Nov 278 min read

An A-Z of Sustainability: Z is for Zero, Net Zero

The final article in our A-Z series is here, and the topic is a big one so it’s a little longer than most. If fact, I saw recently that it’s estimated that more than half of corporate spend on sustainability is on this area: Net Zero. I’ll look at what the concept of Net Zero is all about, why it takes so much effort and how to approach this critical area. We’ve covered carbon footprinting before so I won’t explain some of the terminology again, but you might want to head back to C and take a look at that article as a refresher: An A-Z of Sustainability: C is for climate change and carbon reduction.

What is ‘Net Zero’?

Let’s start with a bit of background on where Net Zero came from. The term itself has really only been around about 10 years, with the concept gaining traction around the Paris climate agreement in 2015, although it didn’t actually use the phrase itself. Since then, it has moved from scientific concept to policy to mainstream in a short space of time. Initially focused on a country level as part of the COP climate conferences, with Sweden setting the first country net zero target in 2017 and the UK the first net zero target by a G7 country. It has now become a key part of the corporate landscape and seen as a key element of sustainability plans.

So, what is it exactly? Essentially, net zero means that we achieve a balance in our global emissions so that there is no net increase. Rather than simply saying that we reduce all emissions to zero, it recognises that some will continue but that they need to be netted off against other actions to remove emissions, so that the end result is no net increase. It’s this netting off aspect that has led to some controversy and challenge, but more of that later. If we can achieve this target of net zero by 2050 globally, the premise is that this will keep warming to below 1.5 degrees above the long-term average.

The Science Based Targets Initiative (SBTi)

Often the terms “net zero” and “carbon neutral” are used interchangeably, especially in the past, but there is an important difference. Standards that certify companies or products as “carbon neutral” will often allow for this claim even if no emissions reductions are made, relying on buying carbon offsets to achieve neutrality. “Net zero” should mean that you do everything you can to reduce emissions first and only then take actions to remove an equivalent amount of what’s left from the atmosphere via offsets. The problem was that for a long time there was no specific definition or standard for Net Zero, so it was applied differently by companies, leading to lots of claims and potential greenwash.

Enter the Science-Based Targets Initiative (SBTi), an organisation founded by several NGOs to encourage and validate carbon targets, who launched their Corporate Net Zero Standard in 2021 “to address the growing need for a common understanding of science-aligned net-zero targets in the corporate sector.”

The SBTi Corporate Net Zero Standard has quickly become established as the credible standard to adopt with around 3,500 companies globally using it to set net zero targets. It sets reduction pathways for different business sectors to align their reduction plans with and requires short- and long-term targets to be set. SBTi specifies minimum boundaries for what should be included in these targets and in particular it requires scope 3 to be included. In recognition of the fact that scope 3 is harder to reduce, the short-term pathways to reduce scope 3 may not be as challenging as for scope 1 & 2, but only in the short term, as over the long term all impacts must be reduced. Crucially, SBTi sets a maximum of 10% of baseline emissions that can be netted off by actions to remove emissions. Rather than go into lots more detail of what the standard encompasses here it’s better to just look at the wealth of material that is on the SBTi website (The Corporate Net-Zero Standard - Science Based Targets Initiative).

SBTi has not been without controversy of late. There are consultations ongoing for the next revision to the standard and a lot of lobbying to allow for a greater use of offsets. The outcome is due any time soon and will determine whether the standard retains its credibility in the eyes of many stakeholders. And the International Standards Organisation is planning to launch its standard next year which could muddy the waters further.

How to approach net zero target setting

It’s worth stressing that net zero is a stretching goal: no-one is likely to find it easy, especially if you have any significant scope 3 in your footprint. But being hard is not a reason to ignore it or to lobby for it to be weakened: it’s what the world needs and increasingly it is what your stakeholders will expect. In the UK it is likely to be a requirement for listed companies to produce climate transition plans (already strongly encouraged), and what they are planning to transition to is a net zero world. Financial sector organisations like pension funds must also produce transition plans stating how well aligned to net zero they are.

