net zero pt 2

How to Develop a Credible Net-Zero Strategy

A global transition towards net-zero emissions by 2050 has begun. As we explored in our last blog, this means that businesses are facing pressure to work towards a net-zero state where they balance the greenhouse gas (GHG) emissions they produce with measures that reduce and remove emissions. Businesses have to navigate the complexities of setting credible targets and developing a clear roadmap to reach net-zero. GHG reduction targets must stand up to scrutiny or risk being mere greenwashing. There are many pathways to achieve net-zero, and the journey ahead is not straightforward. To help you get started, we have summarized what your business can do in four broad steps.

1. Estimate your baseline emissions 

For businesses to understand their current trajectory, they have to first estimate their baseline GHG emissions based on their business-as-usual practices. You can start by applying a carbon accounting methodology, such as the GHG Protocol Corporate Accounting and Reporting Standard, to model the corporate-level GHG emissions inventory and how it changes over time. The carbon accounting methodology you select will help you define your company’s GHG emissions boundary, so that it covers all material sources within your business’s value chain. For your target boundary, you will have to be transparent about what sources you include and exclude.

2. Select an appropriate net-zero target methodology

To align with the global net-zero goal, your business has to aim to reach a state of net-zero emissions by no later than 2050. If greater GHG emissions reductions are possible, consider an earlier net-zero target (e.g., see here how Microsoft aims to be carbon negative by 2030). The cost and quality of abatement actions are critical factors in choosing the net-zero target year. To track progress and increase accountability across your organization in the near-term, you will need to identify interim science-based GHG emissions reduction targets. Interim targets will also help drive action within the selected timeframe, and should align with corporate planning and investment cycles to ensure accountability. 

Businesses could work with climate experts to select the most appropriate net-zero target methodology and relevant standards for your business, in order to define the timeframe to reach net-zero, identify mitigation pathways and set interim GHG emissions targets. Typically, this step in the process is where businesses often need additional support. For an example of net-zero target methodology, our team at Manifest Climate closely follows the Science Based Targets initiative (SBTi) as they develop the first science-based global standard for net-zero targets. SBTi’s net-zero foundations paper (published in September 2020) lays the foundation for specific guidance on net-zero target-setting methodology, which is expected to be released later this year. You may find that you need experts to interpret SBTi’s technical requirements and guidance to understand how the methodology applies to your business.

3. Build a net-zero strategy

Figure 1: Mitigation tactics to transition to net-zero emissions (Science-Based Targets initiative: Foundations for science-based net-zero target setting in the corporate sector)

Figure 1: Mitigation tactics to transition to net-zero emissions (Science-Based Targets initiative: Foundations for science-based net-zero target setting in the corporate sector)

The pace and scale of your net-zero strategy should be consistent with the mitigation pathways that limit warming to 1.5°C. Think of it this way: different sectors will have very specific opportunities and barriers to reducing GHG emissions. If you’re a real estate company, you won’t use a mitigation pathway designed for an energy company. You have the flexibility to create your mitigation pathways so that they are specific to your business’s GHG emissions footprint. As defined in Figure 1, you will likely use all three mitigation tactics: abatement, compensation, and neutralization in your journey to net-zero. Prioritizing abatement and then neutralization will result in a stronger net-zero strategy. 

Abatement 

Best practice is for your business to start with abatement. Develop a clear roadmap of actions that will prevent, reduce or eliminate GHG emissions sources associated with your business’s operations and value chain. Assess the GHG emissions reductions from current and potential projects within your business’s value chain. Look for the different processes, technologies, or approaches that would lower the GHG emissions footprint from a department, project, or supply chain input. Companies with land-use intensive business models (e.g., due to the consumption or production of agricultural commodities) will need to reduce and eliminate deforestation from their supply chain. SBTi recommends that companies eliminate deforestation from their supply chain by no later than 2030, to align with mitigation pathways that limit warming to 1.5°C. After 2030, the land system can become a net carbon sink. 

Compensation

After abating the GHG emissions under your control, you may have to compensate for the GHG emissions you cannot reduce as your business transitions to net-zero. Compensation is the measurable GHG emission reductions from actions outside of your value-chain that compensate for emissions that remain unabated within your value-chain. For example, you may consider compensating with offsets by purchasing carbon credits from GHG emissions reduction or avoidance projects. Compensating is a tactic used in current regulatory systems, but science-based methodology points out that it does not support overall global net-zero goals. Therefore, compensation should ideally be an interim measure and not relied upon instead of delivering absolute reductions in GHG emissions. As you build your net-zero strategy, consider how long you will need carbon credits for, and what types of carbon credits you could use. 

Neutralization

Finally, you will have to neutralize the GHG emissions that you cannot reduce with projects that remove GHG emissions from the atmosphere. Carbon dioxide removal (CDR) is not new, but there is limited capacity at the moment. We expect that this will be an area of growth through technological innovation and nature-based solutions. The best practice is to be clear on which emissions sources can be balanced to zero through removals. Consider both insetting (i.e., developing projects that enhance carbon sinks or reduce emissions in your value chain) and offsetting (i.e., indirect sequestration by purchasing carbon credits) when designing a GHG emissions removals strategy. Any land-based mitigation strategies should adhere to strict social and environmental safeguards. In your net-zero strategy, be clear on which GHG emissions need neutralization and what types of GHG emissions removal projects you have access to. 

If there is one key thing to remember, it is this: the best way to reach net-zero is to reduce your GHG emissions, as much as possible. Heavily relying on offsets or unproven technologies decades down the road is not credible.

The corporate net-zero targets and mitigation strategy that you develop should inform your long-term business strategies and capital investments to ensure that your company’s business model will continue to be viable in a net-zero economy. It should also involve your team, as the transition will impact all areas of your business.

4. Share the net-zero strategy and progress

Businesses should be transparent with their plan for achieving net-zero targets, and outline clear interim targets on timelines of planning cycles to assure accountability and track progress. Making your strategy and roadmap public is key to demonstrating credibility to investors, allowing comparisons with peers and holding yourself accountable. Businesses still inconsistently approach net-zero targets, making it difficult to assess how these targets’ contribute to the global net-zero goal. Regular reporting allows stakeholders to transparently see progress year over year, and compare this progress to that made by similar businesses. Businesses can leverage common frameworks, such as the Task Force for Climate-related Financial Disclosure (TCFD), to consistently communicate their climate journey with stakeholders. These frameworks provide a level of standardization with enough flexibility for businesses to craft their unique narrative. To avoid greenwashing, include the following important elements in your disclosure: details about the assumptions made, specific actions being taken, and how the targets are systematically integrated across the organization.

Need help getting started on your net-zero strategy?

We can guide you through the net-zero strategy process and develop a roadmap in line with best practice that meets your needs. We can connect your net-zero work to your corporate strategy and financial planning through TCFD, and help tell your climate story, whether it is to investors or the general public. Contact us today to learn more about how we can help.