Four Essential Questions Behind a Credible Net Zero Strategy
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The Race to Zero is on. More than 1,000 companies, including 82 Global Fortune 500 companies, have announced Net Zero targets, with many joining the race within the last 12 months alone. At a global level, we will reach Net Zero when greenhouse (GHG) emissions caused by human activities are balanced by absorbing an equivalent amount of GHG from the atmosphere. But confusion abounds about what Net Zero means for business.
In the absence of finalized, widely-accepted Net Zero standards, many are questioning the credibility of corporate Net Zero pledges. Even companies demonstrating climate leadership and setting bold Paris-aligned targets are facing scrutiny. Stakeholders want to know: How real are your commitments? How will you enable change at the pace and scale required to reach Net Zero?
The questions from stakeholders are justified. Often companies don’t realize reaching Net Zero requires significant, strategic business transformation. In the Race to Zero, most companies are at the starting line, coalescing around key definitions to guide their Net Zero transition (see What does Net Zero mean). While standards are still evolving, we've developed a clear and simple framework to help you design and deliver a credible Net Zero target. The approach revolves around asking four essential questions:
How you answer these questions—and disclose your Net Zero strategy and progress—will make all the difference to your credibility.
As with any strategic endeavor, begin by asking “why?” The answer will likely revolve around opportunities, risks and stakeholder perspectives. Consumers want to know that brands are environmentally and socially responsible before making their purchasing decisions. Governments need to demonstrate their progress toward Paris Agreement goals. Investors want to see business models built around seizing new opportunities in a low-carbon economy while managing long-term risk. Employees are motivated to work for companies whose day-to-day operations reflect their long-term climate pledges.
For most organizations, setting a Net Zero strategy starts with:
Knowing and articulating the “why” upfront will help you align stakeholders around the right Net Zero principles. For example, outlining how the Net Zero commitment enhances your company’s mission and purpose will drive operational efficiency and support business model innovation.
This is an opportunity to develop your company’s view on industry Net Zero best practices and a way to demonstrate climate leadership. Beyond that, setting Net Zero targets can help inform the strategic transformation of your business, including driving product and service innovations, opening up new markets and unlocking operational efficiencies. Net Zero targeting can position your company for success in the low-carbon economy.
The trajectory of your Net Zero initiative should align to a well below 2°C (preferably 1.5°C) science-based trajectory. The timing should demonstrate tangible near-term ambitions and interim goals by 2030. Net Zero should be achieved by no later than 2050, but some companies are moving faster than others and setting the pace of change in their industries. Unilever, for example, has laid out its plan for becoming Net Zero, covering emissions from its entire value chain by 2039. It also plans to reduce emissions from its own operations, including factories, by 70% and 100% by 2025 and 2030, respectively.
By accelerating your Net Zero timeline and celebrating that ambition, you can inspire others in your industry to take action. Be transparent about your strategy and how you are making key decisions, e.g., on offsetting, know your power to raise the bar across your entire value chain.
A credible Net Zero target must include a company’s full carbon footprint. That means developing a complete corporate GHG emissions inventory – incorporating Scope 1, Scope 2, and Scope 3 emissions. Scope 1 includes direct on-site emissions, while Scope 2 covers indirect on-site emissions (e.g. purchased electricity). The largest sources of emissions for many companies are often the Scope 3 emissions, which include upstream and downstream emissions in a company’s value chain. Stakeholder expectations around measuring and managing Scope 3 emissions are increasing. Expect scrutiny around where you set your boundaries. Look to emerging Net Zero guidance and materiality assessments of what matters most to your stakeholders to inform this decision.
Netflix has laid out a detailed plan to achieve Net Zero GHG emissions by end of 2022. In setting its boundary, it included all Scope 1 and Scope 2 emissions, as well as all relevant Scope 3 categories, even though in many categories the company has limited operational control. This boundary covers all Netflix-branded content, whether produced directly or through a third-party production company, as well as all licensed branded content. Netflix acknowledges the challenge of measuring and reducing emissions from the productions the company does not manage directly, but by taking responsibility for the emissions from all Netflix-branded content, it is hoping to create a ripple effect across the industry.
In setting your boundary for Scope 3 categories, consider how they contribute to the size of total emissions and the company’s risk exposure. Understand how your stakeholders view these emissions and how much influence you can have in reducing them. Take into account any sector-specific guidance about the category of emissions.
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Delivering on the Net Zero commitment requires nothing short of an end-to-end transformation at an unprecedented scale and pace. A credible Net Zero strategy follows a well-defined GHG mitigation hierarchy while maintaining a science-aligned reductions trajectory.
Start by eliminating, reducing and substituting emissions sources; first internally and then across the value chain. Bring emissions down through activities like purchasing more renewable energy and switching to electric vehicles within your organization. Then, work with supply chain partners to help reduce the emissions in products and services, e.g., by working with suppliers to increase their access to renewable energy. Consider opportunities to redesign products and services to address use phase emissions. Once you have committed to the most ambitious reductions trajectory, consider which types of offset credits to use and when. Interim guidance suggests that offsets from carbon removal projects—nature based or technology projects that remove carbon from the atmosphere—are likely to be required in the target year.
Microsoft has announced it will be carbon negative by 2030, which means the company plans to go beyond Net Zero to start removing more carbon from the atmosphere than it emits. By 2050, the company expects to remove from the atmosphere all the carbon dioxide it has ever emitted, either directly or through electricity use, since its founding in 1975. Microsoft is creating a vast carbon removal portfolio with the purchase of 1.3 million metric tons of carbon removal from various suppliers in 2021 alone. Microsoft is aiming to not only transform its own operations, but to create marketplace demand for carbon removal technologies.
Your Net Zero strategy must put reductions first, following the mitigation hierarchy and including science-aligned goals. Use high-quality carbon offsets and removals to neutralize residual emissions that have not yet been reduced by other means.
Once you have addressed the why, when, where and what of Net Zero, you need to map out how you will execute at the scale and pace required. In the next installment of this series, we will explore the essential components of the operating system that will enable your Net Zero transformation, including funding, data and governance.
The authors would like to thank Logan Jackson, Greg Pope and Mark Chadwick for their contributions to this article.
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