Global efforts to coordinate action aimed at managing the climate crisis have both gathered pace and gained much greater focus in the years since the Paris Agreement in 2016[1]. The contribution made by the corporate sector is the subject of particular scrutiny as companies face up to the challenge to achieve ‘Net Zero’. In the context of corporate efforts on climate change, net-zero can be defined as “a transition to a business model that creates value without causing impacts from the accumulation of greenhouse gases in the atmosphere.”
Looking at the details amongst recently announced corporate ‘net-zero’ targets, there are a number differences in approach. As momentum builds towards the next United Nations Climate Change Conference in November 2021 (COP26), more scrutiny will inevitably fall on these targets. Companies will need to pay close attention to the development of standards and guidance on ‘net-zero’.
The steer from the UK government COP26 team is that net-zero targets should be in line with science and backed by a plan to cut emissions against a 1.5°C trajectory. Companies should include a shorter-term target as well as the longer-term net-zero commitment, and the approach should be across the full value chain, working with supply chains and broader opportunities to support transition to a low carbon economy.
In parallel, a framework for corporate net-zero targets is under development[2] by the Science Based Targets Initiative (SBTi). Currently, companies are encouraged to start their net-zero journey by setting targets based on a 1.5°C reduction pathway for Scope 1 and 2 emissions and either: a 1.5°C emissions reduction pathway for Scope 3 (indirect) emissions, or a more flexible Scope 3 reduction target.
SBTi is very clear that to be credible, a net-zero target “must address the most relevant impacts of the company – that is, it must address the sources of direct and indirect emissions within the company’s value-chain that are most relevant to its overall impact on the climate.” Herein lies the challenge for many companies: calculating Scope 3 emissions to any degree of accuracy is a huge challenge. Figuring out the level of influence and a pragmatic approach across Scope 3 emissions is unlikely to be a ‘one size fits all’ approach.
Globally, 230 companies so far have Scope 1 and 2, 1.5°C science-based targets approved by the SBTi[3] More will undoubtably follow, but at the same time, all companies will need to be adaptable to standards and guidance as it emerges. Science-based targets require companies to tackle emissions reductions and in parallel address Scope 3 emissions. A 2019 survey of energy managers at 104 organisations by Inspired Energy[4] found that only half of respondents said they ‘fully understand’ the term net-zero and, when asked to define it, energy professionals mentioned a mixture of terms including carbon offsetting (42%), carbon or emission elimination (36%) and carbon emission reduction (17%) which relate more to the means by which net-zero can be achieved. Almost two thirds of respondents were concerned that their organisation’s carbon reduction targets could be seen as ‘greenwashing’ or ‘jumping on the net-zero bandwagon’.
Amongst those who have established programmes and announced net-zero targets, certain companies stand out. Microsoft’s commitment is to remove all the carbon the company and its suppliers have emitted since its founding in 1975 by 2050. Microsoft are asking suppliers to provide Scope 1, 2 and 3 emissions data. IKEA has set a target, by 2030, to become ‘climate positive’ by reducing more greenhouse gas emissions than the IKEA value chain (scope 1, 2 and 3) emits, while growing the business. The goal is for all IKEA products to be 100% ‘circular’ and the targets apply across different stages of the value chain, with initiatives identified from raw materials to product end-of-life and recycling. By 2030, the target is to reduce absolute greenhouse gas emissions from retail and other own operations (scope 1 & 2) by 80% compared to 2016.
Google’s approach to renewable energy purchasing[5] is notable for the way it is linked to the challenge of developing new renewable energy generation.
“To ensure that Google is the driver for bringing new clean energy onto the grid, we insist that all projects be “additional.” This means that we seek to purchase energy from not yet constructed generation facilities that will be built above and beyond what’s required by existing energy regulations (like state renewable energy standards). This approach also helps advance new technologies and drive economic growth in the regions where we operate.”
Setting net-zero targets is instinctively attractive to chief executives and sustainability managers alike. Yet the devil really is in the detail and the goal posts are by no means stationary. Whilst that shouldn’t stop those wanting to make commitments, taking the time to develop a credible approach will undoubtably pay dividends in the future.
Jon Woodhead and Lucy Connell
December 2020
Jon Woodhead is co-Director of Challenge Sustainability. Lucy Connell is an Associate of Challenge Sustainability.
[1] https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
[2] https://sciencebasedtargets.org/wp-content/uploads/2020/09/foundations-for-net zero-full-paper.pdf
[3] 19th November 2020, SBTi, CDP
[4] https://inspiredenergy.co.uk/cutting-the-carbon-jargon/
[5] https://static.googleusercontent.com/media/www.google.com/en//green/pdf/achieving-100-renewable-energy-purchasing-goal.pdf