Net-zero economy: what action should companies take?

Ford, Nike, Microsoft, Danone… one after the other, global companies and entire sectors (such as the aviation industry) have committed to net-zero carbon emissions. With most of them setting a target date of 2050, these commitments reflect a level of awareness that is shared around the world. As governments already know, the question is no longer about the destination, but how to get there. So, what are the practical solutions for achieving these objectives? Among the various possibilities, three actions have become essential.

Published on 19 January 2022

Consultants PwC¹ have calculated that keeping global warming to below 1.5°C – and thereby remaining aligned with the provisions of the Paris Agreement – will mean decarbonising by 11.7% a year, a figure five times the amount achieved before the pandemic (2.4% in 2019). While this objective still seems unattainable, the growing pressure of public opinion around the world means that governments and companies alike are now committing themselves to a climate transition.

The announcements keep on coming, but how can they be translated into action? The key to carbon neutrality for any company lies in its ability, on the one hand, to reduce its greenhouse gas emissions to a minimum and, on the other hand, to achieve a balance between those emissions and their absorption by natural carbon sinks (such as soils and forests). Clearly, this requires gathering a lot of data, which then has to be quantified. As Arnaud Doré, Director of Nature-Based Solutions at Atos Group company EcoAct, explains: “Although it’s vital to drastically reduce emissions and increase our capacity for carbon sequestration, achieving net-zero is above all about carrying out precise, comprehensive and objective measurements.”

However, this is also the first major challenge to be faced on the road to net-zero. In a recent survey of 1,290 organisations in 12 countries², the Boston Consulting Group (BCG) found that only 9% of companies were measuring both their direct emissions and their indirect ones (mainly those of suppliers). Despite the survey highlighting that “measuring CO2 emissions in an exhaustive, precise and regular way” is essential for achieving reductions, 81% of respondents omitted some of their internal emissions from their reports and 66% failed to declare their indirect emissions – despite the latter representing nearly 90% of the total.

Only by identifying their major sources of emissions and their projections for the future can companies choose the most appropriate low-carbon strategy, re-think the budget to be allocated, reorient their business priorities, find the right partners to work with, etc. Far from being left to their own devices, companies can get help with these tasks from programmes such as the Science-Based Targets initiative (SBTi)³, launched by CDP (formerly the Carbon Disclosure Project), the United Nations Global Compact, the World Resource Institute (WRI) and the World Wildlife Fund (WWF). This joint initiative recently unveiled its first carbon-neutral standard for limiting global warming to 1.5°C, featuring alignment methodologies, technical tools, criteria, practical guides, etc. It provides organisations with a complete framework, enabling them to set objectives suited to their activities. A further benefit is that this process also yields the hard data being sought by investors looking specifically for companies with a genuine commitment to the energy transition.

The second aspect of any ambition for carbon neutrality is offsetting. For a company, this involves financing one or more projects designed to either reduce or capture CO2 emissions. Like EcoAct, some firms have developed recognised expertise in this approach, which is widely used by organisations and regional/local authorities alike. “The strategies are essentially localised, but if you want to achieve an emissions balance, it’s essential to support developing countries,” emphasises Arnaud Doré. “Having a net-zero strategy to combat climate change means being involved with projects that generate carbon credits.” From using forest-sourced charcoal to preserving carbon sinks and protecting marine environments, there is a wide range of offset possibilities.

While the voluntary carbon credits market is expected to have doubled between 2020 and 2021, the area has recently undergone a potentially decisive change. Many experts believe that a key achievement at the COP26 conference in Glasgow was the recognition – anticipated since COP21 – of an international, regulated carbon credits market; where assets, in the form of greenhouse gas emission reductions, can be traded without the risk of them being counted twice. In practice, it means that any country or company that cannot meet its environmental objectives can buy carbon emission reductions created elsewhere and include them in their environmental accounts. A key point here is that for these carbon credits to be “authorised”, they need to be approved by a UN compliance body.

However valuable it might be, offsetting is a necessary but insufficient response to the challenge of transition. As Arnaud Doré explains: “Planting trees in France cannot be the only solution. Increasing our capacity for sequestration and preserving ecosystems around the world — while also drastically reducing our direct and indirect emissions at a national level — is a much better one.”

Such a view is shared by all the major players in the net-zero field. In France, these include the Energy Transition Agency (ADEME), which underlines the fact that “committing to carbon neutrality doesn’t mean looking to achieve something which is static. It’s a real challenge that requires long-term vision and regular action over time⁴.” Delivering on this agenda of continuous improvement involves a wide range of measures: including reducing fossil fuel consumption as much as possible, limiting both the transport of goods and business travel by employees and protecting existing carbon storage in forests and the soil. The initial assessment of a company’s carbon emissions should provide the basis for a reductions plan that features short, medium and long-term objectives for the main emission areas.

Another key area that shouldn’t be underestimated is the need to create a genuine environmental culture in the company, which means providing employees with training and awareness on the subject. This aspect is particularly important for SMEs – companies with fewer than 250 employees and that represent nearly 90% of the world’s businesses⁵. These firms need to deal with a different climate challenge to that faced by the major corporations, with air quality, waste and transport management being more immediate concerns than global emissions. Inevitably, there are technical and financial difficulties to be overcome and legal obligations to be met. But like the executives in big corporations, SME leaders need to realise that starting a genuine energy transition means taking a strategic decision for the benefit of their long-term future.