How Factories Can Achieve Net Zero: The Increasing Importance Of Stakeholder Alignment

By early 2021, over 1,000 companies in 60 countries, representing close to 50 sectors and 20% of global market capitalization, had committed to ambitious Science-Based Targets. Over a quarter of the world’s largest 2000 companies had set Net Zero targets, double that of the prior year. Industrial and manufacturing companies, representing 22% of global emissions, have a particularly important role to play over the coming decade.

Yet, reducing carbon emissions across a manufacturing business—with multiple interconnected processes and dispersed responsibilities—is complex. While siloed, individual projects may have addressed low-hanging fruit like energy efficiency and green electricity, these companies now require more coordinated and structural changes, demanding greater stakeholder alignment. Organizations with large manufacturing footprints will need to build and implement roadmaps for their facilities that not only reduce emissions, but also deliver on their operational and financial targets.

Reducing factory emissions through complex structural change

Shifting to a more coordinated, structural emissions reductions approach requires factories to contend with several interconnected and often competing considerations. When building an emissions reduction pathway, operational leaders need to:

• Optimize existing assets: For assets with 20-to 30-year lifetimes, decisions made today will have a lasting impact on emissions for decades to come, significantly impacting the overall emissions trajectory of the organization.
• Evaluate emerging technologies: Factory operators need to place bets on emerging technologies. They’ll need to predict when those technologies become financially and technologically viable and plan their investments so they can maintain flexibility as technologies evolve.
• Maintain cost-competitiveness: For manufacturing facilities, capital expense budgets are often limited due to strict investment requirements. Low operational costs are paramount.
• Anticipate evolving market factors: A myriad of external factors such as regulations, carbon taxes and subsidies all impact a business’ ability to compete.
• Weigh sourcing requirements: Technological decisions impact sourcing requirements, with a range of issues to be considered including availability, quality, price and impact on factory emissions.

With so much complexity and uncertainty, planning a long-term net zero factory strategy will inevitably come with tradeoffs. Without buy-in from the right stakeholders, the complexity of the undertaking can easily overwhelm even the most dedicated efforts. Poor stakeholder alignment can delay decision-making and lead to inaction. Even with approved strategies, insufficient buy-in and ownership is likely to impact the effectiveness of implementation.

Growing Shareholder and Regulatory Demands are Driving Accelerated Action

Companies are increasingly pressured by new government regulations, investor demands and NGO initiatives to act faster to achieve their goals. For example:

• The European Union has committed to a 55% emissions reduction target by 2030, which will need to be translated into national energy and climate plans (NECPs) for individual member states.

• The United States pledged in April 2021 to slash emissions by 50-52% by 2030 from 2005 levels.

• A growing number of countries are implementing carbon tax schemes. EU carbon prices have hit record highs in recent months, a trend which shows no signs of slowing down.

• Following Larry Fink’s Letter to CEOs in 2020, asset managers globally have increased accountability for not just climate commitments but climate performance. The Net Zero Asset Managers Initiative now has 73 signatories and $32 trillion in assets under management.

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The way forward: Key steps to stakeholder alignment

Faced with increasing pressure in the coming years to reconcile operational performance, financial performance, and emissions reduction, companies need to ensure that their investment decisions result in the most impactful and cost-effective roadmap to reach their goals. These decisions require aligning diverse internal stakeholders, each with their own perspectives and priorities.

Four Steps to Drive Alignment on an Emissions Reduction Pathway

There are four steps to ensuring stakeholders support and are invested in the optimal emissions reduction pathway.

1. Build Consensus On The Need For Change

The first step in any transformative process is to reach an agreement on the need for structural change. Organizations should build a common understanding and define a shared purpose to motivate employees and drive innovation. This can be accomplished in a variety of ways:

• Communicate the needs and expectations of investors, customers and regulators to the organization.
• Mobilize top leadership to recognize the case for change and prioritize meaningful action.
• Conduct focus groups to gather insights and build buy-in.
• Appoint “climate ambassadors” within different business units to help spread the message and drive adoption.
• Adapt communication and messaging to focus on the points that are most relevant to individual stakeholders.
• For site-level efforts, set up a project team that includes both corporate and on-site employees to pursue a common objective.

2. Show It's Possible

To build alignment, leaders will need to directly address stakeholder reservations with tangible evidence. Leaders should identify efforts already undertaken, progress made, and best practices involved. In communicating progress, highlight cost savings, efficiency gains and business benefits alongside carbon reduction.

Global Food Manufacturer Scales Low-Carbon Operations

One global food and beverage manufacturer used flagship locations to build a proof-of-concept for low-carbon operations before scaling up across their global footprint. They did this by:

1. Identifying several pilot locations in each region with a good level of engagement and readiness from site-level management.
2. Setting ambitious emissions reduction targets and timelines.
3. Mobilizing financial and human resources to conduct pilots, sharing insights across sites.
4. Directing cross-functional teams to shape and deliver the investment plan and roadmap.
5. Producing a series of quick wins that could be adopted by other sites and recognized as a collective success.
6. Implementing a standard playbook of recommended solutions to accelerate deployment across the broader footprint.

3. Set Boundaries Early On

It’s important to identify constraints and non-negotiables early in the process to tailor solutions and technologies to the specific needs of each site. This builds stakeholder alignment into the process from the beginning. Be sure to involve a diverse group of local and corporate decision makers to discuss potential emissions reduction levers (e.g. new technologies) and specify any limitations that need to be addressed. Document participant feedback and ensure that any tradeoffs are discussed and agreed upon. With these boundaries in place, conduct a detailed analysis to develop a least-cost pathway that addresses the site-specific parameters.

4. Create The Conditions To Sustain Alignment And Achieve Goals

Once your roadmap is developed, it’s critical to maintain stakeholder alignment and buy-in to ensure follow-through and progress. Successful companies will go beyond simply communicating emissions reduction targets by formalizing key performance indicators and to embed accountability across the business. Recommended steps include:

• Breaking down the decarbonization roadmap into an action-oriented plan with clear roles and responsibilities for all stakeholders.

• Building effective governance structures with clear KPIs and milestones.

• Ensuring emissions reduction targets are incorporated into executive performance targets and disseminated to all team leaders.

• Monitoring potential resourcing limitations and ensure that any additional work required is adequately funded.

As more organizations transition their operations to achieve net zero factory emissions, accelerated timelines will demand swift, coordinated action. Those that effectively build consensus, document tradeoffs and enable engagement and action of all stakeholders will dramatically improve the speed and scale of their transition.

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