How to Develop a Net Zero Strategy for your Business
World governments are increasingly under pressure to acknowledge scientific data, published academic journals, public lobbying and environmental media sources suggesting we are in a climate emergency.
With governments under pressure to act in reserving the impact of climate change, the concepts of net zero and becoming carbon neutral were born. Governments need to encourage and support businesses in their net zero attempts. For the majority of high-income countries, legalisation has been set. The UK Government have set a net zero target to reduce carbon emissions by 68% by 2030 and to be fully net zero by 2050.
With these legal requirements to reduce greenhouse gas emissions and the fact that businesses are a significant contributor to carbon emissions, business leaders have a unique opportunity to make a positive impact on climate change by adopting sustainable practices and developing a net zero strategy.
So what does a net zero strategy for business entail?
Within this post, we will explore how your business can achieve net zero. Before we begin, it is key to understand the importance of net zero before exploring provide how to develop a strategy to reach your net zero ambitions.
Contents:
Understanding Net Zero and Its Importance for Businesses
What is Net Zero?
“Net zero” refers to the concept of balancing the amount of greenhouse gases (GHGs) emitted into the atmosphere with an equivalent amount of GHGs removed from the atmosphere. Therefore, resulting in no net increase in the concentration of these gases. In other words, it means that the total emissions of greenhouse gases are reduced to as close to zero as possible, and any remaining emissions are offset by actions that remove an equivalent amount of GHGs from the atmosphere. You will often hear the term carbon neutral being used when conversations of net zero occur but there is a slight difference between the two.
Why is reaching Net Zero Important?
Achieving net-zero emissions helps to limit global warming and reduce the impacts of climate change. The Paris Agreement set the goal for both businesses and governments to restrict global warming to a maximum of 1.5°C.
According to scientific studies, with the current emission rates, we have a narrow window until 2030 to avert the impending crisis of detrimental climate change. To avoid this scenario, it will be imperative to swiftly and drastically transform every facet of the global economy. This transformation includes reducing global emissions by 50% by 2030 and attaining net zero by 2050.
Why is it important For Businesses to reach net zero?
As businesses contribute massively to the global output of GHGs, it’s of the upmost importance that they are on board with reducing their emissions if the Paris Agreement goals are to be met. We are seeing an increasing trend of global multinational businesses taking net zero seriously with 929 companies from the Forbes 2000 list setting net zero targets; up from 417 in December 2020, and 702 in June 2022.
Understanding the importance of net zero for businesses involves recognizing the role they play in addressing climate change, the benefits of adopting a net zero strategy, the legal requirements of any governmental policies and determining the appropriate timeline for achieving net zero emissions.
What are the benefits of Net Zero to a Business?
Hopefully, businesses have a sense of corporate social responsibility and feel compelled to support the efforts of reducing emissions. However, there are other benefits to adopting a net zero strategy that offers financial rewards:
Internal Benefits
Avoid Penalties
Government legalisation puts businesses under pressure to meet net zero targets. Failure to do so can result in businesses facing penalties and achieving net zero targets will avoid such penalties.
Positive Branding
Becoming net zero provides businesses an opportunity to improve their brand reputation. This positive brand image influences three key stakeholders of the business:
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Customers:
A study discovered that 72% of consumers consider sustainability in their purchasing decisions. Therefore, sustainable brands are more likely to be selected versus non-sustainable brands.
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Employees:
Studies have shown a positive correlation between Corporate Social Responsibility (CSR) and employee engagement. By demonstrating sustainable practices, the employees of a business are likely to be more engaged, motivated and happy with their employer. This helps to improve their performance and staff retention.
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Investors:
Investors may prefer to fund sustainable brands if they are climate conscious. Also, an investment firm may want to improve it’s own brand’s image and could achieve this by investing in more sustainable businesses.
Cost Saving
There may be situations where reducing emissions will have up-front short-term costs. However, in the long run, these costs are likely to be offset by being more energy efficient. For example, upgrading a site’s insulation or refrigerator system can be costly but in the long term it will consume less energy and begin to break even.
