By: Stephan Wehr, Vice President, Matt Beck, Director, and Kristine O’Rielly, Cleantech and Innovation Consultant, The Delphi Group
Before the global pandemic hit, the call for demonstrable climate action from businesses, often in the form of carbon targets, was growing steadily. Even as countries, businesses and individuals are grappling with the consequences of COVID-19, that momentum continues, as evidenced by the recent shareholder-driven climate action at ExxonMobil and Chevron.
When it comes to climate leadership, carbon neutrality is the current standard for many in the corporate sector. A 2019 study by Natural Capital Partners determined that 50 of the Fortune Global 500 companies, including Amazon, Google, and Apple, have already established carbon-neutral commitments. Roughly a third of those have committed to achieving carbon neutrality by 2050, another third by 2030, and the rest are already carbon neutral. If growth in corporate carbon-neutral targets continues at the same rate it has since the 2015 Paris Agreement, the study authors estimate that 80% of Fortune Global 500 companies could have carbon-neutral targets by 2030.
On the home front, the Government of Canada announced late last year that it is developing a plan to achieve net-zero emissions by 2050. The government also said it will set legally binding, five-year emissions reduction milestones to accompany the plan. While the unprecedented impacts of COVID-19 will likely slow its development, a Canadian Net Zero by 2050 Strategy is coming.
Moreover, the Canadian federal government has signaled that its COVID-19 recovery plan will also support a transition to a cleaner, greener economy. Notably, the federal Large Employer Emergency Financing Facility (LEEFF) program will require all borrowers to publish an annual climate‑related financial disclosure report, highlighting how they are managing climate-related risks and opportunities.
Given these trends, it may seem like a logical next step for your climate-aware organization to establish its own carbon-neutral target. Setting a target that reflects sound science, is measurable, and fits an organization’s sustainability reporting capabilities takes planning and work. We want to support you by sharing some guidance around which terms to use, how to assess your organization’s readiness and how to design a carbon-neutral strategy.
Typically, when we talk about carbon-neutral targets, we are referring to a high-level goal within an organization to balance (1) the emissions it produces with (2) activities that reduce or offset its emissions, so the net result is zero. Much like the first of the 3 Rs of waste management, the focus should first and foremost be on reducing generated carbon emissions. Organizations achieve these reductions through a range of energy efficiency initiatives and emission-reducing technologies and processes. Any emissions which cannot be eliminated can then be mitigated with carbon offsets or the purchase of carbon credits.
In addition to carbon-neutral goals, we often see a range of terms used to reference climate targets. The lack of consistency can be confusing and make it challenging for organizations that are starting down the target-setting path. Here’s a cheat sheet for some of the most common terms:
Note: Depending on your organization’s GHG footprint, carbon neutrality can include specific efforts to balance Scopes 1, 2, and/or 3 emissions, as defined in the GHG Protocol. As a quick refresher, Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.
We know the range of terms and the different ways they’re applied by different companies can be confusing. If you’re just starting to increase your organization’s ambition by stepping into the carbon-neutral world, opting for the most common term—carbon neutral—is likely your best bet.
When is the right time to establish a carbon-neutral target? There are some tell-tale signs that your organization is ready to take stronger climate action. Based on our experience working with clients in the world of climate disclosure and sustainability strategy, we’ve identified four critical success factors for setting a carbon-neutral target. Check off the success factors that apply to your organization and use the results to assess your next steps in a carbon-neutral journey.
1. Your organization’s executive and board understand climate issues and how they pertain to your business. Strong governance on climate-related issues (i.e., a climate strategy) has been established. This strategy has been integrated into the decision-making processes, risk assessments, and performance incentives of your organization and considers climate change issues alongside other critical sustainability goals.
2. Your organization has an understanding of its current GHG footprint, as well as historical GHG trends, as a result of developing GHG inventories. Ideally, the inventories have considered all material sources of Scope 1, 2, and 3 emissions, and processes are in place to assess all relevant categories. Note that certain categories of Scope 3 GHG emissions may not be significant enough to track. For example, if your business sells a product that is made from materials that require significant emissions to produce (e.g., steel, concrete, petrochemicals), GHG emissions associated with your supply chain will be more important to track and much larger than say, those from employee commuting. If your primary activities are information or office based, business travel and leased assets will often be more material Scope 3 categories than for heavier industries.
3. There is a broad understanding within your organization of the climate disclosure practices of your industry, as well as the disclosure practices of your peers and direct competitors. Understanding the needs of your stakeholders, and how establishing a carbon-neutral climate target will help meet those needs, is important.
4. Your organization has already set and achieved an interim environmental target (e.g., % reduction in energy consumption, % increase in renewable energy production, or a less ambitious GHG target).
If the above sounds like your organization, it may be time to consider strengthening your climate targets and developing a carbon-neutral strategy. Transitioning toward the goal of carbon neutrality may seem like an insurmountable task and an enormous step from your company’s current level of action. However, the right framework and a systematic process can help you get there.
