorative through their products and services – and extending net-zero commitments along the supply chain – Khoo says. 

Supply chain focus 

The Interface Climate Take Back Mission will see the business being run in a way that offers carbon-neutral products and even starting to embrace carbon-negative materials. “Our long-term goal is to be a carbon-negative enterprise by 2040, producing carbon-negative products.” And this will involve tackling its scope 1, 2 and 3 emissions, ensuring a product is carbon neutral from cradle to gate, and then increasingly across its lifetime. 

Supply-chain decarbonisation (ie scope 3) will be a game-changer for the impact of corporate climate action, according to Nigel Topping, the United Nations Framework Convention on Climate Change’s high-level climate action champion. “Addressing scope 3 emissions is fundamental for companies to realise credible climate change commitments.” 

Food company Danone takes a similar approach to Interface, having made a commitment as part of its 2015 Climate Policy to become carbon neutral by 2050 across its full value chain. “Our net-zero commitment means that we are responsible for the carbon emissions from the farms where we source our ingredients to the facilities that manage packaging once our products are consumed,” says Marie-Pierre Bousquet Lecomte, responsible for implementing the Danone’s science-based targets. Other areas of focus include developing new agricultural models and fostering regenerative agricultural practices to strengthen its farmers’ resilience. 

The offsetting challenge

It is safe to say that for many companies, net-zero targets will not be met without offsetting what cannot be reduced to zero. For Khoo, there is absolutely a role for offsets, but these should only be used to cover parts of a net-zero strategy “that cannot be achieved by redesigning your facilities, your operations and your supply chain partners. 

Interface is confident the voluntary carbon market has “great projects to support that are doing great things,” with the audit and verification work of the likes of Verra and Gold Standard playing a crucial role in creating an effective market. Danone’s own Livelihoods Carbon Fund supports projects for which the business can claim carbon credits to achieve carbon neutrality for some of its brands, including Evian.

The challenge, of course, is getting all the way to 100%. Bella Tonkonogy, associate director of the Climate Policy Initiative, says that “a lot of net-zero targets are very optimistic about the ‘net’ portion”, highlighting a number of caveats that can be unearthed when diving deeper into company plans.

Tonkonogy says that some companies work on the basis of “assuming that they’ll implement a 60% emissions cut and take care of the remaining 40% by buying carbon offsets”. However, carbon offset markets are, by consensus, “wildly under-priced and suffer from some degree of double-counting”.

 Internal offsets

There are differing schools of thought regarding the use of offsets from carbon markets.  Tonkonogy says that the most recent advice is for “offsets to occur within the organisation or sector”. If cross-sectoral offsets are to be considered, she argues that “only the creation of a single carbon offset market, or more effective and integrated linkages between existing ones, will ensure proper accounting and attribution of emissions reductions”.

Tonkonogy also points out , for example, use of tree-planting schemes can be questionable, with many trees not reaching their full carbon sequestration potential until they are 20 to 40 years old. “That’s not as effective as investing in clean energy today that will enable immediate emissions reduction.”

There has in fact been a bit of a boom in clean energy investment. The latest data released by Bloomberg New Energy Finance points to record amounts of renewable energy purchasing, with corporations securing 23.7GW of green electricity in 2020 – up from 13.6GW in 2018.

So-called clean energy contracts, or PPAs (Power Purchase Agreements) are increasingly popular. In Europe, the Middle East and Africa, corporate PPA volumes nearly tripled in the 2020, to a record 7.2GW. Despite a “wave of adversity in 2020” the growth in the market for clean energy is a “testament to how high sustainability is on many corporations’ agendas”, according to Kyle Harrison, senior associate at BNEF.

Absolute commitment

Tonkonogy says that when balancing absolute targets versus carbon intensity goals, absolute reductions are preferable when monitoring progress toward intermediate milestones. However, the distinction between the two is less relevant when pursuing reductions to zero. She argues that what really defines a target’s ambition is the set of measures that companies are adopting within their organisations “to ensure the implementation of such goals”. In other words, having systems in place to transparently monitor and share progress against the targets is fundamental to net-zero commitments. 

As we begin a new decade, 2030, 2040 and 2050 targets do not appear to be that far away – and the time for action is now. For Lecomte, collaboration between private and public sectors is central to fast-tracking the necessary nature-based solutions that benefit the environment and societies.

While Khoo is confident Interface will meet its 2040 goal of being a carbon-negative enterprise, he says it is close to meeting its “lower milestone” of net-zero. He says that the company already offers carbon neutral products, has factories running on 100% renewable electricity and reduced greenhouse gases by 96%. “The final barriers are related to innovating with our supply chain and making a few more tweaks to our operations.”

For other companies, tools such as the newly-launched University of Cambridge Institute for Sustainability Leadership net-zero roadmap will help. It promises to “move the debate from pledges and commitments to the delivery of action that is essential for a stable climate”. 

Across business, though, the message is loud and clear: emission cuts must be deep and achieved on ambitious timelines. As Unilever CEO Alan Jope recently noted: “The actions we take in this decade will decide whether we achieve net-zero by 2050. It’s as simple as that.”

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