When politicians gathered in December 2015 to negotiate the Paris Climate Agreement, countries were asked to set national emissions reduction targets to limit global warming and slow climate change. Five years on during a global pandemic and amidst cries to 'build back better', it's clear that the need for ambitious private sector action is more important than ever.
2020 has shown once again that in times of crisis, sustainability is at risk of falling off the political agenda, at least for some. As COVID-19 persists, creating an effective deadlock on global climate policy negotiations — COP 26, and thus consensus on the final Paris Rulebook, has been delayed at least another year — private sector action is pivotal to a successful global low-carbon transition.
Last year, Greta Thunberg catalysed the global public push for urgent climate action, while asset management giant BlackRock's Larry Fink positioned himself as the voice of investors moving their money from brown to less fossil fuel-intensive investments in order to future-proof their portfolios against growing climate risks.
In response to these parallel forces, a groundswell of companies are now measuring their carbon footprint or pursuing climate neutrality*, including by offsetting some or all of their emissions through greenhouse gas emission reductions elsewhere. This is a first step, but climate neutrality alone is not enough to drive decarbonisation at the scale needed to recalibrate our climate. It is bold and ambitious targets such as 'net zero' that will get us there.
At South Pole, we see 'net zero' as a forward-looking target that companies can work towards to single out their biggest emissions sources and address them one-by-one to direct themselves onto a truly low-carbon trajectory. This trajectory has to align with the latest science to ensure we can monitor the impact on the remaining global carbon budget.
The overarching goal of the Paris Agreement — to cap global warming well below 2ºC and pursue efforts to limit the increase to 1.5ºC — is based on various global warming scenarios. These scenarios compare the increase in Earth's average surface temperature by 2050 based on different levels of human actions that would limit atmospheric greenhouse gas concentrations or not.
The Science Based Target Initiative (SBTi) takes the goals of the Paris Agreement and operationalizes them based on these scenarios, providing an important framework against which companies can set their own net zero targets. Based on consultations with companies in 2019, the SBTi is now developing a conceptual framework for private sector net zero targets to harmonise efforts.
The first step on any organisation's journey to net zero is establishing where you are and how far you have to go to reach net zero. This is done by calculating your carbon footprint. From here, companies can achieve climate neutrality almost instantaneously by purchasing carbon offsets to compensate for their emissions and committing to further reductions.
While purchasing carbon credits to achieve climate neutrality does help finance and drive emission reductions globally by supporting low-carbon projects around the world, reductions in a company's own operations is critical. Companies that complement this action by setting a net zero target go a step further towards catalysing transformational change.
To do so, companies develop an action plan for tackling their largest emissions sources, as identified in the carbon footprint report, and commit to reducing them at the source over time. This action plan is called a 'decarbonisation pathway'.
Coupling net zero targets with an initial and enduring commitment to climate neutrality effectively creates an internal cost-based incentive mechanism. Therefore, the successful achievement of key milestones on the decarbonisation pathway can reduce operational costs in the long run, as less carbon credits need to be purchased to maintain climate neutrality.
A decarbonisation pathway, with either 2040 or 2050 as the 'net zero' target year (Source: South Pole 2020)
Each organisation's particular decarbonisation pathway will look different and depend on a range of factors, including the make-up of its carbon footprint as well as its chosen net zero target year, and so on. What is important is ensuring that all emission reduction goals along the decarbonisation pathway are consistent with climate science, which means that they must work towards limiting global warming in line with the well below 2ºC goal of the Paris Agreement.**
At South Pole, we work with a wide range of companies to set such Science-Based Targets (SBTs), covering all three scopes of emissions. Alongside climate neutrality, achieving 100% renewable energy with RE100 is an increasingly popular strategy to reduce and ultimately neutralise scope 2 emissions. An RE100 target might be part of a decarbonisation pathway for achieving SBTs for example. But there is no one size fits all. The right approach depends on where a company stands in its sustainability transition.
Climate-leading businesses that have integrated decarbonisation strategies into their long-term commercial strategy using SBTs include Nestlé's net zero 2050 commitment, Tesco's commitment to reducing direct scope 1 and 2 emissions 60% by 2025 in pursuit of net zero 2050 and, in Australia, Origin Energy's five pillar approach to decarbonisation, to name a few.
Beyond establishing your organisation as a climate leader, embarking on a decarbonisation pathway in pursuit of net zero creates a range of other business benefits that, in turn, attract investment. These may include:
Right now there is a push for a green recovery post COVID-19. This crisis has made it abundantly clear how vulnerable companies and communities are to planetary health failures, and there is a growing understanding that 'sustainable business is resilient business', with some governments even tying climate risk disclosure and sustainability-related conditions to COVID-19 bailouts. Setting a net zero target is a way to future-proof your company while attracting public approval and support from investors looking to reduce the climate-related risk exposure of their portfolios.
No matter the decarbonisation pathway that gets you there, setting a net zero target makes business sense — and as we look to build back better after the coronavirus and establish resilient communities and economies, there has never been a better time to set one. Join the South Pole Climate Journey, and learn more at our upcoming Climate Chatter: On the road to Net Zero with Decarbonisation Pathways.
* The difference between 'carbon neutrality' and 'climate neutrality' being that the latter factors in greenhouse gases other than just carbon dioxide, such as methane and nitrous oxide.
** This is in line with the CDP definition of net zero, which specifies that emission reduction targets in a net zero strategy must be in line with climate science