With the recent announcement of President Biden fulfilling his commitment to re-join the Paris Agreement and the announcement that the United States will target reducing emissions by 50-52 percent by 2030 compared to 2005 levels. It won’t be long until we hear a similar message from our Prime Minister, Mr. Scott Morrison. The transition to a zero-carbon economy has well and truly left the station. However, what does your company need to do to ensure it is on the net-zero emissions train?
So why are we pivoting? Yes, there is a climate emergency happening at the moment, however, the business community has seen a significant opportunity to increase innovation, competitiveness, risk management, and growth. This transition will have a positive impact on your business and start to increase profits. Many companies have started to set business strategies to build for growth and emissions reductions.
However, such a task can be challenging for a company when choosing a target-setting approach. Something to consider upfront is why are we setting an emissions reduction target? Is it to align with best practice of your peers in your industry, or, is it more specific to brand integrity and reputation?
Two popular methods are the science-based and net-zero approaches. Science-based targets align an emissions reduction strategy with climate science. Under the Paris Agreement, there is a commitment to limit warming to well below 2 degrees C compared to pre-industrial levels.
A science-based target outlines a plan over the next few decades. A net zero target is more company focused. Ie, do we focus on scope 1 and scope 2 emissions, or set a target that includes scope 3 emissions also. In doing so this will help outline a timeframe for the target to be achieved. Also, science-based targets typically need to extend over five to 15 years. Therefore, one strategy could be to set a science-based target over the short term and aim for net zero by 2050.
Another question to ask is whether the targets are for specific assets or the entire portfolio. A good example of this strategy being used is Wesfarmers. They announced a net zero 2030 target for their retail branches whilst setting a net zero 2050 target for most of their industrial assets.
As there is no standard for net zero targets, companies must focus on strategizing and planning then communicating their emission reduction strategy to the public.
The reality is your company has a responsibility to become a part of the solution. Failing to do so will impact your ability to attract talent, manage risk, and innovate for growth. A few steps you can take to set your business up for success in a zero-carbon future include:
· Align your company with the Paris Agreement. The impacts of global warming of 1.5°C highlights the importance of aligning emission reductions with the goals of the Paris Agreement, and striving for net-zero emissions by 2050 at the very latest.
Science-based greenhouse gas emission reduction targets are the gold standard for companies setting emissions reduction goals, both in their direct operations and across their value chains. Furthermore, there is increasing pressure to prioritize investments that support decarbonization. Pension fund members are increasingly asking about the “green” rating of their portfolios. This is one of many signs that there is a shift happening away from fossil fuels, indicating the need for companies to incorporate the emissions impact of their assets into their investment plans, or be left with assets that will continually lose value.
The companies that have started the transition are reporting improvements to brand reputation and investor confidence. Companies that are committing to these targets are gaining a competitive advantage in multiple areas of their business.
· Commit to 100%. Committing to 100% leaves no room for excuses and sends a powerful signal to your stakeholders. If you commit to switching to 100% of your electricity consumption to renewable energy verse a 50% commitment, your objective will be clear to everyone inside and outside of your organization.
Over 175 of the world’s most influential companies have already made this commitment through the global corporate leadership initiative, RE100. Google as an example have already achieved their goal and are now powered by 100% renewable energy. Not only are these organizations creating change, they are saving money as the price of renewables continues to drop and they are demonstrating to their stakeholders (investors, customers and policymakers), that they see a future in which businesses are powered by renewables.
· Review your industry groups. Industry groups should look out for companies’ strategic interests. If the groups that your company is a member of are not taking serious action to address the climate risk, the entire industry is at risk of being left behind once we do reach net-zero emissions. As an example, Shell is walking away from the American Fuel and Petrochemical Manufacturers association over its lack of support for the Paris Agreement.
· Educate yourself on climate governance. Your plans to tackle climate change will only work if your company has the right governance in place to support it. This includes equipping board and management teams with knowledge and skills that will help them recognize the risks and opportunities posed by the climate crisis.
From a companies ability to attract talent, manage risk, innovate for growth and save money, the pathway to net zero is a lucrative one. Next week Part 2 will highlight what happens if your company does not start to consider a move to net-zero and what consequences/challenges your business will face.
Reach out if you have any thoughts on the above….