Innovation
Implementing net zero strategies can drive innovations within businesses. These innovations can improve operational processes, or products and services. We have collected some examples below:
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Walmart’s Sustainable Fleet:
Walmart, a retail giant, has been working towards a net-zero emissions goal. They have innovated their transportation operations by incorporating electric and hydrogen-powered vehicles into their delivery fleet. This has reduced emissions and lowered their fuel and maintenance costs.
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Google’s Data Centres:
Google has committed to operating its data centres on 100% renewable energy. To achieve this, they have developed advanced data centre designs and cooling technologies that significantly reduce energy consumption, leading to operational efficiencies and cost savings.
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Siemens’ EcoFactory:
Siemens implemented its EcoFactory initiative which aimed to make their manufacturing facilities more sustainable and energy-efficient. Through innovations in process automation and energy management, they were able to reduce energy consumption while increasing production efficiency. They’ve managed to have one factory reach net zero eight years ahead of schedule and now offer this as a service to manufacturing companies.
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Tesla Electric Vehicles:
Tesla is a prime example of a company that has integrated a net-zero strategy into its core business model. They’ve innovated electric vehicle (EV) technology, making EVs more accessible and appealing to consumers. Their products not only reduce emissions but also provide superior performance.
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Dell’s Closed-Loop Recycling:
Dell has implemented a closed-loop recycling program. They take old electronics and use these materials to create new products. This innovative approach not only reduces waste but also lowers the environmental impact of their products.
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IKEA’s Sustainable Furniture:
IKEA has been redesigning its products to be more sustainable and recyclable. They offer furniture made from renewable materials and use innovative production techniques. This reduces waste and emissions while providing stylish and affordable products.
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Sustainable Fashion Brands:
New fashion brands are emerging that focus their brand on sustainable manufacturing methods. They create garments from materials that have less environmental impact or place less emphasis on ‘fast fashion’. To reduce ‘fast fashion’ they upcycle to create new products from discarded items destined for landfill sites.
Circular Economy Initiatives
Circular economy hubs are where a company collaborates with their suppliers, customers, and partners to reduce waste and increase the lifespan of their products. The products and materials are kept in circulation for longer by offering maintenance, reuse, refurbishment, recycling and composting.
For example, Philips Lighting established a circular economy program for their lighting products. By refurbishing and remanufacturing components they extended their product’s lives. This enables the same light bulb to stay in circular for longer and reduces the energy consumption of manufacturing more light bulbs. Another example of a circular economy is how Patagonia offer all their products to be repaired. This creates less demand for manufacturing more new products which reduces their consumption. If an item can’t be repaired it becomes recycled and fabrics are used for other materials sold under their worn wear campaign. These services are a benefit for the business as they generate extra revenue at a higher profit margin.
External Benefits
Outside of the internal financial benefits for a business there as also external benefits after they transition to net zero. These include:
Supporting New Markets
By using new technologies instead of traditional high-emissions techniques to reach net zero, businesses support new markets of the vendors inventing these new technologies. For example, a manufacturer of the newly discovered PALM-ALT could have a booming business. They would need enough businesses to invest in their alternative to palm oil, which is of environmental interest to everyone as it reduces deforestation.
However, there are two key challenges for businesses to purchase PALM-ALT. It would need to be at a similar price to traditional palm oils. If the price is much higher and this price is passed onto the final end consumer then it’s unlikely to be purchased. Secondly, if pricing isn’t an issue, the newly discovered PALM-ALT has to scale to meet the huge global demands required of existing palm oil.
Inspire other businesses to join a low carbon economies
Embracing a net zero strategy can help businesses grow, save money, and become more resilient, while reducing their carbon footprint. It also assists businesses in meeting stakeholder expectations, attracting new customers, and demonstrating their commitment to addressing climate change. All of these positive benefits get noticed by industry peers, suppliers and competitors, and this can have a knock-on effect on other businesses to be motivated to reach their own net zero targets. This promotes a low carbon economy where multiple businesses are producing low levels of emissions.
When Should You Reach Net Zero?