If you are just starting out on your net zero journey the first thing to do is ensure that you have a sound basis to start from. You must calculate your total footprint including scope 3 otherwise you can’t have a credible plan or target. Once you have this you’ll need to decide what aspects of your footprint are material so that you can demonstrate to the SBTi that you are including all that are material and not missing out any key areas. Note that you will need to calculate all 15 categories of scope 3 that are relevant for your business, however small the impacts, so that you can demonstrate whether something is material or not. It’s a bit like those maths exams where you were told at school not just to show the answer but to include your working -you can’t simply say to the SBTi something like “we know X isn’t material, so we are not including it” – they’ll need you to show your working out in order to approve it.

Once you’ve done your calculation and determined what material categories you are including in your target you will also need to determine your baseline year. It’s good practise to use the most recent year you have full data for, which will normally be the prior year. Given the SBTi pathways, you do not have much choice on how much you are expected to reduce each year – if you are in certain sectors there will be a specific pathway, but for everyone else there is a generic reduction pathway. The pathway then determines what your target means for annual reductions - around 5% per year in absolute terms for a net zero by 2050 target – as I say, not an easy ask.

The SBTi themselves only want to know that you are setting a target in line with their standard and the restrictions that this imposes. Once they are satisfied, your target is deemed to be validated and will be published on their website. Part of the agreement you sign up to is that you will update this target as required but otherwise they will not be checking how you are performing against the target.

Devising a transition plan

The next piece of the net zero jigsaw is then the transition plan, usually developed alongside choosing net zero target years. At its core will be your forecast of how you expect to achieve your SBTi targets. This involves thinking about all the levers that you can pull across all the three scopes and putting together a set of assumptions about what will happen and when, so that you can project forward. You’ll also want to include things that you are not in control of, but that will still affect your ability to hit your targets. For instance, the rate at which electricity grids will decarbonise will likely be a key factor in your reduction pathway – people like the International Energy Agency (IEA) produce scenarios based on current government policies and also what is required to be aligned to net zero.

As well as your main forecast for each lever, you may also want to include some sort of sensitivity analysis, particularly around your growth expectations which should always be included. Each reduction activity will have its different timeline, and many won’t be linear or start at the same time – impacts of new products for instance could take many years before they start and may initially only have a minor impact. Once you’ve done this forecasting you’ll likely find there is a gap to the net zero target. That’s a common place to find yourself – it would be unrealistic to expect every business to know perfectly what was going to happen out to 2050 and account for every technology change that will happen. But how big this gap is and how comfortable your organisation feels about not knowing exactly how to hit publicly announced targets will affect how you deal with it. Many organisations will go through this exercise of de-risking their decarbonisation profiles before even getting targets validated by the SBTi, so they know what the size of the challenge is before an external commitment is made.

Net zero at your organisation

I like net zero as a standard precisely because it is challenging; it’s a BHAG – a Big Hairy Audacious Goal! But this is what galvanises people to make big transformative change and not just incremental change which we all know just won’t cut it when it comes to climate. In fact, I’d argue that to engage your organisation it’s worth putting all your goals as 100% of something or zero something – literally “all or nothing”! It makes communication of the vision so much clearer – who is really going to remember or be energised by a target like a 13% reduction by 2029 or similar?!

There is a lot involved in getting aligned with net zero and really I’ve only scratched the surface in this article. I really would advise working with someone like CEN Group to help you in this area – they’ve supported many companies in this area and the experience they can bring will speed up the process, avoid mistakes and bring an independent challenge that can really help break through some of the internal barriers that you may face.

So that’s it for the A-Z. We’ve gone from “A for Annual Report” to “Z for net Zero” and covered a lot in between. I hope you’ve found the series informative and thought provoking. Please contact me directly or the folks at CEN Group if you’d like some help on any aspect of your sustainability plans. Good luck!

About the Author

Chris is a senior strategic leader with over 25 years’ commercial experience including sales, marketing, strategic planning and major business change initiatives at AkzoNobel and ICI. He has a wide knowledge of sustainability and how to integrate this into business having held senior sustainability roles at AkzoNobel for 12 years, including as Global Sustainability Director Decorative Paints and AkzoNobel Planet Possible Programme Manager. Chris is now an independent sustainability consultant and a pension trustee director.