Addressing net-zero carbon emission goals

Long-term challenges like climate change may have briefly felt less important in the midst of the COVID-19 pandemic. However, it is clear that the urgency of the transition to a zero-carbon economy has, if anything, become even better understood in the last twelve months. Businesses and governments alike have made bold promises to create fundamental shifts in how to cut carbon emissions and increase resilience against the disruptive potential of climate change.

As a result, in the nearly five years since the signing of the Paris Agreement, some progress has been made, but much more needs to be done – and faster. While COVID resulted in a historic drop in emissions last year, this blip of progress only underscores the challenging and arduous road ahead.

In a video speech last year at the Finance in Common Summit, UN Secretary‑General António Guterres reiterated emission-reduction research and goals, while offering a stark warning: “The decisions we make now will determine the course of the next 30 years and beyond: Emissions must fall by half by 2030 and reach net-zero emissions no later than 2050 to reach the 1.5 Celsius goal. Science is clear: If we fail to meet these goals, the disruption to economies, societies and people caused by COVID-19 will pale in comparison to what the climate crisis holds in store.”

Net Zero – the basics

To reach net zero – where the amount of human-produced greenhouse gas emissions equals the amount removed from the atmosphere – transformative changes are needed. In addition to governments, corporations will play a key role in decarbonizing the economy.  The companies that make bold investments in climate change mitigation and carbon transition now are likely to build a competitive advantage.

Reaching net zero is a crucial step in the fight against climate change. The greenhouse gases added to the atmosphere by human activity largely determine the extent of global warming. To prevent catastrophic climate change, emissions need to be decoupled from economic growth, and reduced to near zero per unit of GDP.

Central banks recognize that greening the financial system will catalyze economy-wide action to decouple carbon emissions from growth. And investors realize that inaction on climate change will affect the value of their investments. Both stakeholder groups recognize a stable climate directly informs the stability and resilience of the economy.

BlackRock, the world’s largest asset manager, announced that it will increasingly vote against directors that fail to act on climate change and is endorsing standards that mandate better climate-related disclosure. It has confirmed that its position is unaffected by the COVID-19 pandemic. BlackRock has also joined Climate Action 100+, a global coalition of more than 540 investors acting together to drive change.

Plotting a course to Net Zero

Larger corporations are starting to model the changes that need to happen, and household names, from Microsoft to AstraZeneca, have set ambitious net zero targets. However, progress needs a plan. Businesses now have to follow through on their commitments with well-thought-out actions.

Here are five tips for companies to consider when embarking on a net zero journey.

1. Really understand the company’s carbon footprint. Know where its emissions hotspots are across the value chain, including where emissions of suppliers or products are critical parts of the business ecosystem. This is the first step to taking action.
2. Articulate the company’s vision. Then, companies can start developing their decarbonization strategy – making a clear commitment to cutting the organization’s absolute emissions. It’s not necessary to know all the details at the onset, but defining a vision is vital. Ideally, companies can then share this vision with the world to engage stakeholders, keep the business accountable and contribute to a change in industry norms.
3. Make the easy changes fast. Competitors are likely to take advantage of any cost savings associated with lower emissions systems, fleets or facilities – so it benefits companies to transition to these as soon as possible. And from there…
4. Think about emissions on a systems level, and build partnerships to drive change across that system. Individual corporate action on climate change is great – but real change requires systemic rethinks. Companies can work with partners to drive emission reductions throughout the value chain and consider the whole system as an essential step to creating meaningful change.
5. Consider the levers to pull when changing the company’s operating model. It’s important to look at culture, incentives and – critically – having the right management information. This will be used to drive change internally and has a role to play in mainstream disclosures.

Finally, it’s also important to remember that inaction is a major threat. The cost of doing nothing vastly outweighs the investment needed to decarbonize the economy. Action will need to be taken by every company, everywhere, to prevent the worst impacts of climate change and transition the economy to one that decouples carbon from growth. Organizations have a real opportunity to redesign their businesses for the low-carbon economy and capture future long-term advantage.

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