Many countries and organizations have set ambitious net zero targets. This includes the UK government’s legally binding goal to reach net zero emissions by 2050. This demonstrates the urgency and importance of taking action now to reduce emissions and work towards a carbon-neutral future.
Some companies are setting inspiring examples by committing to aggressive net zero targets. Unilever, for instance, plans to achieve net zero emissions across its entire value chain by 2039.
Developing a Net Zero Strategy
Now that we fully understand Net Zero and it’s importance, we can demonstrate a clear plan on how to develop a net zero strategy. There are several steps which need to be taken and we advise doing them in the following order:
1) Establish your Business’s Carbon Footprint
The first step in developing a net zero strategy is calculating your business’s carbon footprint. Understanding your footprint allows you to:
- pinpoint areas in your organization that produce the most GHGs
- and see those that may already be efficient
This allows you to prioritize your efforts as you can focus on high volume areas, quick wins and avoid wasting time in already energy efficient areas.
Establishing a baseline involves measuring emissions and gives you a starting point to work from. You can then set realistic reduction targets that align with your organization’s specific circumstances and industry.
How to effectively measure your carbon footprint
2) Setting Realistic Emission Reduction Targets
Businesses need to set achievable carbon emission reduction targets. Achieving these targets may require dramatic internal changes within a company. External factors, such as supplier choice and selection should also be reviewed.
Targets should be based on a thorough understanding of the business’s current emissions, industry context, and available resources to ensure that they are achievable and effective. These targets should meet the criteria to be classed as science based targets. This is the recognised standard when setting carbon reduction targets.
The following best practices are recommended when setting net zero reduction targets:
- Include a base year and the target year. – The year in which the target will be met should be 5 to 10 years from the base year
- Set a specific percentage by a target year
- Be aggressive
- Aim for an absolute reduction in GHG emissions
- Address scope 1, 2 and 3 emissions
- Being transparent and declaring GHG reduction targets publicly
By following these recommendations will you create a level of accountability and creditability. This is especially true if you announce your targets publicly and then meet them.
3) Implementing Your Net Zero Strategy
Now that you’ve measured your footprint and set your targets, it’s time for action and implementing the net zero strategy. This typically includes the following:
- Focusing on energy efficiency and reducing consumption
- Procuring renewable energy
- Offsetting carbon emissions
- Engaging stakeholders
- Communicating with employees
- Collaborating with suppliers for a low carbon supply chain
Energy Efficiency and Reducing Consumption
Reducing energy consumption is a critical component of all net zero strategies. This helps businesses minimise their carbon footprint and can achieved by:
- Introducing energy-efficient technologies and practices
- Implementing energy management systems
- Conducting energy audits to identify areas of improvement
- Educating employees on energy-saving practices
- Monitoring and analysing energy usage data to identify trends and opportunities for optimisation
There are lots of ways businesses can reduce their energy consumption. By adopting these measures, businesses can save on costs, and promote a more sustainable future and reach their net zero goal.
Renewable Energy Procurement and Implementation
Procuring and implementing renewable energy sources is vital in a business’s net zero strategy. By investing in renewable energy businesses help to facilitate the transition to a low carbon economy.
Businesses can take various steps to procure renewable energy, including:
- Installing solar panels
- Purchasing green energy contracts/tariffs from their utility provider
- Entering into power purchase agreements with renewable energy providers
Carbon Offsetting and Removal Options
Many businesses cannot fully reduce their emissions. For example, industrial manufacturing industries will always have heavy emitters of carbon.
Carbon offsetting aids businesses in neutralizing residual emissions they physically cannot reduce. It works by calculating your emissions and investing in projects that reduce greenhouse gas (GHG) emissions. It is best to invest in carbon offsetting after reducing your energy consumption and reviewing renewable energy options. If you do not perform these steps first you may be at risk of being accused of greenwashing.
By investing in carbon offsets and removals, businesses can help balance their emissions and achieve their net zero goals.
View our list of popular carbon offsetting schemes in the UK
Engaging Stakeholders
It is vital to involve stakeholders as businesses cannot meet their net zero goals by themselves. By engaging with your stakeholders they will likely become aligned with your net zero strategy.
