Net zero: why firms must act now

Throughout and beyond the immediate crises of today, one thing remains certain for all of business: the requirement to maintain momentum on climate action. The pandemic has magnified the need to plan for systemic risk. And when emissions must be halved by 2030 to limit further rises in global temperatures and avoid catastrophic impacts, this can only be done with all businesses on board.

Understanding the risks

The requirement for businesses to reach net zero is unavoidable and not doing so generates existential risks and missed opportunities.

Commitments have been made in policy, regulation, international agreements, and legally – with the target to hit net zero by 2050 enshrined in UK law in June 2019 and further commitments made in April 2021 by the UK Government to bring national emissions down by 78% compared to 1990 levels by 2035.

Political and regulatory changes will continue to drive major carbon pricing developments. Liability risk could increase, with firms facing potentially large financial consequences. Then there’s demand derived from market and behavioural changes resulting from evolving consumer preferences and behaviour, pressure from investors for greater accountability, and clearer environmental reporting.

And that’s on top of the direct and physical risks posed by climate change: impact on organisations’ infrastructure and assets, employees, and the natural ecosystems that they’re reliant on. These risks increase in line with emission increases and failures to transition to a low carbon economy.

Seeing the opportunities

The race to net zero is not just about survival. Timely and effective climate action can drive improved operational efficiency, customer loyalty, attraction of talent, capital market attractiveness, and resilience. There are untapped market opportunities with brands demonstrating commitment to sustainability reporting up to four times average sales growth, not to mention sustainable leaders showing stock market returns 24% higher than the overall market.

To quote former Governor of the Bank of England Mark Carney, “Firms that adjust their business models to the transition to net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist.”

So just where do businesses start their net zero journeys?

Understanding your footprint

Whether an SME with five employees or a multinational firm with thousands, the first fundamental step to any net zero strategy is understanding your footprint. This is where it’s vital to recognise how your footprint is measured but also how it relates specifically to net zero as opposed to carbon neutrality. All of which boils down to Scope 1, 2 and 3 emissions, which are defined as follows:

• Scope 1– Direct emissions from operations – owned or controlled sources 
  • Fuel combustion: fossil fuels, gas, diesel etc.
  • Company vehicle fuel
  • Emissions produced from manufacturing processes
  • Fugitive emissions

• Scope 2– Indirect emissions from the generation of purchased electricity, steam, heating, and cooling 
  • Purchase and use of electricity, heat, steam, or cooling

• Scope 3 – Includes all other indirect emissions that occur within a company’s value chain
  • Upstream emissions (related to purchased and acquired goods and services)
  • Downstream emissions (g., emissions related to sold goods and services). 

The boundary of a net zero target generally includes global Scope 1, 2 and 3 emissions of the company, whereas carbon neutrality only requires Scope 1 and 2, with Scope 3 emissions encouraged but not mandatory.

Therefore, it is vital to measure the impact of a businesses across its whole value chain and not just energy usage, for example, which is just one component of an overall footprint.

Seek expert advice

A common pitfall of many businesses starting out their net zero strategies is to second-guess what they can actually achieve. According to Ongen – specialists in onsite renewable energy solutions – many firms underestimate their site potential by not making thorough scientific analysis across their whole portfolio. “Some businesses go through a process almost subconsciously of deciding which sites, which properties and which technologies should work,” says Chris Trigg, MD at Ongen.

The Science Based Targets Initiative (SBTi) helps companies set and validate meaningful net zero strategies, in line with the 2015 Paris Agreement goal to limit warming, through the following methodology:

• Commit- The SBTi requires that organisations submit a commitment letter to indicate that said company will work to set a science-based emission reduction target
• Develop- Upon committing, the company has 24 months to submit targets. Criteria to meet: Temperature Goals (2 or 1.5), Applicable boundaries of Scope 1,2,3 and timeframe
• Submit- Complete the ‘Target Submission Form’ and submit to SBTi for validation. The target will then be validated against the target validation protocol
• Announce- Upon confirmation, the target will be announced on the SBTi website and needs to be made public within six months. This must be recalculated every five years
• Upgrade- Free upgrade to align with more ambitious goals (movement from 2°C to 1.5°C levels)

Understand your targets – and their rewards

The business benefits to applying science-based targets across an organisation are wide-ranging: from kick-starting innovation around energy and resource management efficiencies and utilisation to applying a consistent, measurable approach that increases accountability, improves investor confidence, and helps ensure resilience to regulatory change – vital necessities in an age of heightened transparency.

With the risks to companies who fail to act on climate change so great and the benefits of setting course so many, for any business that has not begun its net zero strategy: now is the time to get ahead of the curve and act.