Stuart Lemmon, Global Managing Director for the Net Zero Transformation Practice at EcoAct, an Atos company, outlines the elements of a credible corporate climate strategy and explains why we should embrace scrutiny and work collectively on the path to net zero.
The UK government has recently launched a Transition Plan Taskforce (TPT), which aims to develop a detailed framework for financial institutions and listed companies to publish robust transition plans that detail how they will decarbonise. This builds onto the UK’s existing national commitments, such as the Glasgow Climate Pact from COP26, promising the 2020s to be a decade of action.
Unfortunately, with less than eight years left to halve emissions and current national commitments consistent with a 2.4oC rise in global temperature, there is still a large gap to plug on the path to net zero emissions, and the future of 1.5oC remains highly uncertain.
Navigating without a road map
With a lack of political consensus on a 1.5oC strategy, what does this mean for businesses? For us, this is business as usual (and not in the sense of an emissions trajectory!). Corporate climate best practice has largely been led by voluntary actions and non-legislative frameworks and drivers. It is important we don’t let this become a blocker for action.
EcoAct’s Climate Reporting Performance research published just before COP26 revealed that 65% of large organisations (across our international study) were committed to net zero, rising from 44% in the previous year and that a rapidly rising number have set science-based emissions reduction targets (65%). From conversations today, it is clear that the case for corporate climate action has been made and is no longer up for debate. In addition to this, we see businesses raising the bar of best practice every year.
However, our report also revealed that, although two-thirds of FTSE 100 companies are pledging to reach net zero on or before 2050, 81% lacked a robust plan to achieve it and only 3% of companies could demonstrate that they have in place a clear long-term strategy to cut emissions across all Scopes in line with a 1.5°C trajectory. This pattern was consistent across the indices studied.
For the past two years, our research has cautioned that the absence of any internationally accepted definition of net zero and any guidance on how corporates can achieve it was hindering corporate climate progress and the ability to measure the efficacy of corporate pledges.
Aware of the need for improving the consistency and rigour of guidance and standards associated with voluntary corporate climate action, the Science-Based Targets initiative (SBTi) published its Net Zero Standard in October last year. Additionally, the new TPT also aims to develop detailed sectoral transition plan templates, alongside associated guidance on metrics and targets, in order to steer guidance for real economy sectors and financial services sub-sectors. We now have a much clearer view of what net zero means for business, and we would urge companies to align their strategies to these standards.
Businesses have a large role to play and the pressure is rising
Corporate footprints have a big impact. A mere 15 firms are collectively responsible for a sixth of the UK’s annual carbon emissions. In addition, businesses drive innovation and provide new solutions to customers and other businesses, and we need both of those things in abundance in order to decarbonise our economies. Therefore, it is imperative that businesses take a leadership role in the net zero transition.
Whether or not businesses have to answer to government, they certainly have to answer to investors and the general public. We are seeing an increasing amount of scrutiny and mistrust of business pledges. People don’t just want to see a commitment; they want to know that those commitments are credible and there is accountability. Governments are also working to halt inaccurate climate claims. In the UK, a Green Technical Advisory Group (GTAG) was created to support the development of a green taxonomy, intended to provide a universal framework to define investments that are environmentally sustainable as well as to help businesses avoid greenwashing claims.
The framework will be aligned with the EU’s taxonomy framework but adapted to UK’s rules and will also follow other international standards. On the other side of the Atlantic, President Joe Biden’s administration has created new climate change units at agencies like the Treasury Department or the Federal Trade Commission to improve their efforts in regulating greenwashing.
What does a credible strategy look like?
A credible strategy must align with the science. Given that we have such a limited window for action, a science-led net zero strategy requires a very steep downward trajectory in emissions to halve them by 2030.
For the long-term, SBTi’s Net Zero Standard requires companies to achieve deep decarbonisation of 90-95% of emissions before 2050, and only once these targets are met can companies ‘neutralise’ the remaining emissions and claim to be net zero. The ‘neutralisation’ of these emissions can take the form of removing carbon from the atmosphere through nature-based solutions (such as reforestation) or through technological means (capture and storage). To bring us closer to being on track for a 1.5°C world, companies should also invest in mitigation beyond their value chains by supporting high-quality offsetting projects that generate benefits both for nature and people.
For example, the TPT aims to make recommendations for a Transition Plan Disclosure Framework to enable science-based, standardised and meaningful transition plans, covering short, medium and long-term targets, specific actions for climate mitigation and adaptation, specific sectoral considerations such as fossil fuel phase-out plans and plans for scaling up new investment areas. This aims to bring change to all aspects of the business and supply chain.
In a perfect world, everyone would address their Scope 1 and 2 emissions meaning no one would need to look at Scope 3. We don’t live in such a world and so we are reliant globally on large corporates stepping up to the plate and driving actions through their value chains. A strategy should include all material emissions across all Scopes (1, 2 & 3) and an appropriate base year from which to set your target for reduction.
Science-aligned emissions reductions across all Scopes are fundamental to a credible climate strategy. However, nature-based solutions play a vital role in our fight against climate change and in financing sustainable development. We need to be supporting both actions. The ‘State of Finance for Nature in the G20’ report by the UN Environment Programme (UNEP) called for efforts to plug a US$4.1 trillion financing gap for nature-based solutions by 2050 if we are to stand a chance of solving the planetary crisis, and the latest report from the Intergovernmental Panel on Climate Change (IPCC) on Impacts, Adaptation and Vulnerability recognises the interdependence of climate, biodiversity and people and the urgency of climate action focusing on equity and justice. Offsetting can attract criticism, but in parallel with a science-aligned reduction strategy it will play a vital role in tackling, not just climate change, but environmental degradation, biodiversity loss and related societal and economic challenges that are equally as critical and intrinsically linked.
The reality must match the rhetoric
These are challenging targets to meet, and most businesses don’t know exactly how they will reach 90+% decarbonisation yet. It’s about being transparent about commitments and actions, and honest about the challenges faced.
Be careful about claims and commitments that might be misleading or that you can’t substantiate or back up with robust data and independent verification. Net zero is a long-term goal, not something we are all going to achieve tomorrow. There also needs to be demonstrable governance of these ambitious commitments from the top of an organisation.
Do not let the fear of scrutiny or failure be a blocker for action. So long as criticism is constructive, we must embrace and learn from it. The first step is making a solid and clear commitment and the more of us that make it and start to act, the better for all of us. Our value chains are inextricably linked, and this will need to be a collaborative effort for us to succeed. Similarly, government cannot reach their nationally determined contributions without businesses being on the journey.
Turning commitment into action
By 2023, financial institutions and listed companies in the UK will be required to publish their net zero transition plans providing evidence and data on how they will decarbonise to meet long-term net zero targets.
We are working with clients to help them to assess their options to work out how they are going to activate change and achieve their goals from a financial and operational perspective in order to support decision making and start achieving results. There are many actionable steps that organisations can be taking. There will be challenges, but if we don’t start addressing these now, we risk losing our window of opportunity.
So, the challenge for corporates today isn’t just demonstrating a strategy to reach the goals, now more than ever, credibility will lie in transforming business practices and demonstrating real emission reductions aligned to our imperative 1.5oC ambition. Their leadership and best practice are key to enabling transformative change across all sectors of the economy.