Effective stakeholder engagement can be achieved through transparent communication, building meaningful relationships, and involving stakeholders in the decision-making process.
Stakeholders key to a business’s net zero strategy are:
- Consumers
- Investors/Shareholders
- Employees
- Suppliers
Consumers
Ensuring consumers are aware of the business’s sustainability goals helps to improve the brand value as we mentioned earlier. This can increase sales as consumers consider brand sustainability in their purchasing decisions. A study found that sustainable product sales grew by 20% compared to less environmentally friendly products. By understanding consumers’ desires (e.g. environmentally friendly products), a business can modify its product range or operating practices to meet these needs and reap the benefits.
Investors
Receiving investor/shareholders buy in is key. Many businesses may have multiple board members who may have a stake in the business. The decision making progress within a business can be complex and certain actions may require a majority of votes to conduct. Making operational changes to reduce carbon consumption could have a high up front cost. Therefore, ensuring all investors/shareholders agree with the net zero strategy is critical to conducting the energy saving initiatives.
Fortunately, this should not be too problematic. As mentioned earlier investors are becoming increasingly interested in environmental businesses. An Oxford study found that 92% of investors want a firm to report on environmental, social and governmental (ESG) factors. This led to an increasing amount of investors to consider corporate social responsibility and environmental policy when making an investment decision.
Internal Communication and Employee Engagement
Communication and engagement with a business’s employees it critical in your strategy. Businesses can cultivate a culture of sustainability by keeping employees well-informed about the organization’s net zero goals. This, when aligned with the company’s values and mission statement, promotes employee buy-in. C-suite and senior executives have to show their commitment by actively supporting initiatives as well. Clear and transparent communication can help employees understand their role in achieving net zero and inspire them to contribute to the company’s sustainability efforts.
Carbon reduction doesn’t have to stop with the businesses. To encourage this culture a business can also offer incentives for employees to reduce their own personal footprint. For example:
- Remote working and hybrid working so less travel is needed, and less energy is consumed at an office.
- Cycle to work schemes where bicycles are purchased by the business and given to employees
- Car pooling incentives to reduce the number of cars on the road
- Electric vehicle company cars and electric vehicle charging points at the office. This will encourage the adoption of these low carbon emission vehicles
Collaborating with Suppliers for a Low Carbon Supply Chain
Implementing sustainable practices throughout the supply chain is a key factor in reaching net zero. This can be achieved by collaborating with suppliers to reduce emissions for both businesses. Businesses can motivate their suppliers to reduce their own carbon footprints. By setting clear expectations, providing guidance on energy reducing techniques, and even considering switching to more sustainable suppliers if necessary, suppliers are under pressure to reduce their own emissions.
A low carbon emitting supplier further reduces a business’s own carbon footprint and enhances its commitment to sustainability.
4) Monitoring Progress and Reporting on Net Zero Initiatives
The continuous monitoring of progress and reporting on net zero initiatives is key to ensuring the success of a net zero strategy. By using key performance indicators (KPIs) and sustainability reporting, businesses can effectively track their progress. Tracking and reporting allow a business to disclose their achievements to stakeholders and the public. This transparency helps businesses maintain their reputation and demonstrate their commitment to their net zero targets.
Key Performance Indicators (KPIs) and Metrics
By tracking KPI performance and comparing it against past performance and industry benchmarks, businesses can identify areas for improvement if they appear to not be on target for a set goal. Examples of KPIs and metrics that can be used to track progress towards net zero goals include:
- emissions intensity
- emissions per unit of output
- emissions per employee
Sustainability Reporting and Disclosure
Businesses need to engage in sustainability reporting and disclosure to showcase their dedication to net zero to their shareholders. By providing transparent and accurate information on their emissions and progress, businesses can build trust with stakeholders and maintain their reputation in the marketplace.
To effectively measure emissions and ensure corporate governance processes are equipped to manage climate risks, businesses can conduct risk-based reviews and adopt frameworks such as the Taskforce on Climate-related Financial Disclosure (TCFD). This provides a practical approach for organizations to address net zero requirements and demonstrate their value and impact on the environment.
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