Barclays have just announced a net zero carbon target for 2050, following investor pressure and lobbying by sustainable finance campaign group ShareAction. This major target puts climate back in the spotlight, and demonstrates that companies must be clear of their role in society — made even more pressing by the COVID-19 pandemic.
This blog shall explore the hot topic of net zero commitments, demystify carbon language and set out three major considerations for companies to deliver credible carbon claims.
What does net zero actually mean?
Net zero, carbon neutral, carbon positive, carbon negative, resource positive… what does it all mean? If you’re feeling overwhelmed by the nuanced language being batted about, let me break it down for you.
Greenhouse gas (GHG) footprints are composed of three ‘scopes’, or types of emission sources, as shown in Figure 1. Scope 1 refers to all the direct emissions that an organisation has control over; scope 2 refers to the indirect emissions from electricity purchased and used by the organisation; and scope 3 refers to all other indirect emissions as a result of their activities.
You’ve likely long heard of ‘carbon neutrality’. Neutrality is defined as a state where “the sum of the GHG emissions produced is offset by natural carbon sinks and/or carbon credits”; often referring to scopes 1 and 2 (and sometimes select elements of scope 3, like business travel). It’s not new news — the term has been around for well over a decade and used across a wide span of companies and industries (for instance, with HSBC going carbon neutral in 2005).
In recent years, we’ve seen an influx of companies committing to become ‘net zero’, but how is it different?
There is no official formalised definition of net zero by carbon accounting bodies; however, a commonly cited definition from the IPCC is where “anthropogenic atmospheric emissions of greenhouse gases are balanced by anthropogenic removals, over a specified period”. Meanwhile, ‘carbon positive’, ‘carbon negative’ and ‘resource positive’ terms essentially boil down to corporations claiming to give back more to the planet than they take (either by generating more renewable energy than they consume, or by storing / removing more carbon than they emit).
The difference between these claims and carbon neutrality is net zero claims are often future-facing goals set by organisations to achieve neutrality across their whole value chains (scopes 1, 2 and 3) — including emissions relating to the use of its services. This is a real game changer here as what, and indeed who, companies supply is under the spotlight like never before.
The devil is in the detail…
With Barclays joining the plethora of companies who have net zero claims (to name a few: Danone, British Airways, BP, Amazon, Nestle, Sky, Repsol — the list goes on…), let’s take a step back and assess what makes a leading net zero footprint claim.
There are three key major considerations to take into account when analysing the credibility of carbon claims:
For corporates, there are two main routes to achieve net zero emissions: carbon reductions and carbon compensation — put simply, once a company has reduced its value chain emissions as much as it can, it needs to address its remaining residual emissions that are either hard or impossible to abate.
In light of this, what a company does to achieve these reductions is so important — the “how” is even more important as the “what”. After addressing scope 1 direct operational emissions, does it explore scope 3 decarbonisation opportunities within its own supply chain and facilities? For example, implementing restrictions on non-essential employee travel can offer a cost-effective and authentic route to indirect footprint reductions for many companies.
This is especially poignant for companies who face stakeholder pressures to shift operations away from engaging in carbon-intensive activities (rather than just offsetting emissions with alternative investments or services to other sectors). By divesting from fossil fuel intensive activities, a company’s scope 3 footprint would be significantly reduced — thus reducing the volume and cost of carbon compensation required to reach net zero.
The second key consideration is how an organisation compensates for its residual emissions. In order to align activities with the Paris agreement goals, companies will certainly need to engage in carbon compensation activities. The detail of how this is done is vital.
Will the company fund offsetting activities that ensure avoided emissions? This means balancing its GHG footprint with equivalent GHG avoidance by certified offset projects. A commonly used approach, yet the validity of standard offsets is a highly debated topic.
Or will the firm actively engage in GHG removal activities? Another option is engaging in removals — either natural or technologically removing GHGs from the atmosphere, resulting in absolute atmospheric reductions. Leaders are already publicly committing to removals and financing them within their climate strategies, such as Microsoft’s ‘carbon negative’ strategy. However, currently, engineered removal solutions (such as direct air capture, enhanced weathering techniques or ocean fertilisation) are expensive and lack sufficient scale by a long way. Companies hold a role in stepping up and co-funding the development of removals technologies. In the meantime, avoided emissions solutions are widely deemed necessary; however, ultimately, ramping up removals will be key to the long-term delivery of a net zero economy.
Finally, the fit of net zero claims within wider corporate and climate strategies is pivotal in winning positive sentiment towards the credibility of corporate claims.
Context and communication are everything. Whether we’re talking about what a company is claiming, what it’s offsetting, how it is being offset, or how coherent its action is within its wider climate strategy — transparent communication of strategy is expected. And to achieve context, stakeholders need details — the “how”, not just the “what”.
Take avoided emissions — there is a huge variety in quality of offsets. Which projects a company invests in and how much it invests are critical nuances when assessing the validity of corporate climate action. High quality offsets are verified, not double counted, additional, long-standing and permanent, with leakages, co-harms and co-benefits analysed. Offsets that meet these principles don’t come cheap. If a company wants to make a bulletproof claim, they need to underpin it with a strong financing commitment.
So, a combination of reductions with compensation, avoided emissions with removals, and the ‘how’ with the ‘what’ is critical to have a valid carbon claim.
Some of the leading climate strategies we’ve seen (for example, Microsoft, Sky or Danone) very clearly and transparently communicate their strategies — both in the long-run and the near-term, with interim targets and regular updates. They put their money where their mouths are, looking at reductions and removals, making portfolio changes to meet their net zero ambitions — and real shifts in the products and services they offer, beyond just their operations. This is what true responsible capitalism looks like; only time will tell how long it’ll be before this becomes the baseline for all.
Written by Sapphire Jones.
All views are my own and not representative of my employer, Accenture.