Carbon is a term that’s been coming up more frequently around the board room—and COVID-19 has only amplified the conversation. With fewer people in the office over the last year, significant reductions have been achieved through changes in daily business operations, supporting many companies in their quest to become more sustainable. Now, as businesses start to look past COVID-19, they are viewing carbon reduction as a critical step to mitigating climate change, recruiting and retaining employees, and better serving their customers, shareholders and stakeholders. But there’s little time to waste.
Climate science has become even more robust and alarming as of late, with the recent Intergovernmental Panel on Climate Change (IPCC) Report suggesting that the 2°C target for limiting climate change set out in the Paris Climate Agreement is no longer sufficient to protect our ecosystems and economy from the worst effects of climate change.
In response to these warnings, investors are putting more focus on Environmental, Social and Corporate Governance (ESG) metrics than ever before. From January through November 2020, investors in mutual funds and exchange-traded funds (ETFs) invested $288 billion globally in sustainable assets, a 96 percent increase over the whole of 2019.1 Why? Because they are beginning to recognize that companies that focus on ESG and reducing their carbon footprint offer sound investments while outperforming their peers.
Spurred by demand from customers, and pressure from investors and their own employees, the number of companies that have pledged to become net zero has increased over the past few years—with many moving their targeted timeline up to 2030 from the initial goal of 2050. But with so many companies setting ambitious goals and talking about becoming ‘carbon neutral’ or achieving ‘net zero,’ what does that actually mean?
Becoming ‘carbon neutral’ or achieving ‘net zero’
Carbon neutral is a term used to describe a situation where organizations have ‘offset’ or balanced out the amount of carbon they emit into the atmosphere through an equivalent amount of carbon reduction and/or savings elsewhere. Net zero carbon, on the other hand, means any carbon produced during the organization’s operation requires an investment in a project that removes the equivalent amount of carbon from the atmosphere. These terms are often used interchangeably today as most organizations are incorporating the strategy to meet their goals— reduce emissions, utilize clean energy sources and offset any remaining emissions. They can apply to an entire organization, or only to certain “scopes” pertaining to their business. Regardless of how it’s defined, there are essentially three different steps to achieving net zero emissions:
- Set a baseline. Calculate carbon emissions and other greenhouse gas emissions created by business activities.
- Reduce emissions wherever possible through increased efficiencies and investments in onsite renewable energy.
- Balance the remainder of emissions through purchasing carbon offsets.
Technically, companies can become carbon neutral in as little as a few days through purchasing renewable energy credits (RECs) to offset their electricity emissions and carbon offsets. Most companies aim to reduce their emissions first before purchasing RECs or offsets— hence the momentum behind ‘net zero’ as a term. Other firms buy RECs first, then work to implement energy reduction strategies.
Customers, employees, investors and other stakeholders all have an interest in the environmental performance of your company. And increasingly, they are demanding that businesses take responsibility for their contribution towards climate change. Calculating your company’s carbon footprint is a necessary step to understanding your company’s contribution to global warming so you can identify ways to reduce it, but how is this achieved?
Unfortunately, the definition of carbon neutrality is vague, and it is increasingly viewed as common and is not much of a differentiator. Instead, companies wanting to demonstrate their commitment to climate change are increasingly adopting the Science-Based Targets initiative (SBTi) which independently assesses whether a company is aligned with the carbon emissions reduction required to keep global temperature increases below the 1.5°C and 2°C limits set out in the Paris Climate Agreement. If a company is not on track, SBTi helps guide the company to determining the number of reductions needed each year to achieve the company’s end goal and timeline.
Many organizations are already aligned with the greenhouse gas (GHG) protocol, which is an international standard for corporate GHG accounting and reporting that began in the late 1990s. In addition, more companies are opting to pursue a third-party verification for their emissions targets and REC purchases. RECs are already certified using Green-e, which is a third-party certification to prove the validity of the projects that are being used to support the RECs. Similarly, carbon offsets are certified to verified carbon standard (VCS) to prove their validity.
The next steps for clients are two-fold. If you’re just starting, it’s a great time to educate yourself on all things carbon and GHG. Work with your team and key stakeholders to determine if reducing your carbon footprint is in line with your values and goals. If you decide to pursue any sort of carbon neutrality, it is best to have someone on your team who can guide you through the process.
If you’re a veteran of sustainability and reducing carbon, your next steps would be to make sure you’re in line with SBTis and getting your program third-party verified. Another initiative might be to move up your carbon neutrality timeline.
No matter where you are in your carbon journey, these initiatives will help you and your company be better stewards of the planet, increase investor attention and prove to your employees and customers that you’re standing behind your commitment to them and future generations.
Reducing GHG and carbon emissions is critical to meeting the requirements of the Paris Climate Agreement and mitigating the harmful effects of climate change while setting our planet on the path for a sustainable future. This matters to companies because they no longer just have a responsibility to shareholders—they also have a responsibility to employees and the communities in which they are engaged.
Science-Based Targets Initiative (SBTi)
SBTi is a third-party target approval body that approves whether an organization is setting carbon reduction targets that are in alignment with climate science; they do not verify achievement.