You’ve decided it’s time to take the plunge—you’re a sustainability Jedi, ready to use the force to enhance your climate targets and create a carbon-neutral strategy. Congratulations!
After making the decision to move forward with setting a carbon-neutral target, it can be daunting to initiate the next steps. Don’t panic—this is a marathon, not a sprint. It’s best to focus a large portion of time up front on designing a carbon-neutral strategy that’s effective and right for your organization.
To help guide you, we’ve referred to our extensive experience consulting with clients and created a list of six essential steps. It is important to note that some of these steps are overlapping and do not need to take place in the order they’re listed below—and that not all carbon-neutral strategies are created equal and not all pathways to carbon neutrality look the same. We hope you find these guidelines useful in your own target-setting process.
Before you begin creating a carbon-neutral strategy for your organization, it’s helpful to know how other industries and organizations have approached carbon-neutral targets. It’s also useful to understand how the carbon-neutral strategy fits within the broader goals and strategies of your organization. Before you begin sharing the concept internally, you’ll want to make sure you’ve done your homework.
Socialization of the concept of carbon neutrality, as it applies to your organization, is an integral part of the strategy development process. It is an ongoing, iterative process that involves cross-functional teams from within your organization. For example, before you undertake your initial research exercise, you may want to inform your executive that you are thinking of moving forward with a carbon-neutral strategy and get approval. You may also want to develop a draft strategy timeline to share with your executive and other interested parties within your organization. Consider providing regular updates as things evolve. Keeping everyone involved and in the loop ensures that you address potential barriers and have the support you need to develop and deliver your strategy.
Think about all the divisions/teams in your organization that could influence the success of your carbon-neutral strategy. It’s likely almost everyone, isn’t it? View this as a positive rather than an impediment. Use this as an opportunity to secure buy-in and get feedback on reduction ideas and elements of your strategy. Other teams may see things differently or make a recommendation that you hadn’t even considered. Internal consultation can help ensure that the scope of your strategy is manageable, but also comprehensive. By engaging your colleagues, you will also increase the likelihood of commitment and compliance.
Put some “oomph” behind your strategy by ensuring your organization has a thorough understanding of its GHG footprint. Historical GHG data will help you understand your organization’s patterns, including where you have reduced your GHGs as well as areas for improvement. Ideally you will be confident that your GHG data is accurate and complete. Third-party verification of your inventory could be considered at this step if you and your stakeholders see a benefit, although it is not critical to success.
Every organization will have records and organizational knowledge not directly related to GHGs that are necessary to shape a more fulsome carbon-neutral strategy. Consider your business as a whole and don’t be afraid to look for data and research in less obvious departments.
Based on what you have learned from your GHG data, choose areas to target for short-, medium-, and long-term reductions. This is no easy task to be sure, but everyone needs to start somewhere. Your annual GHG inventories and sustainability reports can help you identify low-hanging fruit and efficiency gains for short-term goals, as well as emission sources that will take more time to mitigate.
Aim to understand the current technology and innovation landscape for your business. Investigate technologies you can implement today and up-and-coming innovations that you might want to consider piloting as a means of achieving your reduction goal. Use internal emission data and technology to determine the gap in your current reduction potential. Quantify how much of your organization’s emissions can be reduced through energy efficiency activities and the implementation of new technology. The difference between achieved emission reductions and your total emissions will represent how many carbon credits your organization will need to offset/purchase to achieve carbon neutrality.
As you set your target, consider that science-based targets could help to inform an internal abatement target. Once you’ve set your target, select a target year in which you’ll achieve it. 2030 and 2050 are the most commonly used carbon-neutral target years at this time. Depending on the size and complexity of your organization, it may be beneficial to develop interim goals (2025, 2030, 2035, etc.). Interim goals can help you assess your progress along the way, and determine areas where you are performing above expectation, are on target, and where you may be falling behind. This allows you to adjust your strategies as necessary so that you are better positioned to achieve your long-term target(s).
Be sure to consider the feedback from the consultation process with your various departments (gold mines!). Consider non-technical components that will make this strategy a success, such as financing, engagement, collaboration (internal and external), and fostering an enabling culture.
Once you’re confident in the quality and feasibility of your strategy, it’s time to move into release mode. This entails setting a timeframe based on the internal and external context, deciding which aspects of the strategy to disclose publicly, and developing both internal and external communications plans. Communicating your strategy effectively will play a huge role in terms of uptake and buy-in—and it gives you a chance to celebrate this milestone achievement!
At this stage, you may still feel like you have not done enough to develop a comprehensive strategy. Becoming carbon neutral is a large-scale, long-term challenge, so it’s safe to say you may never feel like you’re totally ready to show it to the world. Working towards carbon neutrality is an iterative process and you’ve just completed Version 1.0! Consider your strategy an evergreen document that you’ll update as your organization continues down its carbon-neutral journey.
Is it time for your organization to take the next step in its sustainability journey? Are you looking for more information on carbon-neutral or other target-setting frameworks? Please fill out the form below.