Across the world, the idea of enterprise net-zero commitments has transitioned from a forward-leaning goal to a mainstream instrument in the fight against the climate crisis.
Several years ago, only a few companies had made public commitments to reach net zero by 2050 or sooner, but that number has surged. Today, net-zero targets cover roughly 90% of the global GDP — compared to just 16% in 2019 — as reported by the Energy and Climate Intelligence Unit.
This recent wave of ambitious net-zero targets coupled with a lack of a standardized approach to reach them has created industry-wide skepticism and “greenwashing” concerns.
While net-zero goals can serve as a powerful mechanism to drive emissions reduction, companies need a well-defined path and proper strategy in place in order to make a credible commitment.
As an enterprise ESG or sustainability leader, you may be asking yourself how realistic this aspiration is for your company. Plus, how do you avoid becoming another voice in a pool of public — and somewhat ambiguous — declarations?
Here’s what to consider before making a net-zero commitment.
Set near-term targets
An enterprise’s goal to reach net zero needs to be more than just a theoretical ambition looking ahead to 2050.
Given the extended timeline for these targets, it can be challenging for many sustainability leaders to drive urgency and make the meaningful reductions required to keep global warming below 1.5 degrees celsius. As a result, it’s necessary to establish near-term science-based goals and milestones along the way.
The Science Based Targets initiative [SBTi] — which launched the world’s first net-zero corporate standard in 2021 — has expressed an acute need to scale up near-term targets that put companies on a trajectory toward net zero, and without reliance on offsets or carbon credits.
These near-term targets outlined by the SBTi provide companies with a well-defined map of how much and how fast they need to reduce their greenhouse gas emissions across Scopes 1, 2, and 3.
Some of those actions could include investing in technologies such as electric fleet vehicles, moving toward solar or wind energy, or implementing sustainable business travel guidelines, per recommendations from the World Resources Institute.
Reaching meaningful milestones along your net-zero journey will not only allow your company to make real emissions reductions but will also establish greater credibility for its long-term goals.
Consider the broader net-zero ecosystem
“As you think about the net-zero transition, it’s certainly an important imperative to think about decarbonization actions, but it’s also about managing your risks and capturing opportunities … So along with thinking about the net-zero economy and the net-zero transition, companies will also need to think about the set of adaptation actions.”
Mekala Krishnan, Partner at MicKinsey & Company
Mekala Krishnan, McKinsey & Company Partner, discussed the importance of focusing on Scopes 1, 2 and 3, in a recent podcast. Mekala also described what she called a “holistic” net-zero approach, which involves more than just decarbonization efforts.
As the world transitions, she said companies need to consider how they will mitigate risk and take advantage of new opportunities.
For example, certain business sectors with high emissions might experience cost increases or see lower demand for their products — making it challenging to assess capital.
Additionally, as research progresses so will new opportunities. Mekala anticipates new markets for various low-emissions products, which could result in entirely new supply chains.
Collaborate with your partners and stakeholders
Those leading sustainability at a large enterprise know there is an abundance of moving parts involved in any climate-related goal, particularly as it relates to your Scope 3 emissions.
For example, a 2021 McKinsey & Company report indicated that for most companies, supply chain accounts for more than 80% of greenhouse gas emissions.
As a result, it’s critical to engage with your suppliers and the partners you purchase utilities from prior to making a public net-zero commitment. In order to reach your own goals, you should first consider the sustainability targets of your partners and help influence their path if necessary.
Virginia Covo Naranjo, Director of Sustainability at Anheuser-Busch — which set a 2040 net-zero target — spoke on the importance of working with your enterprise partners during a recent SupplyShift webinar.
“If our suppliers don’t decarbonize, we’re not going to decarbonize, and we’re not going to reach our goals either,” she explained.
Of course, internal collaboration is also paramount and leadership support is a vital component of any net-zero strategy.
Mekala Krishnan said the company’s sustainability agenda actually needs to be the CEO’s agenda because of the many business impacts.
“One of the things that we highlight in the research is the breadth of business decisions that are changed as a result of a net-zero transition and moving to a net-zero world,” she said.
For example, there may be markets that the enterprise previously found attractive that are no longer attractive in light of its sustainability goals. Additionally, these efforts can require operational changes, risk assessment, talent upskilling, and more.
Benchmark with your industry peers
It’s clear that the decision to make a net-zero commitment should not be taken lightly, and as an ESG or sustainability leader, you know the challenges of operating in a rapidly-evolving field.
It can be beneficial to pause and ask yourself how other leaders at companies like yours are navigating these hurdles.
The ESG & CSR Board — a trusted community where ESG, social impact, and sustainability leaders at billion-dollar brands get unbiased peer insights — is hosting a panel discussion on how to take climate action at the enterprise level on Wednesday, August 10th, at 1 PM ET.
Expert panelists from companies such as Lam Research and Illumina will share their approaches to net-zero commitments, greenhouse gas reporting, climate justice, and more.
Whether your company has made commitments, has decided to hold back, or hasn’t decided either way, this conversation will give you new perspectives.
Interested in learning more about the ESG & CSR Board?
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