It is impossible for companies, regardless of industry, to ignore the climate crisis.
As a wicked problem, Climate change poses tremendous risk to the operations and supply chains of global companies. And diverse stakeholders, shareholders, and consumers are calling on the private sector to take aggressive steps to mitigate climate impacts.
As more countries and investors embrace net-zero mandates, corporations are facing pressure to craft bold and verifiable net-zero strategies. Doing this—and doing it well—will be an increasingly significant competitive differentiator in the years ahead.
What is Net Zero?
There is a great deal of terminology around the topic of this Insights that is often used interchangeably. This includes ‘carbon neutral’ (or ‘carbon neutrality’), ‘net zero’ and ‘zero emissions.’ It’s important when discussing a company’s net-zero strategy to have at least some understanding of the differences.
Let’s start with ‘zero emissions,’ because this terminology is the least ambiguous of the three. Sometimes described also as ‘zero carbon,’ ‘zero emissions’ means exactly what it says: the company, organization, or activity produces no greenhouse gas emissions. Zilch. Nada. Nothing. Given our current technologies, it is still nearly impossible for a company to achieve complete zero emissions, so this term is rarely used unless there is a great deal of transparent verification available around its official use.
‘Carbon neutral’ or ‘carbon neutrality’ was first used in the early 2000s to describe at the planetary scale a balance between the greenhouse gasses produced and the removal of those gasses from the atmosphere, primarily through carbon sinks (e.g., oceans, soil, forests, or engineered sinks like carbon capture and storage or direct air capture).
More recently, other entities like countries, companies, and even products or events may be framed via neutrality with the idea being there is a “balancing out” of emissions produced and what is offset (often through purchasing offsets or credits).
There is certainly a great deal of controversy around this conceptualization (for more information, read our published Insights primer on Insetting vs Offsetting), as it can be viewed as less grounded in science, and much more aligned with potential accounting tweaks (and thus prone to accusations of greenwashing).
Like ‘carbon neutral,’ ‘net zero’ as a term has been around for over a decade, and there was then and now, no universally accepted definition (though this UN report seeks to provide a frame of reference for what it means for companies and other no-state entities). It was originally intended for planetary framing as a whole and extended to countries as part of the Paris Agreement.
That said, while ‘carbon neutrality’ leans on the polemic idea that a company can just cancel out its emissions by purchasing offsets, ‘net zero’ is the next level of ambition. According to Work for Climate, net zero puts forth the idea that companies will first cut their emissions and then only purchase offsets for that which absolutely cannot be reduced. This is called ‘true net zero’.
For companies, then, the path to net zero typically starts with emissions reduction efforts: Where along the value chain can emissions be cut or reduced? When such opportunities have been exhausted, companies typically turn to carbon offsets for the emissions that remain.
A strong net zero strategy must account for three types of emissions:
- those that a company creates directly onsite (typically referred to as Scope 1);
- those that it creates indirectly onsite through, for example, purchased electricity (Scope 2);
- and emissions created upstream and downstream along the value chain (Scope 3).
Best Practices to Develop Your Net-Zero Strategy
The rush to craft net-zero strategies has led to both confusion around the most effective approaches and skepticism about whether a net-zero strategy on paper will achieve promised real-world impact.
Here, we’ve distilled evolving considerations for net-zero strategy into 7 key best practices.
1. Get Clear on Your Baseline
To develop a sound net zero strategy, the first step for any company is to accurately map its emissions footprint—Scopes 1, 2, and 3—across its operations and value chain. Targets are meaningless without first establishing this baseline.
This should be a public process. Companies should disclose their emissions, broken down both by scope and source, on an annual basis. Such disclosures should include emissions values from subsidiaries along with historical data (for comparisons)—and the methods used to calculate emissions should also be openly documented.
This is, of course, easier said than done, particularly for Scope 3 emissions (which typically constitute much of a company’s total footprint). But the work is necessary and valuable: A full and clear accounting develops credibility with investors, customers, civil society, and other stakeholders.
2. Set Science-Based Targets and Focus on Emission Reductions
Science-based targets are designed to align net-zero strategies with global ambitions to meet a 2- degree or, ideally, 1.5-degree warming goal. This means a focus on rapid and deep emissions cuts alongside interim targets that ensure a company is on-track to achieve its plan.
For companies, developing a net-zero strategy with science-based targets means prioritizing emissions reductions over carbon offsets. A company should make its plans to reduce emissions transparent—and then have pathways in place to replicate and diffuse success across the value chain.
3. Have a Roadmap to Net Zero, and Build In Accountability
A strong net-zero strategy has clear interim targets and milestones—to hold companies accountable and help them stay on track for their net-zero goals.
Further, ambitious net-zero goals don’t mean much without a concrete, achievable, and viable action plan—with the timeline, budget, and team to back it up. To build accountability and credibility, companies may also partner with third-party organizations like Planet Mark, CDP, the Science-Based Targets initiative, and the World Resources Institute to verify targets and progress.
4. Integrate Net-Zero Goals Into Core Business Strategy
An effective net-zero strategy cannot be a sideshow—it needs to be integrated across the company and reflected in both budgetary priorities and the KPIs of relevant business units. Climate-related issues should be factored into strategy, risk management, finance and capital planning, R&D, operations, and investor and government relations.
By building net-zero strategy into core business operations, companies have a great chance at mobilizing the resources, buy-in, and momentum they need to meet their climate goals.
5. For Carbon Offsetting, Do Your Homework
Most companies cannot cut all their emissions. This is where carbon offsets come into play.
But offsets should be pursued with care. To avoid accusations of greenwashing, companies must be thoughtful about how (and how much) they use carbon offsets—and where they procure them. Offsets should be part of a strategy only where emissions cannot be reduced; in other words, they should not be used to replace viable emissions-reduction efforts. And companies must take care that the offsets they choose are managed by reputable organizations deploying verified, long-term solutions.
All of this requires diligent research and oversight. While offsets might appear to be a simple solution to reach net zero, getting it right is a trickier proposition.
6. (Co-)Invest in Innovation for Net Zero
Effective net-zero strategies consider not only where to invest internally, but externally, too. Companies should be ready to invest in innovation within their industry—new business models or technologies, for example—that will help them move toward a low-carbon future.
Of course, scaling new climate innovations might be too expensive or risky for a single company to pursue alone. Here, companies benefit from pre-competitive and cross-sector partnership—collaborating with diverse industry peers, investors, innovators, academic institutions, NGOs, and donors—to co-invest in and accelerate high-impact solutions.
7. Partner with Your Tier-1 Suppliers to Reduce Scope 3 Emissions
One of the core challenges of tackling Scope 3 emissions is that they are often not under a company’s direct control. And yet, for the average business they are 5.5 times greater than emissions created by direct operations.
The solution? Companies must work toward net zero targets in close partnership with their Tier 1 suppliers. To start, companies might first approach their largest suppliers (by spend), and support supplier efforts with patience, empathy, and resources that ease their path in implementing their net-zero strategy.
Meeting Climate Goals with a Strong Net-Zero Strategy
The world needs to move toward a net-zero economy. Achieving this goal will be complicated and messy and no doubt involve myriad setbacks, but ignoring the trend is untenable.
Companies that want to remain competitive over the next several decades must establish their own route to net zero. The 7 best practices above provide a broad outline for how business can establish a sound and successful net zero strategy, to take on climate change and drive sustainable impact.
To learn more about how companies can partner and innovate for net zero, contact us.
Editor’s Note: This post has been updated for accuracy and current best practices.