Understand why net zero is crucial for the success of your business
October 13, 2023
Achieving net zero emissions is a really important measure of how well a company is doing, and it should be a big focus when company leaders meet to make decisions. A bold statement, but let us explain.
If a business is making good progress toward its net zero goals, this is a good indicator that the business is doing well. That business will be saving money over the long term, pleasing its customers and investors, and attracting talented employees. Plus, net zero is an effective risk mitigation strategy and ensures compliance.
In the next part, we explain why it's important for companies to create a strategy to reach net zero.
Why net zero for business? Achieve a competitive advantage
Companies that are serious about reaching net zero can get ahead of the competition by satisfying what their consumers want, attracting top talent, meeting investor needs, and saving money.
Consumers: According to Globe Scan’s 2022 Healthy and Sustainable Living research, 65% of consumers are really worried about our warming planet, and half of them want to make changes in how they live and what they buy to help the environment. If your company sets clear goals to reach net zero emissions and comes up with a plan to achieve them, it shows your brand is committed to the same values as this consumer majority.
On this note, achieving net zero helps businesses sell to large company buyers by aligning with the growing emphasis on sustainability and environmental responsibility in corporate procurement practices. A Carbon Dated report found that, in 2021, 67% of multinational companies (MNCs) stated: “A reduction of supply chain emissions is the first step in their net-zero strategy”. By demonstrating a net-zero commitment, businesses not only meet these buyers' sustainability requirements but also enhance their reputation, making them more attractive partners.
Employees: A 2023 Deloitte survey found that 40% of Gen Z and Millennials have already changed jobs or want to change jobs in the future because they care a lot about the environment. So, if your business comes up with smart plans to achieve challenging net zero goals, you'll be able to attract and keep talented employees.
Investors: Investors are beginning to pay attention to the serious climate problem we have. There’s been an 84% increase in investments in companies that care about social and environmental issues, as mentioned in PwC’s Asset and Wealth Management Revolution 2022 report. For example, a big investor called BlackRock asks companies to disclose how much emissions they create.
Cost reductions: Net zero helps businesses save money over the long term by:
Using energy more efficiently;
Making less waste, helping businesses save money on their energy bills,
Avoiding costs related to pollution and getting rid of waste;
Once more, net zero businesses can worry less about the prices of fossil fuels going up and down.
Why net zero for business? Ensure regulatory compliance
Governments are making tougher rules about how companies should take care of the environment. If companies take action to reduce their emissions, they can receive financial rewards, support, and funding. These companies will also remain compliant and steer clear of expensive fines for emitting too many greenhouse gasses.
Below we’ve listed key laws, regulations, standards, tax credits, and funding to be aware of. These have been set to support America’s net zero targets and will impact your business.
Clean Air Act (CAA): There's a national law that controls emissions from various sources, and the Environmental Protection Agency (EPA) makes sure it's followed.
Renewable Energy Tax Credits:The U.S. government gives rewards to businesses that invest in solar, wind, and geothermal energy using ‘Renewable Energy Tax Credits’.
Energy Efficiency Standards: Agencies like the Department of Energy (DOE) make rules that say appliances, equipment, and buildings should use energy more efficiently, and these are called ‘Energy Efficiency Standards’.
Environmental Reporting: Certain businesses have to report their emissions, which means they have to report how much GHG pollution they make. This supports emission analysis.
Paris Climate Agreement: The United States rejoined the Paris Climate Agreement in 2021. This agreement commits the U.S. to achieving net zero by 2050.
Inflation Reduction Act: The Inflation Reduction Act of 2022 is a really important step in combating our warming planet. This act gives money, plans, and rewards to help speed up the move toward an economy powered by clean energy. This act is expected to encourage the use of clean electricity sources.
U.S. Securities Exchange Commission (SEC): The SEC has proposed new regulations to increase transparency in publicly traded companies regarding the environment. The new disclosure rules aim to give investors clear and reliable information about companies' exposure to extreme weather events.
California’s Climate Accountability Package: California's Climate Accountability Package consists of three bills: SB 252, 253, and 261, all working towards common goals. These bills aim to boost transparency among businesses and create consistent reporting procedures for carbon emissions. They also aim to align public investments with climate targets and raise the bar for corporate actions against climate change. As a result of these bills, numerous companies operating in California will need to disclose their Scope 1, 2, and 3 greenhouse gas emissions, as well as climate-related financial risks. The initial deadlines for these disclosures are scheduled for 2026.
