Since March 2020 the world has focussed on dealing with and recovering from the impacts of COVID-19 and nationally we have also been trying to cope with the impacts of Brexit. However, there has also been increasing recognition of the urgent need to address the short and long-term impacts of climate change, brought into sharp focus by UK hosting of the United Nations COP26 Climate Conference in Glasgow.
Government, media and industry have all been highlighting the need to achieve Net Zero as a cornerstone of minimising the impacts of climate change but what does this mean, and should your company be implementing a net zero strategy?
What is Net Zero?
At the 2015 Paris COP 21 Climate Conference a landmark global agreement was reached that identified the need for urgent action to limit the rise in global temperatures to 1.5 °C to prevent long lasting and irreversible changes to the climate.
As part of the Paris agreement countries agreed to achieve a climate neutral (net zero) world by 2050. In 2018 The Intergovernmental Panel on Climate Change (IPCC) stated that restricting global temperature rises to 1.5 °C would require an initial 50% reduction in CO2 emissions by 2030 as part of the pathway to achieving net zero (100% reduction in net emissions) by 2050.
To achieve net zero requires economic and social transformation and transition away from our reliance on fossil fuels. While reducing emissions to zero may not be feasible there is a need to get as close to zero as possible and then utilise natural carbon sinks such as forests and technological advances (e.g., carbon capture use and storage (CCUS)) to absorb the remaining emissions.
If we are to limit warming to 1.5 °C then Governments and companies need to commit to and achieve net zero targets.
UK Government Commitment to Net Zero
In 2019 the UK was the first major economy to commit to a legally binding target of becoming net zero by 2050 and recently set out a strategy to reduce emissions across society and from each sector of the economy including decarbonising Industry.
Although the focus has been on energy-intensive industries, such as steel production, it is recognised that all industrial sectors / businesses will need to adopt carbon reduction measures if the Government is to achieve their net zero targets.
Why should companies seek to become net zero?
For organisations to achieve net zero requires fundamental changes to business models and operating practices but there are significant potential financial and reputational benefits:
- Reduced costs and increased profits – Reducing emissions by improving energy efficiency, minimising resource use, and decreasing shipping/transport distances can bring about significant cost savings.
- Maximise future contracts and growth opportunities – Larger companies are increasingly implementing net zero strategies and demanding low carbon products, services, and net zero certification from suppliers. Being able to meet these demands will not only secure current business but also provide a competitive advantage in tendering for future contracts.
- Enhancing brand reputation – Customers expect companies to make ethical decisions on their behalf. Committing to tackling climate change can enhance brand reputation which attracts new customers, help to maintain talent, demonstrates a degree of corporate social responsibility to stakeholders, and is attractive to potential investors.
Getting Started on the road to Net Zero
- Make a Commitment
The first step towards net zero is to make a commitment to reduce emissions. This can be done independently but to receive formal recognition commitments can be made through organisations such as the Science Based Targets Initiative (SBTi) or SME Climate Hub that are aligned to the United Nations Race to Zero campaign.
The commitment should be communicated publicly, allowing the organisation to demonstrate their intentions to key stakeholders and customers.
2. Determine your Carbon Footprint
“If you can’t measure it then you can’t manage it”
To establish feasible emission reduction targets and put in place appropriate plans an organisation first needs to measure and understand their carbon footprint. This term can be quite confusing as a carbon footprint requires assessing an organisations greenhouse gas emissions and the process is more accurately referred to as greenhouse gas (GHG) accounting. There are a range of standardised approaches (e.g., The Greenhouse Gas Protocol) and tools available for GHG accounting and selecting the most appropriate is based on business need, the size of the organisation and availability of time and resources.
As a minimum GHG emissions from an organisation’s own operations (referred to as Scope 1 and 2) should be assessed. However, a complete assessment of an organisation’s emissions can only be achieved by also considering emissions from upstream and downstream activities in the wider value chain, referred to as Scope 3.
Assessing the GHG emissions from your organisation over a defined period (usually a year) provides a baseline for setting targets against and identifies and ranks opportunities for emission reduction/cost saving
3. Set Targets
For a company to achieve net zero requires a target for reducing value chain* emissions aligned with pathways that limit warming to 1.5 °C and balancing any remaining (residual) emissions by use of carbon removal strategies (e.g., carbon offsetting).
*full range of activity needed to create a product or service
It is becoming standard practice to set a mid term target covering the next 5-15 years to help in establishing emission reduction strategies and promote stakeholder buy-in.
To avoid confusion and uncertainty and provide assurances that targets are credible and aligned with the 1.5 °C goal it is advised that science-based targets are adopted and verified. The SBTi provides sector specific guidance and tools for establishing targets and external verification of alignment to the 1.5 °C pathway.
To help organisations implement validated net zero strategies a range of initiatives have been developed and are categorised based on organisation size. Small and medium sized enterprises (SMEs) can utilise campaigns such as the UK Governments SME Climate Commitment (SME Climate Hub) which does not require external validation (SBTi) of targets and focuses on emissions produced by the organisation (Scope 1and 2). While larger companies can commit to campaigns such as the Climate Pledge or Business Ambition for 1.5 °C which require the setting of, and commitment to, SBTi verified emission reduction targets and the inclusion of upstream and downstream value chain emissions (Scope 3*).
4. Establish an Emission Reduction Plan
Assessing baseline emission information should facilitate the development of an emission reduction plan that is focussed on targets. A successful plan requires management buy-in built around a robust business case for each emission reduction objective.
At Haleys we have dedicated environmental services staff with a wealth of experience and knowledge working alongside accountancy, taxation and business advice professionals. We can provide advice on the business case for committing to net zero and, where required, support organisations in selecting and implementing a net zero strategy tailored to your business aspirations.
If you are considering implementing a net zero strategy or want to know more about the process, please get in contact with our Environmental Lead Dr Chris Lowe (email@example.com) to arrange an initial meeting.