Race to Net Zero: Why putting hard numbers on carbon is so difficult, and why it matters

Today, many companies find themselves moving quickly to understand and set their vision and objectives for Climate Change & Decarbonization. Those competing primarily on net revenues and shareholder satisfaction are falling behind. The businesses are experiencing the detrimental effects of climate change and evaluating methods to transition their entire value chain into a sustainable and resilient model to weather-related disasters. There’s increased pressure for companies to manage their environmental footprint, particularly their output of global-warming greenhouse gases.

Here’s how this is showing up in boardrooms around the world:

• Recruits, particularly those highly skilled and able to take their pick of jobs, may like working for a company doing good rather than harm.
• Consumers increasingly prefer to buy from a company with strong environmental and social commitments meeting their values and beliefs and are demanding information about organizations’ carbon reduction efforts.
• Investors are increasingly aware that climate risks can have financial impacts on their investment portfolios and are beginning to integrate risks and opportunities in their investment decisions.
• Government regulators, industry associations and NGOs apply pressure to reduce environmental footprints, including new SEC standards.
• Countries now consider climate considerations an essential part of national security, and the regulations introduced will impact business in the future.
• B2B customers ensure suppliers are an asset to their supply chain, not a source of criticism.
• Banks, investment funds and other financial sources increasingly demand better environmental performance – or they will switch their financing to companies that can meet those rising requirements.

As a result, many companies have promised to achieve “Net Zero Carbon emissions” by 2050. But after the announcements have been made, the leadership team may be left sitting around the boardroom table wondering, “How are we going to make this happen?”

Carbon disclosure gets complicated

Companies wanting to reach their Net Zero Carbon goal on time are faced with the initial challenge of establishing a baseline – how big is their current carbon output?

Differing standards: Companies striving for Net Zero may find a lack of alignment in the various standards and methods of calculation. Some standards are “voluntary” in that they’re set by industry associations, NGOs and financial entities such as the World Bank. These standards may be different, and by significant amounts, from those established by government regulatory bodies. The result is that while they may comply according to one way of accounting, they will be out of compliance – and subject to sanction – regarding other standards.

Wider scope: Traditionally, companies would measure their contribution mostly based on direct emissions. Now, companies are required to quantify and report emissions from indirect Scope 2 emissions associated with the purchase of electricity, steam and fuel. Moreover, they’re expected to analyze and report on factors, including electrical power sources. This also includes renewable versus non-renewable. They must factor in the carbon impacts of their supply chain under Scope 3 emissions, which goes right back to raw materials such as hydrocarbon feedstock, minerals and aggregates. Lack of data across the value chain is a barrier in Scope 3 emission management.

Offsets cost more: Companies are trying to reduce their carbon footprint by purchasing carbon offsets. These carbon offsets fund projects lower or sequester CO2. However, there are challenges with offset credits, including the cost of purchase and the difficulty of verifying their environmental benefits

These trends make reaching Net Zero in a credible way—for stakeholders including regulators, financiers, employees and customers—a complex undertaking.

Finding guides along the journey to Net Zero

Three kinds of advisory organizations are in a position to help companies reach their goals.

Strategic thinking. An agile organization requires strategies that work in the real world, requiring experts with a keen understanding of business, including end-to-end supply chain.

Accounting and verification. Accounting is critical in greenhouse gas management, and the data needs to be transparent, auditable and verifiable. Credible measurement is necessary for companies to demonstrate progress and verify the effectiveness of the measures taken. In addition, organizations with engineering, advisory and digital capabilities are critical to ensure the calculation methodologies are scientifically sound and meet thorough engineering and regulatory requirements. In addition, firms with strong AI and data science and management skills are required to harness the data and create value for organizations at an enterprise-wide level.

Engineering and environmental aspects. With the strategy set and the means of verification established, “How are we going to make this happen?” remains.

Firms with an engineering background have the roll-up-the-sleeves practicality to understand the company’s current operations, determine the sources of environmental impacts, and then develop plans for reducing those impacts. Firms with environmental sciences are accustomed to helping clients meet regulatory expectations and have the credibility to produce reports accepted by stakeholders.

With the increased pressure to manage your environmental footprint, you can set realistic objectives that are attainable. Having the proper third-party professional support enables companies along the journey towards Net Zero, credibly demonstrating progress along the way.

To learn more about remediation and risk management approaches, check out this free webinar featuring Rob Campbell-Watt and Sube Subramanian – Smarter EHS to Manage Business Risk: A Digital Approach to Efficient Data Management.

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