Why net zero for business? Establish an effective risk mitigation strategy
Climate change poses big challenges for businesses, with supply chain disruptions, extreme weather, and increased operating costs.
For instance, to deal with these issues, a 2022 Gartner study reported that 27% of supply chain experts are now looking into the risks linked to climate change.
A net zero strategy pushes a business to address these risks today. This means businesses are better prepared for future disruptions caused by climate change.
In addition, net zero helps businesses:
Stay on the right side of the law: As mentioned above, with stricter rules and regulations being set, net zero helps companies remain compliant and prepare for any new regulations. Note that many US laws currently don’t affect most small businesses, but it's likely they eventually will.
Be energy independent: Fossil fuels are finite. Switching to renewables gives businesses a reliable energy source that won’t run out.
Establish a good reputation: As we mentioned above, people care about the environment. If a business is seen to harm the environment, it can lose customers and investors. But if it's working toward net zero, companies will establish a good reputation.
Stay ahead in business: Striving for net zero can spark new ideas and ways of doing things in a company, making the business flexible and efficient. And that can lead to new market opportunities, like creating and selling eco-friendly products and services. This can help brands withstand market ups and downs.
Set your net zero target: Understand what to consider in your calculations
Before you set your net zero goals, it's important you understand the specific elements you need to consider.
Setting a net zero target means:
Understanding which emissions to measure.
Identifying the business activities that release these emissions.
Understanding the time frame over which net zero targets should be set.
Establishing a plan to achieve the reductions net zero goals require.
Understanding your options for ‘offsetting’ emissions that remain.
Understand which emissions to measure
Usually, net zero covers all the greenhouse gasses (GHGs) listed in the Kyoto Protocol. These gasses include:
Identify business activities that release these emissions
The Greenhouse Gas Protocol has established a framework to help businesses identify the different activities that release GHGs into the atmosphere. Call this framework the “Scoped” approach. We’ve defined this framework below:
Scope 1: These are emissions that a company directly releases. When identifying Scope 1 activities, think burn. Like when a business burns fossil fuels on-site.
Scope 2: These emissions are connected to the energy a company buys and uses. E.g. electricity from an energy provider. When identifying Scope 2 activities, think buy.
Scope 3: These are emissions that come from activities related to the company but aren’t directly controlled by it. E.g. emissions from company A’s suppliers. These emissions count because they're linked to company A’s products or services. When identifying Scope 3 activities, think beyond.
For your business to achieve net zero, you must include emissions from all business activities that come under each of these Scopes. Create a table with three columns, and list business operations as per the Scope they relate to. We’ve given an example below for a clothes retail business.
Use Aclymate to record and track your business emissions across these three Scopes. Our proprietary algorithm will quickly sort through your organization’s financial transactions to tell you what was an emission. Once more, emissions are tagged, categorized, and assigned, e.g. to offices, employees, or vehicles. Aclymate gives you the information you need to conduct an accurate assessment to identify emissions under each Scope.
Understand the time frame over which net zero targets should be set.
While there's a bit of discussion around when we should reach net zero goals, most people who work on climate issues agree to set net-zero targets for 2050. It’s also recommended you have smaller goals along the way to keep the momentum high. The recommendation for these smaller goals is to achieve a 50% emission reduction by 2030.
Offsetting gives businesses the means of taking out the emissions they release into the atmosphere.
For example, imagine your delivery truck produces four pounds of CO2e during one trip. To make up for these emissions, you invest in an offset project that takes away four pounds of CO2e from the air. This means the total emissions from your delivery end up being zero.
While there’s some debate over the effectiveness of offsetting, most climate experts worldwide agree that offsetting can be helpful when we follow specific rules. Call these the rules of offsetting. These rules are:
Rule #1: If you're using carbon offsets, you should also work to reduce emissions within your own business operations.
Rule #2: Offsetting projects need to clearly define when the promised emission reductions will happen. Offsetting projects must not promise to reduce emissions in the future unless these are certain to happen.
Rule #3: Offsetting projects should be distinct. Do not invest in projects that would have happened anyway, without the additional investments made.
Rule #4: A clear plan must be established to ensure that the offsetting project continues for a long time, or in other words, becomes permanent.
Rule #5: The offset project should not harm the environment or communities in a negative way.
Visit Aclymate's marketplace to explore our transparent offsetting projects. These projects are approved by trusted organizations like the Gold Standard, the American Carbon Registry, and the Climate Action Reserve. Hence, our projects follow the rules of offsetting. Projects that aren't certified yet are focused on using new technology to create offsets, and they're in the process of getting certified.